GILLESPIE v FC of T

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2001] AATA 1009

Decision date: 11 December 2001

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BH Pascoe (Senior Member)

This is an application to review a decision of the respondent to disallow an objection against an assessment of income tax based on income of the applicant for the year ended 30 June 2000. The objection was against the inclusion in assessable income of a lump sum paid to the applicant in redemption of his entitlement to weekly compensation payment pursuant to section 127 of the Safety Rehabilitation and Compensation Act 1982 (``the SRC Act'').

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ATC 2007

2. At the hearing the applicant, Mr Gillespie, was unrepresented but assisted by a friend and the respondent was represented by an officer of the respondent.

3. There was no dispute as to the facts of this matter which can be summarised as:

• • Mr Gillespie was born in 1950 so was 49 years of age when the lump sum was received.
• • He was injured in the work place while in the employ of the Commonwealth Public Service.
• • He retired from employment in 1986 on the grounds of total incapacity for work.
• • He received weekly compensation payments from Comcare initially under the Compensation (Commonwealth Government Employees) Act 1971 and then the SRC Act.
• • In 1998, he applied to have his weekly compensation payment redeemed into a lump sum pursuant to s 137 of the SRC Act.
• • He applied to this Tribunal to review a decision of Comcare not to redeem and the Tribunal set aside the decision by consent on 8 November 1999.
• • Comcare paid an amount of $45,039.35 from which tax of $12,693.20 was deducted.
• • The respondent included the amount of the lump sum in assessable income to be taxed at normal rates.

4. In his original objection to the assessment, Mr Gillespie argued that the lump sum was capital, relying on the decision of the Tribunal in
Barnett v FC of T 99 ATC 2444. Secondly, he complained that he had been advised by Comcare that the amount would be taxed at a fixed rate not marginal rates. He was concerned that, with no money left from the redemption payment, the additional income tax levied was causing considerable anxiety. Prior to the hearing, Mr Gillespie sought to add a ground of objection that the lump sum was an Eligible Termination Payment (``ETP'') under the Income Tax Assessment Act 1936. The Tribunal exercised its discretion to allow the inclusion of this additional ground of objection under section 14ZZK of the Taxation Administration Act 1953.

5. Section 137(1) of the SRC Act provides:-

``If:

• (a) a relevant authority is liable to make weekly payments of compensation to a former employee in respect of an injury resulting in incapacity; and
• (b) the amount of those payments is $70.40 per week or less; and
• (c) the relevant authority is satisfied that the degree of the former employee's incapacity is unlikely to change;

the relevant authority must, on written request by the former employee, make a determination that its liability to make further payments to the former employee be redeemed by the payment to the former employee of a lump sum.''

Sub-section (2) of Section 137 provides for the method of calculation of the lump sum.

6. It was submitted by Mr Gillespie that there was a causal connection between the payment of the lump sum and his retirement from employment so that the lump sum was an ETP. Whilst accepting that he had earlier conceded to the respondent that an argument for the amount to be treated as capital and not income was unlikely to succeed, he requested the Tribunal to consider whether the decision in Barnett's case (supra) should be followed in his case.

7. The respondent submitted that the lump sum was income as a substitute or replacement of a right to receive income by way of weekly payments. Reliance was placed on the decision in
Coward v FC of T 99 ATC 2166. It was argued further that the amount was not an ETP as not being in consequence of termination of employment. The respondent sought to distinguish the facts in this case from those in
Reseck v FC of T 75 ATC 4213,
McIntosh v FC of T 79 ATC 4325 and
Seabright v FC of T 99 ATC 2011.

8. On the authority of the decision in Coward (supra), it is clear that the lump sum is in lieu of the right to receive future weekly payments of income and is itself income. The facts of this case can be distinguished from those in Barnett's case. In Barnett the lump sum was paid under the predecessor to the SRC Act, the Compensation (Commonwealth Government Employees') Act 1971 (``the 1971 Act''). There the Act required consideration of the nature of the injury, the age and occupation of the employee, whether the employee intended to use the lump sum in a manner advantageous to the employee and whether the payment of the lump sum was in the interests of the employee. The Tribunal considered that the legislative

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ATC 2008

intent of that provision was that the lump sum was to be treated as capital. In this case the circumstances are the same as those in Coward.

9. Section 27A(1) of the Income Tax Assessment Act (``the Act'') defines an ETP as ``any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer''. Certain payments are included or excluded from the definition which have no relevance to this matter. The decision in Reseck, McIntosh and Seabright are authorities for the interpretation of the words ``in consequence of'' as including a payment which ``follows on'' retirement from employment. In McIntosh, Lockhart J said (at p 4336):-

``... The phrase requires that there be a connection between the payment and the retirement of the taxpayer, the act of retirement being either a cause or an antecedent of the payment.''

In Seabright, the taxpayer commuted a State superannuation pension payable as a consequence of termination of employment on the grounds of being medically unfit after an injury. The commutation of the pension to a lump sum was some 11 years after retirement from employment. The Tribunal found that the lump sum was simply a change from one form of payment, a pension, to another, a lump sum, and that both arose as a consequence of termination of employment. It was considered that the time gap between termination and receipt of the lump sum did not weaken the connection between the two events.

10. It is difficult to see that a redemption of a superannuation pension receivable as a consequence of retirement from employment is an ETP but that a redemption of weekly compensation payments is not where it can be said that the compensation payments followed on retirement from employment. It is true that an employee can be entitled to compensation payments without retiring from employment. However, the facts in this case are that Mr Gillespie did retire from employment in 1986 on grounds of total incapacity. It is that total incapacity which caused retirement from employment and resulted in the weekly compensation payments. It is very relevant in my view, that section 137 of the SRC Act provides for redemption by a lump sum of weekly payments to a ``former employee''. It is not available to a continuing employee in receipt of compensation. Consequently, I am of the view that such lump sum was received by Mr Gillespie following on and as a consequence of his retirement from employment. The reasoning in Seabright applies equally to his circumstances.

11. Given my findings that the lump sum was an ETP, the question then arises whether there was an invalidity component under section 27G of the Act. This section requires certain pre- conditions and no evidence was available as to whether such pre-conditions were met in Mr Gillespie's case. Subject to those conditions, the decision in Seabright would apply to this matter.

12. The consequence of my findings is that the matter should be remitted to the respondent with a finding that the lump sum was an ETP and a direction to apply the relevant provisions of the Act in amending the assessment for the year ended 30 June 2000.