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MARRIOTT v FC of T

Members:
PJ Lindsay SM

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2004] AATA 806

Decision date: 30 July 2004

PJ Lindsay (Senior Member)

Ian Robert Marriott (the applicant) applied to the Administrative Appeals Tribunal for review of three decisions made by the Commissioner of Taxation (the respondent) in respect of:

  • • an objection to an assessment of income tax for the year of income ended 30 June 2000.
  • • an objection to an assessment of termination payments surcharge under the Termination Payments Tax (Assessment and Collection) Act 1997 (the Termination Payments Surcharge Act) for the 1999-2000 financial year that was issued on 15 February 2001.
  • • an objection to an assessment of superannuation contributions surcharge under the Superannuation Contributions Tax (Assessment and Collection) Act 1997 for the 1999-2000 financial year that was issued on 15 May 2001.

Each objection was disallowed.

2. At the hearing Mr Marriott was self- represented and he gave evidence. Mr M Wigney of counsel appeared for the respondent. The respondent called Mr B Peterson, an Assistant Commissioner of Taxation, who gave his evidence over the telephone. The tribunal had before the documents (T documents) lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) and the exhibits tendered at the hearing.

Background

3. Mr Marriott's employment with the Australian Taxation Office (ATO) finished on 18 February 2000. He had given approximately 35 years of service. Prior to his termination of employment, Mr Marriott had been employed in the Small Business Law (SB Law) section within the Small Business Service Line of the ATO. His position was in the SB Law Appeals and Review group. As a result of internal re- structuring, the ATO's Legal Practice (ATOLP) was established in the latter part of 1999. Mr Marriott did not apply for a position within the ATOLP and left the ATO shortly after the commencement of the ATOLP.

4. Mr Marriott received the sum of $78,531 which was paid to him as part of his severance from the ATO. During the hearing Mr Marriott withdrew his application to have the objection decision concerning superannuation contrib- utions surcharge reviewed. Thus that objection decision is affirmed. There remain two issues to be determined:

  • • Whether the $78,531 that Mr Marriott received following his termination of employment was in respect of bona fide redundancy for the purposes of s. 27F of the Income Tax Assessment Act 1936 (the 1936 Act);
  • • If the amount of $78,531 is not in respect of a bona fide redundancy, whether the amount of $35,568 was properly included in Mr Marriott's adjusted taxable income as defined in s. 31 of the Termination Payments Surcharge Act for the purpose of the termination payments surcharge, and if so, whether the assessment issued for termination payments surcharge was excessive.

5. The following definitions in s. 27A of the 1936 Act are relevant.

```bona fide redundancy payment' in relation to a taxpayer, means a bona fide

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redundancy payment in relation to the taxpayer ascertained under section 27F;

...

`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:

...

but does not include:

  • (ja) the tax-free amount of a bona fide redundancy payment, or of an approved early retirement scheme payment, made on or after 1 July 1994;''

Section 27F provides:

``Bona fide redundancy payments

(1) Where:

  • (a) an eligible termination payment is made in relation to a taxpayer in consequence of the dismissal of the taxpayer from any employment at any time (in this section referred to as the `termination time' ) by reason of the bona fide redundancy of the taxpayer;
  • ...

so much of the eligible termination payment as exceeds the amount (in this section referred to as the `termination amount' ) of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer had he voluntarily retired from that employment at the termination time is a bona fide redundancy payment in relation to the taxpayer.''

6. Mr Marriott submitted that the payment of $78,531 was a bona fide redundancy payment under s. 27F of the 1936 Act and thus eligible for concessional taxation. The respondent submitted that s. 27F had no application for two reasons. First, the payment had not been made to the applicant in consequence of his dismissal from employment with the ATO. Rather, Mr Marriott had elected to retire and could not be said to have been dismissed or constructively dismissed. Secondly, if the applicant had been dismissed, it was not by reason of his bona fide redundancy.

7. There was no dispute between the parties regarding the quantum of the payment or the fact that it was made in consequence of termination of the applicant's employment and I make findings of fact accordingly.

Evidence

8. Mr Marriott was born on 28 April 1943 and commenced employment with the ATO in 1964. His initial work was as an enquiry clerk and then as an assessor. This was followed by a period as an investigation officer in around 1971. He commenced work in 1975 in the Appeals and Review branch and remained in that work until 1992. Mr Marriott described his duties in Appeals as defending decisions taken by the Commissioner that were the subject of appeals to the Board of Review (and later this tribunal) or the courts. In 1981 Mr Marriott moved from the head office of the Appeals Branch in Canberra to Sydney. He became a Principal Appeals officer in 1985. He remained at that level, subsequently classified as an Executive Level 2.1 (EL2) Officer within the Australian Public Service (APS), until his separation from the ATO in 2000.

9. Mr Marriott said that during his career he experienced a number of structural re- organisations within the ATO. There was a policy of decentralisation during the 1980s that ultimately led to his move to the Chatswood office in 1992. Initially he was in Advisings but then he moved back into Appeals. He became one of two Principal Appeals officers at Chatswood.

10. In 1996, the ATO re-structured its operations along Business Lines and Mr Marriott was assigned to the Small Business line. He became manager of the Chatswood office's Small Business Appeals section which had a staff of around eight or nine.

11. A further re-structure in September 1997 resulted in all Small Business Appeals sections in New South Wales being consolidated into one section in the Sydney office, which was known as the Small Business Legal Unit (or SB Law). Mr Marriott was no longer in charge. Another EL2 officer managed SB Law. Mr Marriott described his duties as supervising and training staff in the unit. In conjunction with the manager of the unit, he allocated work to junior officers. He was involved in the preparation of documents for use in proceedings and the gathering of evidence. In the immediate period after the re-location to Sydney, Mr Marriott was doing some appearance work himself, but that lessened as his subordinates developed their

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expertise and his role became mainly supervision and discussion with staff about the technical issues in the cases. Negotiation was a large part of his job in SB Law. He said he personally did not instruct external lawyers but he would attend conferences with counsel and practically all hearings even when he was not acting as the Commissioner's advocate. He saw himself as a litigator but also possessing some expertise in the technical areas of taxation law, particularly as they affect small business taxpayers. In cross-examination he agreed that he must have been flexible to have adapted to the number of changes made to the ATO's employment and organisational structure throughout his career.

Formation of the ATO Legal Practice

12. Towards the beginning of 1999 Mr Marriott became aware of another re-structure. His statement dated 24 April 2003, which was admitted into evidence as exhibit A2, reads in part:

``During 1999 in attending Small Business management meetings I learnt that staff numbers in the business were to be scaled back...

Also in 1999 I became aware that moves were afoot to move Appeals work out of the Business lines and consolidate it into one section in each state. This section or branch was to be called the `Legal Practice'. From the outset the management team charged with the responsibility of establishing the Legal Practice in its negotiations with staff associations made it clear that qualified lawyers would be required to fill the EL(1) and (2) positions. It was also made clear that for positions lower than EL(1) staff already performing litigation work would be automatically taken up in the new section. Not so for the EL(1) and (2) positions, which were to be opened up for candidates elsewhere in and outside of the office.

Although through the negotiation process the requirement for legal qualifications was dropped from `essential' to `an advantage', I felt that my age and lack of legal qualifications would be insurmountable obstacles to my candidature. Because of this and the fact that I did not want to suffer the indignity of a failed application I did not apply. My surmise turned out to be correct. Those officers selected to fill EL(2) positions were all lawyers considerably younger than I....''

13. Following a study in 1998 into the litigation practices of the business lines, a recommendation was made for the establishment of a legal practice within the ATO to be led by the ATO Solicitor, a newly created position (T8-48). The ATO's Legal Practice (ATOLP) was subsequently created within the Office of the Chief Tax Counsel (OCTC). A minute dated 13 July 1999 (T9) from the Deputy Chief Tax Counsel to all staff outlined the role of the ATO Solicitor, the ATOLP and the liaison with business lines:

``The ATOLP will be working in partnership with the business lines, which will retain case ownership, responsibility for determining the ATO View and legal argument in conjunction with TCN [tax counsel network], and gather all the factual and evidentiary material. There is to be no duplication of function and control of the quality and guardianship of the ATO position will be with the ATOLP. The ATOLP will provide quality feedback to the business lines on their decision making processes and assist them in bringing about continuous improvements in their processes.

All services provided by the ATOLP will be on a user charge basis....''

Describing the role of the Business Lines, the Minute noted:

``Throughout the litigation process, the business lines will retain ownership of the case, collect any additional facts and evidence and, in conjunction with TCN, will be responsible for establishing the ATO View. The level of involvement of the business line will depend on the complexity of the case and the nature of the issue, the strategic importance of the case to the business line and the level of facts and evidence obtained pre litigation.''

14. Brett Peterson, an Assistant Commissioner, had a managerial role in relation to the applicant during 1999 and 2000. On 6 September 1999, Mr Peterson conducted a performance appraisal of Mr Marriott. In his statement dated 12 May 2003 (Exhibit R1) Mr Peterson said:

``... During the performance appraisal, we discussed the applicant's continuing role in the SB Law area, and what it would

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encompass in light of the introduction of the Legal Practice. I agreed that the applicant did have a continuing role in the SB Law area. Subsequently on 16 September 1999, the applicant offered a proposal regarding his continuing role, in the form of a proposed 'performance agreement'. On 12 October 1999, I accepted the applicant's proposal and advised it would be reviewed in due course once the ATO Legal Practice was up and running....

In November 1999, the applicant advised me that he was willing to accept a voluntary redundancy....

If the applicant had remained employed by the ATO, and stayed within the SB Law section, I would have found a continuing role for him at the EL2 level that was commensurate with his skills and experience. I understood his area of expertise to be in litigation, and would have retained him within this area to effectively utilise his knowledge and expertise. As a result of the restructure that resulted in the creation of the ATO Legal Practice, his duties in the SB Law section would most likely have involved him managing and instructing the ATO Legal Practice in relation to the most significant litigious cases. Because the applicant chose to accept voluntary redundancy under clause 75 of the EL2 Agreement, it was unnecessary to finalise the applicant's continuing role in SB Law.''

15. Following their meeting, on 16 September 1999 Mr Marriott completed the performance agreement (exhibit A6) that had been discussed during the interview and submitted it to Mr Peterson. The performance agreement covered what the applicant saw himself doing after the legal practice started and included a section ``What my manager [Mr Peterson] expects of me''. Mr Marriott filled it in as follows ``... to manage SB litigation during the OCTC takeover and afterwards in accordance with SB/OCTC Agreement''.

16. The SB/OCTC agreement (T11-75) is a service agreement between the Small Business line and the ATOLP. It states:

``The purpose of this agreement is to ensure that litigation... which arise [sic] from actions undertaken by the Small Business Line (SB) are dealt with in an effective and professional manner and to ensure that all parties are aware of their responsibilities in respect of that litigation....

Guiding Principles

The ATO Legal Practice (LP) will be responsible for all appearance work and the related advice on legal process and risks....''

Clause 6 of the service agreement spelled out the services that the legal practice would provide to the small business line. Clause 7.1 stated that

``The business line has ownership of the case and responsibility for technical decisions, and will provide instructions on the line of argument to be adopted;''

Clause 7.4 stated that

``LP have responsibility for non-technical decisions and litigation strategy made in the ordinary conduct of cases, but will consult on matters that affect the direction in which potential litigation cases are progressed;''

There would be a strategic internal litigation committee (SILC) established and meetings of that committee would be attended by representatives of the legal practice and the business line. According to the service agreement, the SILC would meet within two weeks of the filing of applications in every court or tribunal case. Initially, the SILC would endeavour to minimise the issues in contention and discuss litigation strategy and other matters such as whether counsel would be briefed. The legal practice would develop a SILC plan. Other meetings of the SILC would be called prior to the hearing ``... to ensure that our arguments reflect the ATO view.'' In relation to settlements, the service agreement stated:

``9.1 Ideally settlement possibilities will be explored at the first SILC and where appropriate parameters will be set by SB in consultation with LP in order to allow the litigation officer to proceed with settlement negotiations. In performing this function it is recognised that the Courts and tribunals prefer the Commissioner's representative to have the necessary authority to settle matters on the spot rather than adjourn for the purpose of obtaining the necessary authority.

9.2 LP will not finalise any settlement negotiations without the approval of SB.''

(T11-83)

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17. Mr Marriott prepared a table as part of the performance agreement. It listed his duties and the weighting given to those duties in respect of his work in SB Law prior to the legal practice commencing and subsequent to the legal practice being established. Before the new arrangements started, Mr Marriott had been spending 30 per cent of his time in providing intensive case management and on the job training to the SB Law staff, 20 per cent on negotiating settlements and 20 per cent assessing evidence necessary to defend the assessment. Another 20 per cent was given to preparation of documents filed at the tribunal, attending callovers and preliminary conferences and directions hearings, 5 per cent on instructing counsel and a further 5 per cent in providing feedback to auditors and advising staff in the small business line. He estimated the time he would spend on various activities after the legal practice started as follows: 40 per cent on resolving cases on foot which were not being taken up by the legal practice; 20 per cent on preparing documents for lodgment at the tribunal, 20 per cent on developing arguments to defend assessments in consultation with the OCTC to develop the ATO view; 10 per cent on gathering evidence as requested by the OCTC; and 10 per cent on participation by small business at SILC meetings.

18. Mr Marriott's evidence was that he kept himself informed during 1999 about the establishment of the ATOLP and received memos about it from National Office. He was aware that a number of senior positions would be created at the EL2 level within the legal practice's Sydney office, selection would be based on merit, and that he could apply for a position. He was provided with the documentation explaining the selection criteria and requisite qualifications. He agreed that with his experience and technical competence he was ideally suited for such a position but he said he knew ``they didn't want me''. In cross- examination he accepted that the information provided about the position at EL2 level for a principal litigator stated that the qualifications were ``A degree in law or other tertiary qualifications or relevant experience is preferred.'' (T11-72). He agreed that he had relevant experience and that he satisfied each of the stated selection criteria for the position. He said he understood it was intended that the business line would continue to own the case and instruct the legal practice but he disputed that this would be the way things would turn out.

19. Mr Marriott did not apply for the EL2 position as principal litigator because he said it was common knowledge that ``we were being squeezed out'' and that only lawyers would be chosen. Although he did not raise this concern with his superiors or his union, which had been taking an active interest in the restructure, he had discussed the matter with Mr Doran and other EL2s of his generation. He admitted he was not told by anyone in the senior management that he need not bother applying. It was put to him that his reason was a lack of motivation to be flexible and adapt into the new structure at age 56, but he denied this and explained that he did not bother to apply because he knew he would not get the position. He agreed, however, that this was merely speculation on his part.

Discussions about leaving the ATO and receiving a termination payment

20. On 12 October 1999 Mr Peterson accepted Mr Marriott's proposal set out in the performance agreement. In cross-examination Mr Peterson agreed that the small business legal unit's function would change as a result of the inception of the ATOLP. He acknowledged that the performance agreement was to be reviewed once the ATOLP had become established. Mr Marriott said that it was around this time that he learned that Mr Doran had been appointed the national co-ordinator of litigation for the small business line. He then decided he would not have a continuing role in legal work. He approached ATO management with a view to finding out what he must do to leave the ATO with a severance payment - ``a package''. He initiated discussions with management, through Mr Peterson, regarding his willingness to take voluntary redundancy. He said that at the time he was well aware of the content of the ATO Executive Level 2 Agreement 1998 that governs employment conditions for EL2 officers. There is a Leadership Role statement attached to the EL2 Agreement which nominates one of an EL2's competencies as flexibility and facilitation of change, describing the competency, in part, as follows: ``Adapt to and work effectively within a variety of situations.... This includes the capacity to accept changes in one's own organisation or job requirements.'' (T4-39)

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21. Mr Marriott told the tribunal that the principal reason behind his wishing to retire early was that the ATO ``was taking my job away from me''. He liked the work he had been doing in defending the Commissioner's decisions before the courts and the tribunal. But he maintained that he did not proceed towards retirement because he was disgruntled or thought it was time for him to leave the ATO. He thought some at the ATO had under-valued his work through the years. He was critical of the fact that officers such as Mr Peterson and Mr Pledge were senior to him, though he thought they had little experience in appeals work. Also he was tired of the structural changes that the ATO continued to make. These conditions made him decide to retire. He decided to request retirement even before the recruitment process for the legal practice was complete.

22. Contrary to the documentation that he had seen, such as the Minute from the Deputy Chief Tax Counsel referred to above, Mr Marriott thought that SB Law would not have an important role in litigation once the legal practice commenced. He asserted that SB Law would miss out on the most interesting work, such as attending conferences with counsel and the hearing, and generally would take a back seat. He said the work he had done in the SB Law would in future be subjugated to the legal practice, in particular the responsibility for the conduct of cases at hearing. He allowed, however, that this too was speculation on his part.

23. Mr Marriott said he had no idea what was going to happen to those who stayed in SB Law after the legal practice commenced. His stance was that his role would be diminished once the legal practice was operating. He agreed, however, that he would have continued to utilise skills he had hitherto exercised in negotiation, evidence gathering, preparation of documents and determining the arguments to be advanced in defending an objection decision.

24. On 5 November 1999 he sent an email to Mr Pledge and copied to Mr Peterson. He explained that he put forward the proposal in the email because Mr Peterson told him that Mr Pledge would have to approve the redundancy and that Mr Pledge would approve separation only under cl 75 of the EL2 Agreement. He admitted that he wrote the email, choosing words of his own. It stated (T12-98):

``I am writing to you at the suggestion of Brett Peterson who I understand has spoken to you about my approach to him indicating my willingness to accept an offer of voluntary redundancy. I now confirm that willingness in terms of Section M, Clause 75 of the ATO (EL2) Agreement 1998.

... As you know the litigation function within SB is about to cease and I will not be taken up in the new Legal Practice area.

In light of the organisational changes it is difficult for me to see how I could be retained in gainful employment within the ATO following the disbandonment of our Legal Unit. My value as an employee of the ATO has for many years been my ability to manage, negotiate and present cases for the Commissioner principally at the AAT and to train junior personnel in these specialist skills. It is not easy work and I have felt for some time that the ATO might have undervalued it. Bereft of this function my value to the ATO is considerably diminished.

At my age and with my background I do not see redeployment or retraining as realistic options. If either of those options were chosen I could not be certain of being as motivated towards my work as I have been in the past.

I put forward the following proposal to you:

  • - That I be offered voluntary redundancy under Clause 75 of the EL2 Agreement.
  • - That I retire on 28 January 2000.

... I have suggested the January retirement date so as to enable me to clear up some outstanding Tribunal matters upon resumption from leave. It is unlikely that the Legal Practice will have commenced operation in this office before that date.''

25. Clause 75 of the EL2 Agreement states relevantly:

``75 Employees Whose Services Cannot Be Effectively Utilised

75.1 An employee whose services can no longer be effectively utilised in their current job because of changes in technology, work methods or the nature, extent or organisation of the ATO will be given support in considering career alternatives or will be

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able to leave the ATO with dignity and respect for the contribution they have made in the past.

75.2 These procedures are only to be used where an individual employee's job is still required and the employee will be replaced subsequent to action under this clause. Where the actual job is no longer required, the arrangements under clause 76 must be used.

...''

Under clause 75.5, employees could discuss options for re-deployment or re-training to allow the employee to be retained in gainful employment. Where re-deployment or re- training is not feasible, the employee would be formally notified in writing that he or she can no longer be gainfully employed in the ATO. An offer of voluntary redundancy would then be made to the employee, who had a period of time within which to accept or decline that offer. On acceptance of an offer, clause 75.10 stated:

  • ``An employee who accepts the offer of voluntary redundancy will be given a notice of retirement and will be paid a redundancy payment as if an excess employee.'' [ emphasis added]

26. Clause 76 of the EL2 Agreement reads in part:

``76 Handling Excess Employee Situations

76.1 An employee may become potentially excess for either of the following reasons:

  • (a) the duties of the employee are transferred to a different capital city or to an office which requires a move of a similar scale, involving a necessary change of resident; and
    • (i) the employee is unwilling to perform duties at the new office; and
    • (ii) the Commissioner is unable to provide ongoing work at the first office; and
    • (iii) the Commissioner agrees that redundancy is an economically viable alternative to relocation
  • (b) there are more employees of a given class than is necessary for the efficient and economical working of the ATO in a particular location.
  • ...''

27. Mr Marriott's evidence was that he was quite prepared to refer in his email to his ``willingness'' to accept voluntary redundancy because he wanted to receive an additional amount on termination. This was what he had to do to get the package. He wanted the ATO to apply cl 76 of the EL2 Agreement because he understood that ATO management considered that only termination under cl 76 amounted to bona fide redundancy. He tried to convince Mr Pledge that cl 76 applied since a large part of his functions were going elsewhere and there would not be enough work for him. He granted that no one suggested that if he did not accept retirement under cl 75 then he would be removed from his position as an EL2.

28. In cross-examination about the statement in the email to Mr Pledge that he felt that the ATO had undervalued his work, Mr Marriott disputed that this was the real cause for his decision to retire. He insisted it was because the job he had liked doing was being greatly diminished. He asserted that without performing his functions in negotiation, managing and presenting cases, and training juniors, his value to the ATO would be considerably diminished. He had no desire to start something different within the ATO. He said that no one approached him about utilising his skills and experience in other areas at the ATO. He denied that Mr Peterson did so, but he admitted that Mr Peterson had told him that his skills could continue to be utilised within the small business line.

29. On 10 January 2000 Mr Peterson sent a fax message to various ATO personnel stating that he envisaged that the litigation co- ordinators in small business would have a part- time role at the EL1 level. Mr Peterson explained this statement by saying that it was written in the knowledge that Mr Marriott had decided to retire. He said that if Mr Marriott was going to stay, the structure would have been different and he denied the suggestion that Mr Marriott's retirement had solved a problem for him. Asked why he did not try to talk the applicant out of retiring, Mr Peterson said that the applicant was an officer approaching retirement age and the applicant had previously mentioned to him his disappointment of missing out on earlier redundancy opportunities.

30. Mr Peterson said that after the applicant retired he was not replaced in Sydney by an officer at EL2 level. But had the applicant

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remained, Mr Peterson said the structure of the SB Law would have been different because of the skills available. Mr Peterson stated that after the ATOLP was established, there were a number of regional coordinators at EL1 level whose duties involved monitoring, managing and reviewing all small business litigation. An EL2 was appointed as the national coordinator of SB Law. These positions were illustrative, in Mr Peterson's opinion, of the continuing role Mr Marriott could have had in SB Law had he not retired. Mr Marriott challenged this opinion, asking where was there room for him once the EL2 national co-ordinator role was filled by Mr Doran. In response Mr Peterson said that Mr Marriott might well have picked up a role looking after the most sensitive or most difficult cases in Sydney or nationally.

31. Before the ATO formally offered Mr Marriott retirement under cl 75, he was given formal confirmation that cl 76 did not apply. Rod Smith, another ATO officer, informed Mr Marriott by email on 20 January 2000 that, following discussions with Mr Pledge and Mr Peterson, his termination was not a bona fide redundancy under cl 76 as he was not an ``excess employee''. The reasons were that Mr Marriott's position as an EL2 would have been reused had he successfully applied for a transfer to the legal practice. If he had decided to stay in the small business line the ATO ``... would be seeking to refocus your attention into other business.'' But as he had decided to retire ``... we will use the flexibility that vacancy affords us to make best use of the resource. Our workforce planning indicates that there is a continuing need for a replacement EL2.'' (T18-129) In cross-examination Mr Marriott said he had no reason to suspect that the ATO would not try to utilise his skills had he decided to stay at the ATO in the small business unit. He believed that the ATO would do so but he did not think such a role would be commensurate with his skills. Mr Marriott informed the tribunal that he did not give any thought to what work he expected to do in that event. He said he had decided to retire in November 1999. By January 2000 he was concerned only with ensuring the ATO decided that cl 76 applied to his circumstances rather than cl 75.

32. Mr Marriott was aware that once the ATO offered him the opportunity to retire under cl 75, the decision to do so remained for him to take. He decided not to seek redeployment elsewhere within the APS. Had he not decided to accept retirement under cl 75 he knew that he still had a job at the ATO as an EL2. He had two weeks in which to consider the ATO's offer and was informed by Mr Pledge that ``You should use the available time to fully consider the matter before taking your decision.'' (T19-130).

33. By notice of election signed on 4 February 2000 (T19-132) Mr Marriott formally elected to retire in accordance with cl 75, with retirement to take effect from 18 February 2000. Mr Pledge wrote to the applicant on 16 February 2000 enclosing a notice of termination of employment under s. 29(1) of the Public Service Act 1999. The notice stated:

``For the purposes of Section 29(3) of the Public Service Act 1999, the grounds for the termination of your employment are:

  • 1. within the meaning of clause 75 of the ATO (Executive Level 2) Agreement 1998, you are an officer excess to the requirements of the ATO; and
  • 2. in accordance with Clause 75 of the ATO (Executive Level 2) Agreement 1998, your services can no longer be effectively utilised.

In accordance with Clause 77.11 of the ATO (Executive Level 2) Agreement 1998, you are entitled to receive payment instead of five weeks notice of termination.''

34. Section 29 of the Public Service Act 1999 deals with termination of employment. Subsection 29(3) reads:

``(3) For an ongoing APS employee, the following are the only grounds for termination:

  • (a) the employee is excess to the requirements of the Agency;
  • (b) the employee lacks, or has lost, an essential qualification for performing his or her duties;
  • (c) non-performance, or unsatisfactory performance, of duties;
  • (d) inability to perform duties because of physical or mental incapacity;
  • (e) failure to satisfactorily complete an entry-level training course;
  • (f) failure to meet a condition imposed under subsection 22(6);
  • (g) breach of the Code of Conduct;

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  • (h) any other ground prescribed by the regulations.''

Consideration and findings

35. Mr Marriott asserted that he did not resign, rather he pointed to the notice under s. 29 of the Public Service Act that informed him of his termination. He submitted that a payment may be a bona fide redundancy payment as referred to in s. 27F of the 1936 Act whether the taxpayer's dismissal is voluntary or involuntary. In support he cited the following from Taxation Ruling TR 94/12 ``Early retirement scheme payments and bona fide redundancy payments'':

``4. Payments made to employees who are made redundant or are retrenched, whether voluntarily or involuntarily, will generally qualify as approved early retirement scheme payments or bona fide redundancy payments.

...

9. Dismissal carries with it the concept of involuntary (on the employee's part) termination of employment and will ordinarily be instigated by the employer. The involuntary nature of dismissal does not prevent the employer, with a view to maintaining industrial harmony and minimising the disruption to employees, from seeking expressions of interest from those employees who would like to accept a redundancy package. It simply means that the employer ultimately decides that the number of staff positions will be reduced and determines which employees will actually be made redundant.

...

11. Dismissal also includes the notion of constructive dismissal. Constructive dismissal arises if the employer places an employee in a position where he or she has little option but to tender his or her resignation.

12. Redundancy can be described as the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. Redundancy refers to a job becoming redundant and not to an employee becoming redundant. An employee's job is considered to be redundant if:

  • • an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by any one;
  • • that decision is not due to the ordinary and customary turnover of labour;
  • • that decision led to the termination of the employee's employment; and
  • • that termination of employment is not on account of any personal act or default of the employee.''

Dismissal of taxpayer from employment

36. I accept the respondent's submission that, in this case, s. 27F raises two issues for determination. Turning to the first issue, whether the package was paid in consequence of Mr Marriott's dismissal, the respondent referred to the following passage in the Explanatory Memorandum to Income Tax Assessment Bill (No 3) 1984, the bill that introduced s. 27F:

``The terms `dismissal' and `redundancy' are not defined in the legislation and, therefore, should be given their ordinary meanings. `Dismissal' carries with it the concept of the involuntary (on the taxpayer's part) termination of his employment.''

I accept the respondent's submission that these terms should be given their ordinary meaning. I agree with the meaning ascribed to ``dismissal'' by the Explanatory Memorandum; it is consonant with the following definition:

``3. a. To send away or remove from office, employment, or position; to discharge, discard, expel. (OED, online, June 2004)''

37. I find that Mr Marriott initiated the discussions with management that led to his departure from the ATO in February 2000. He began the discussions in October or November 1999 after he learned that Mr Doran had been appointed the SB Law national co-ordinator. The evidence of Mr Peterson, which I accept, was that the ATO was not engaging in a process of offering redundancies at the time. The applicant's email to Mr Pledge on 5 November 1999 emphasised his willingness to accept an offer of voluntary redundancy under cl 75 of the EL2 Agreement, which was the procedure that he had been informed would be used to enable payment of a termination package. Mr Smith's

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email to the applicant on 20 January 2000 noted his understanding that Mr Marriott was willing to accept voluntary redundancy under cl 75. He had opportunities to reverse his decision, but instead he pursued the termination. This finding is supported by the terms of the election that the applicant signed on 4 February 2000 (T19-132) that ``I wish to elect to be retired in accordance with Clause 75...''. This leads me to conclude that the applicant exercised an independent will in deciding to leave. I am satisfied Mr Marriott was the person driving the process that would ensure he left the ATO with a termination package.

38. Although cl 75 refers to an employee's services no longer being able to be utilised, I am satisfied that the decision to offer the applicant retirement under this clause was simply part of an arrangement that would allow him to be paid a package. It was the means to effect what Mr Marriott had requested. I do not consider that termination under cl 75 alters the position that it was Mr Marriott who initiated the process and had control of it.

39. Was there a constructive dismissal? The service agreement between the business line and the ATOLP provided for the business line's participation in functions that required litigation experience. Those functions included those that most appealed to Mr Marriott, such as attendance at conferences with counsel and at hearings. I find that the business line, with the ATOLP, was to work up the ATO view to be argued at hearings and was to be involved in the important decision-making through particip- ation in the SILC meetings. Settlements could not be effected without the business line's approval. Mr Marriott contended that he did not know what he would be doing in SB Law in the future. This is surprising given that the performance agreement, that he prepared and was accepted by his manager, referred to various activities involved in preparing cases for resolution whether by hearing or otherwise. I am unable to accept the submission that the applicant was constructively dismissed or that he decided to seek out a termination because his future in SB Law would leave him ``shunted sideways and given practically meaningless tasks'' (cf Case 12/98,
98 ATC 183 at 190). I accept the respondent's submission that Mr Marriott had alternatives available to him subsequent to the restructure, but for personal reasons he chose to leave (cf.
Re Sukumaran and Commissioner of Taxation (2000) 44 ATR 1171).

40. As I have concluded that Mr Marriott's termination of employment resulted from a course of action that he initiated and directed, I find the termination was not a ``dismissal'' within the ordinary meaning of the word. That is, his termination was not involuntary on his part. Nor was it a constructive dismissal. Thus it cannot be maintained that the payment was made to him in consequence of his dismissal and it is not a bona fide redundancy payment.

Termination by reason of bona fide redundancy of taxpayer

41. Both parties addressed, in considerable detail, the issue whether the termination was by reason of Mr Marriott's bona fide redundancy, as he claimed. Despite my conclusions above that the package was not made in consequence of dismissal from the ATO and thus the decision under review should be affirmed, I will provide my findings on this issue.

42. Mr Marriott submitted that his job at SB Law was taken away from him and his position became redundant. He reasoned that as another EL2 did not replace him in SB Law, his job was made redundant. He noted that his position as an EL2 did not continue after he left the ATO and that it was transferred to Albury in April 2000. He asked that the inference be drawn that, before he left the ATO, management knew the position would be moved. Moreover he argued that if the respondent claimed that someone did take over his job, then it was incumbent on the respondent to lead evidence to that effect and for an EL2 in the legal practice to give evidence about their duties.

43. Mr Marriott referred to a number of authorities for the meaning of redundancy, including the following passage from the judgment of Bright J in
R v The Industrial Commission of South Australia; ex parte Adelaide Milk Supply Co-operative Limited (1977) 16 SASR 6:

``... the question of redundancy of an employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest the concept of redundancy connotes that an employee becomes redundant whenever (and for

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whatever reason) his employer no longer desires to have performed the job which that employee was doing.''

(at 26-27)

Mr Marriott submitted that a strict test should be applied in determining whether the job that he had performed in the legal unit in small business was the same as the job to be done in that unit after the ATOLP was set up and he cited
Avondale Motors (Parts) Pty Ltd v FC of T 71 ATC 4101; (1971) 124 CLR 97. He submitted that the word ``redundancy'' is used in cl 75 of the EL2 Agreement and the Commissioner should accept that it means bona fide redundancy for tax purposes.

44. The respondent submitted that Mr Marriott's position in SB Law was not filled because he had informed management in November 1999 that he wanted to retire. I was urged to accept Mr Peterson's evidence that management adjusted their planned use of personnel accordingly. I accept that submission. Quite reasonably, it would be expected that adjustments might be made to staff arrangements once it was known that a particular member of staff would not be available in the future.

45. Mr Wigney also referred to the Adelaide Milk Supply case and in particular the passage from Bray CJ:

``... that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be a dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job that the employee has been doing to be done by anyone''

(at 8).

46. The respondent claimed that the evidence, including the applicant's own evidence, established that had Mr Marriott stayed on in the small business unit, there would have been a job for him as an EL2. Counsel for the respondent did not dispute that the job would not have been the same as previously, but that it would have utilised the applicant's skills and knowledge and would have been commensurate with his experience.

47. I find that SB Law still had a job that it wanted Mr Marriott to do. So much was apparent in October 1999 when Mr Peterson accepted the applicant's performance agreement for a job with the title ``Director, Legal Unit''. He possessed the skills and experience necessary to perform the duties involved and he was not excess to the ATO's operational requirements following the introduction of the legal practice. In my opinion, cl 76 was not applicable for that reason. Mr Marriott might well have been managing the most complex small business line case nationally. I find that the duties in the performance agreement were not too dissimilar from the duties that Mr Marriott had been carrying out for a few years, bar direct involvement in negotiating settlements and training junior advocates. That Mr Marriott was not to be doing advocacy in the future does not alter my view, because he had not acted as an advocate for a year or two. Where an employer is introducing structural changes to their organisation, they may well need to change employees' duties of employment. Such change in the ATO is anticipated by the Leadership Role statement in the EL2 Agreement, specifically the competency requiring flexibility and facilitation of change. Whether an employee's termination is by reason of redundancy will require an assessment of the changes to determine if they were beyond or beneath the employee's qualifications, skills or experience. I reject Mr Marriott's claim that as an EL2 in SB Law he would have been bereft of any utility or reasonable function.

48. I prefer Mr Peterson's dispassionate evidence and find that it was intended that Mr Marriott would have been managing significant cases, including those at a national level, and instructing the legal practice. The commencement of the ATOLP did not result in management of SB Law not having a job for Mr Marriott that he was qualified by experience and expertise to perform. While the service agreement would have to be reviewed in the future, as Mr Peterson acknowledged, I am satisfied that it set out the applicant's duties for a considerable period given it would not be reviewed until the ATOLP had become established. I find that his continuing role within SB Law was not going to be diminished and he would continue to utilise the skills he had developed in tax litigation.

49. What happened to the EL2 position in April 2000, in my opinion, does not establish that Mr Marriott was dismissed by reason of his bona fide redundancy. Mr Peterson's evidence was that a 'position' is an administrative tool

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that represents a bundle of duties and an attachment to a charging regime and everything except the position number may be changed. I accept Mr Peterson's evidence that if Mr Marriott had not sought retirement, the small business legal unit would probably have had a different structure to that which eventuated. I accept the respondent's submission that what happened when the EL2 position was transferred, was an adjustment in deployment of personnel. It does not affect my finding that Mr Marriott's termination was not by reason of bona fide redundancy.

50. In conclusion the objection decision dated 22 October 2001 disallowing the objection to the applicant's income tax assessment for the year ended 30 June 2000 should be affirmed.

51. As for the assessment of termination payments surcharge, I find that the payment of $78,531 is a ``termination payment'' as defined by s. 7(2) of the Termination Payments Surcharge Act and the applicant's adjusted taxable income under s. 31 of that Act is $135,752 (T24-149) which exceeds the surcharge threshold set out in s. 10. Consequently, the applicant has not discharged the burden of proving that the assessment of surcharge is excessive (see s. 14ZZK of the Taxation Administration Act 1953) and so the objection decision dated 20 December 2001 must be affirmed.


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