Case F27

Judges:
JL Burke Ch
RE O'Neill M
CF Fairleigh QC

Court:
No. 1 Board of Review

Judgment date: 12 June 1974.

---

J.L. Burke (Chairman); R.E. O'Neill and C.F. Fairleigh, Q.C. (Members): The taxpayer, a merchant seaman, in returning income for the year of income ended 30 June 1971 deducted from the gross amount shown on his group certificate as salary or wages an amount of $1,081. He gave the following explanation in a letter which accompanied his return and which reads, in part, as under -

``...on receipt of my Group Certificate, I found that I had a major problem. On 15/6/71, I received from (employer) an amount of $1,349.11, for leave covering the next three months. The major portion of this amount referred to the period from 1/7/71 and should, therefore, be included in my taxation return for the year, 1971-72.

I calculated my taxation return 1970-71 on the Group Certificate No...., as received and found that because the return, in fact, was showing 15 months' income, instead of the usual 12 months, and because the 15 months' income put me into a taxation bracket far and above that which I was entitled to be in for 12 months (naturally), and this put an additional $300 (approx.) onto the amount of tax to be paid by me.

This, to me, seemed absolutely wrong, to be paying tax on 15 months' income, when the law obliges me to pay on 12 months. Had I picked up two weeks' pay to 30/6/71, and gone back to collect the remainder after 1/7/71, it would not have happened. The period of which the amount covered, with the exception of a short two weeks, was part of my income for 1971-72, and this is fact.

I cannot personally see why I cannot deduct the amount referring to the period from 1/7/71 ($1,081.51) from my income of 1970-71, and start off my income for 1971-72 with that amount...''

2. The taxpayer also attached a letter from his employer which reads -

``We wish to advise that when you paid (sic) off s.s. `(Ship)' on 15 June 1971 you were paid an amount of $1,349.11 for leave due.

Periods covered by this payment are as follows -

                              Leave              Income Tax
                             Payment              Deduction

      16 June 1971 to
         30 June 1971      $  267.60               $ 61.60
      1 July 1971 to
         25 August 1971    $1,081.51               $239.26''
          

3. The anomaly to which the taxpayer refers and on which he relies arises from the fact that his income for the 1971-1972 year was less than that for the income year under review but the question of assessability of income cannot be determined by the existence or otherwise of an anomaly. The situation about which the taxpayer complains could clearly have reacted in his favour had there been a substantial increase in his income for the 1972 year. For an illustration of the taxpayer's argument in reverse see Case D7,
72 ATC 38 where the taxpayer sought to ``push back'' leave pay from the year of receipt to the year of income when it was earned.

4. Section 25(1) of the Assessment Act brings to account as assessable income the gross income ``derived'' by a taxpayer. When, for the purposes of the Act, did the taxpayer ``derive'' the amount of $1,081 being part of the leave pay of $1,349 paid to him on 15 June 1971? ```Derived' is not necessarily actually received, but ordinarily that is the mode of derivation'' (
F.C. of T. v. Thorogood (1927) 40 C.L.R. 454 per Isaacs A.C.J. at p. 458). The ``receipt'' principle has been held to be determinative of the point of time of derivation in the case of persons in receipt of salary or wages. See for example two decisions by this Board as then constituted. Case A78,
69 ATC 422; Case D7, 72 ATC 38 (supra).

5. In the instant case the amount of $1,081 in dispute was derived by the taxpayer on 15 June 1971 and was correctly included by the Commissioner in the taxpayer's assessable income for the year ended 30 June 1971. The Commissioner's decision to disallow the taxpayer's objection is accordingly confirmed.

Claim disallowed