Case J23

Judges:
MB Hogan Ch
N Dempsey M
P Gerber M

Court:
No. 3 Board of Review

Judgment date: 19 May 1977.

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M.B. Hogan (Chairman); N. Dempsey and Dr. P. Gerber (Members): In this reference, taxpayer, a University Law Lecturer, is seeking to deduct superannuation contributions in the sum of $823, paid in the year of income ended 30th June 1976, from his

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assessable income. The claim was made pursuant to sec. 51(1) and disallowed by the Commissioner. It was agreed between the parties that ``upon his appointment to the X University the taxpayer, as a condition of his employment, commenced making contributions to the X University Staff Superannuation Scheme''. This condition is in fact enshrined in sec. 8(1) of the relevant statute (Exh. B). It was likewise common ground that the contributions were deducted fortnightly from taxpayer's salary. Considerable reliance was placed on the element of ``compulsion''. However, in our view, the claim has no merit whatever, and borders on the frivolous.

2. A superannuation contribution is, to our mind, a payment made to secure at some future time either an annuity or a lump sum, and is unquestionably an outgoing ``of capital or of a capital nature'' and therefore excluded as an allowable deduction. (It was conceded that the payments could not be viewed as an expenditure incurred for the purpose of increasing earnings as a lecturer.) In our view, this concludes the case in favour of the Commissioner.

3. A number of alternative arguments were advanced, and we propose to deal with them briefly lest it be thought that any had substance.

4. It was sought to establish that the outgoing was incurred in gaining or producing the assessable income; the nexus being, to use taxpayer's own words: -

``If I did not contribute to the superannuation scheme, I would not have in the first instance secured the position, and I certainly would not have retained the position.''

This argument was already dismissed as ``ingenious but fallacious'' more than fifty years ago, the intervening half century has only served to illuminate its intellectual fallacy at the expense of genius. In
Hannan v. Commr. of Taxes (1923) S.A.S.R. 434, Murray C.J. stated: -

``a loss, outgoing or expense actually incurred by a taxpayer in the production of his income seems to me to be a loss sustained or a payment made or incurred in the course of the actual process of producing the income, and not a loss sustained or a payment to be made out of income after it has been produced''

(at p. 438).

In our view, the different legislation does not affect the correctness of this proposition. If taxpayer's submission were correct, it would follow that income tax is likewise deductible, being, by a parity of reason, an outgoing incurred in the production of income. This, of course, is elementary nonsense, since the liability itself does not accrue until the income has been earned. It was at one point urged upon the Board that if a payment is ``incidental and relevant'' to the gaining of assessable income (
Ronpibon Tin N.L. v. F.C. of T. (1949) 78 C.L.R. 47), then we should ignore the ``essential character'' of the payment on the basis that the Ronpibon case was a decision of the Full High Court, whereas the emphasis on the ``essential character'' of the payments was the result of single Justices of the High Court: (cf.
Lodge v. F.C. of T. 72 ATC 4174; (1972) 128 C.L.R. 171;
Thomas v. F.C. of T. 72 ATC 4094; (1972) 46 A.L.J.R. 397). As taxpayer has in our view failed to get over the first threshold of sec. 51(1), this ingenious argument need not be pursued.

5. Next it was urged that because the contributions were made fortnightly and ``compulsorily'', as opposed to ``once and for all'' and voluntarily, they could not be regarded as an outgoing of capital. The ``once and for all'' test is at best a rough guide, ``not a bad criterion of what is capital expenditure - as against what is income expenditure - to say that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year'' (per Lord Dunedin;
Vallambrosa Rubber Co. v. Farmer (1910) 5 T.C. 529, 536). However, as was pointed out in British
Insulated and Helsby Cables v. Atherton (1926) A.C. 205, this criterion is not, and was obviously not intended to be, decisive in every case; conversely, instances of payment, though made ``once and for all'', may readily be chargeable against revenue. The fact that the payment is made by compulsion again cannot alter the fact that it is made out of income earned, and can in no relevant sense be viewed as constituting the necessary nexus with the derivation of such income.

6. It was also urged upon that the payments were not capital or not of a capital nature because the end product that was being

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purchased was itself subject to tax - whether by way of annuity (sec. 26AA) or by way of lump sum (sec. 26(d)). It is arguable whether any part of a lump sum obtained on retirement is subject to tax (cf.
Constable v. F.C. of T. (1952) 86 C.L.R. 402). However, in our view nothing turns on this. We are satisfied that the price of acquiring a capital receipt or in the nature of a capital receipt is itself a capital expenditure and excluded from deduction by sec. 51(1). In our opinion, sec. 26AA is only a machinery provision to bring to tax the interest content of the purchased annuity, and ensure the excision of the capital purchase price. Again, sec. 26(d) clearly brings to tax a proportion of what is otherwise receipt of capital.

7. Taxpayer submitted that a University Lecturer must be assessed differently because ``his assessable income is derived from the fact that in his position, it is not necessarily derived because of duties he performs in that position, because in a vacation period of something like two months, for instance, he is paid his salary notwithstanding the fact he is not paid, in theory, to perform any particular duties, and I think this emphasizes that the retention of my position, and not the actual work I perform, is the important factor here.'' Taxpayer subsequently elaborated on this in his Reply by stressing that a University Lecturer is given considerable ``autonomy'' and has ``suitable lattitude...there are no detailed duties with a University Lecturer.'' Instructive as this view of academic duties may be, it could more profitably be advanced before a Universities Commission than before a Board of Review. Insofar as taxpayer sought to distinguish Hannan's case (supra) on the basis of this alleged ``autonomy'', we frankly confess that we do not follow the argument.

8. Finally, Mr. McPherson, of senior counsel for the Commissioner, submitted that Parliament, in enacting sec. 159(R), had ``covered the field'' with respect to allowances relevant to superannuation. In the view we take of this case, we do not find it necessary to deal with this submission. We mention it merely out of deference to the carefully reasoned argument which was advanced in support of it. We should add that taxpayer himself made some interesting submissions. Alas, not even this expert in the field of tax law was able to make bricks without straw.

9. For the above reasons, we would uphold the Commissioner's decision on the assessment.

Claim disallowed