Case K67

Members: HP Stevens Ch
CF Fairleigh QC

JR Harrowell M

Tribunal:
No. 1 Board of Review

Decision date: 23 November 1978.

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J.R. Harrowell (Member): In this reference to the Board the taxpayer, a resident of Australia, commenced her long service and recreation leave on 16 May 1977. She resumed her duties on 3 February 1978. Before going on leave the taxpayer was paid by her employer, at her request, the sum of $5,406.07 as a lump sum on 15 April 1977. An exhibit was tendered showing that of the total sum paid $1,467 represented income relating to the year ended 30 June 1977 and $3,939.07 to the year ended 30 June 1978. This exhibit was prepared on the basis that the lump sum could be dissected as between the two years of income.

2. The group certificate issued to her for the year ended 30 June 1977 showed her total taxable earnings for that year as being $13,741.65. This figure included the 1977/78 prepayment, $3,939.07. Her 1977 return of income contained a note to the effect that her gross income included ``long service and Rec. Leave to 2.2.78'' without quantification.

3. In due course the Commissioner issued the 1977 assessment based on the gross income of $13,741.65.

4. The taxpayer lodged an objection against that assessment stating that the tax payable by her was excessive and was the result of the basis adopted by her employer ``not catering for such a large proportion of my annual salary being paid in the wrong financial year''. A letter from her employer was attached to the objection in explanation of what had happened. The attached letter asked that consideration be given to re-assessing the employee so that that portion of the long service and recreation leave relating to the year commencing 1 July 1977 but paid to her on 15 April 1977 should be excluded from her total taxable earnings for the year ended 30 June 1977.

5. The objection was disallowed and the taxpayer elected to refer the decision to a Taxation Board for review.

6. The Commissioner's representative tendered a short statement of agreed facts signed by the taxpayer. The statement confirmed the dates leave was taken and the lump sum payment made on 15 April 1977 which included a prepayment of salary relating to part of the subsequent year.

7. The Commissioner had disallowed the objection under sec. 25(1) which reads as follows: -

``The assessable income of a taxpayer shall include -

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ATC 667

• (a) where the taxpayer is a resident -
• the gross income derived directly or indirectly from all sources whether in or out of Australia;...
• ...

which is not exempt income.''

8. The Commissioner's representative submitted that the principle at issue in this reference was well settled and he referred to the statement made by Isaacs A.C.J. on the word ``derived'' in
F.C. of T. v. Thorogood (1927-28) 40 C.L.R. 454 at p. 458 and to decisions of Boards of Review - Cases A78,
69 ATC 422 , D7,
72 ATC 38 and F27,
74 ATC 155 .

9. Whilst I sympathize with the taxpayer I must find that the sum of $3,937.07 was derived by her in the year ended 30 June 1977 and forms part of her total taxable earnings for that year. Accordingly, I would uphold the Commissioner's decision on the taxpayer's objection and confirm her assessment for the year ended 30 June 1977.

Assessment confirmed