Case J33
Judges:AM Donovan Ch
RK Todd M
Court:
No. 2 Board of Review
A.M. Donovan (Chairman) and R.K. Todd (Member): Two amounts were paid to the taxpayer, since deceased, in the circumstances to be later described. It was contended that each amount represented an allowance paid to him in consequence of the termination of his employment. It was said therefore that the Commissioner was in error in treating the sums in their entirety as assessable income since sec. 26(d) of the Act operated to bring them to tax to the extent of five per cent only.
2. To a substantial extent the relevant facts were agreed by the parties in the following terms:
- (1) The taxpayer, Mr. A, is now deceased, the date of his death being 1st April, 1976.
- (2) Apart from a period of approximately 18 months in the mid-1950's, Mr. A was employed in the Australian coastal shipping industry from 1948 until shortly before his death.
- (3) Mr. A first signed with the Employer on 21st May, 1956, and, apart from a two week period between 26th October, 1956, and 13th November, 1956, was engaged with the Employer until the decommissioning of the ship ``X''.
- (4) Mr. A acted in the position of Second Steward on the ship ``X'' - a passenger vessel operated by the Employer - from 24th August, 1970, to 21st March, 1973, and had acted continuously as a Second Steward with the Employer from 10th December, 1968. Throughout his career with the Employer Mr. A worked only on passenger vessels.
- (5) The ``X'' was commissioned on 2nd November, 1962, and decommissioned on 17th May, 1973. Until 21st March, 1973, the ship operated on the... run as a passenger vessel. Between 22nd March, 1973, and 17th May, 1973, the ship was prepared for sale and ran two voyages as a cargo vessel.
- (6) Upon its decommission the ``X'' was sold off the coast to a Singapore purchaser. By the phrase ``sold off the coast'' it is meant that the ship is sold to an overseas purchaser so that it ceased to operate in the Australian coastal shipping industry.
- (7) At all material times employment of Marine Stewards in the Australian coastal shipping industry was governed partly by agreements between the ship owners and the appropriate union and partly by the following awards of the Conciliation and Arbitration Commission:
- Marine Stewards Award 1967 (as amended) - Appendix A.
- Marine Stewards Long Service Leave Award 1971 - Appendix B.
- (8) Upon the decision of the Employer to decommission the ``X'' for sale off the coast, Mr. A's position with the Employer became redundant and he was given notice on 20th March, 1973, to cease duty on 21st March, 1973.
- (9) In accordance with conditions of service prevailing in the Australian coastal shipping industry in respect of marine stewards, Mr. A became eligible for the following payments upon his redundancy with the Employer:
Accumulated leave $ 817.46 Severance pay 569.35 $1,386.81 -------- - (10) Under an agreement between ship owners and the Federated Marine Stewards and Pantrymen's Association of Australasia (hereinafter referred to as ``the Association''), accumulated leave accrues at the rate of 20 weeks per year of service in satisfaction of what was previously known as intervals of leave, annual leave and leave in respect of public holidays and Sunday sailings.
- (11) On his redundancy with the Employer, Mr. A had accumulated leave of 36¼ days which entitled him to payment of $817.46.
- (12) Payment of accrued leave was made in cash on 21st March, 1973, as follows:
Wages $ 304.72 Accumulated leave 817.46 --------- $1,122.18 Deduct sign off fee 0.40 --------- $1,121.78 Deduct tax 269.78 --------- Net cash payment $ 852.00 --------- - (13) Severance pay was paid under the terms of an agreement between the ship
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owners and the Association following a decision of Gallagher J. in the Conciliation and Arbitration Commission in respect of the vessel ``Age'' in 1968. By agreement, the payment is calculated at the rate of 1½ weeks pay for each year of service on the vessel decommissioned and sold off the coast. (Copy of ``Age'' decision - Appendix C.) - (14) Mr. A's service on the ``X'' was 2½ years, thus he was entitled to a payment of 3¾ times his then weekly salary (viz: $151.82) which amounted to $569.35.
- (15) Payment of this amount was made by cheque posted on 21st March, 1973, as follows:
Severance pay entitlement $569.35 Less tax 136.35 ------- Net cheque payment $433.00 ------- - (16) The system of engagement of marine stewards in the Australian coastal shipping industry is governed by cl. 44 of the Marine Stewards Award 1967 (as amended) - see Appendix D.
- (17) On 27th April, 1973, Mr. A went ``on roster''.
- (18) From 22nd March, 1973, to 4th April, 1973, Mr. A was employed by the Employer on a casual basis as ``workby'' steward on the ``X'' to assist with the preparation of the vessel for sale. Arrangement of this casual employment was made prior to Mr. A signing off the ``X'' on 21st March, 1973.
- (19) Mr. A remained ``on roster'' until 8th June, 1973, when he was appointed to a position of assistant steward with the... Company.
- (20) For the period 27th April, 1973, to 8th June, 1973, Mr. A was paid ``attendance money'' at the rate of $9.22 per day (including public holidays, but excluding Saturdays and Sundays) by Australian Maritime Industry Limited. A total of $295.04 attendance money was paid to Mr. A - see document no. 7.
- (21) Attendance money is paid in accordance with the system of engagement referred to at para. (16) above.
- (22) In accordance with the system of engagement of marine stewards, the Superintendent (being an officer of the Australian Government Department of Transport) appointed for the Port of... maintains two registers described as Register A and Register B.
- (23) Register A is a recording of the names of stewards who have qualified for employment under the system.
- (24) Register B is a recording of the names of persons seeking registration as employees under the system.
- (25) Mr. A's name was entered on Register A on 28th July, 1971, shortly after the system of engagement commenced. His name was removed from the register upon his death on 1st April, 1976.
- (26) On 3rd May, 1973, the Seafarers Retirement Fund was created ``to provide retirement and other benefits for certain maritime employees who are or have been employed in the maritime industry and their dependants....'' (Copy of Trust Deed and Rules at Appendix E.)
- (27) Mr. A joined the fund on 10th May, 1973.
An ancillary statement of facts provided:
- 1. It has been agreed that so far as it goes para. 10 of the statement of agreed facts correctly expresses the position as at 21st March, 1973.
- 2. It has further been agreed that there was no provision entitling an employee to be paid cash in lieu of accumulated leave while he still remained in the service of his employer.
The appendices referred to have not been reproduced, and it will suffice to mention as occasion arises those parts that are relevant.
3. Oral evidence augmented that agreed upon by the parties. It was stated that the agreements referred to in para. 7 above were contained in a draft of what was intended to be, but which in fact never became, an award of the Commonwealth Conciliation and Arbitration Commission. This document was put in evidence, but again it is not necessary that it be reproduced.
4. For the Commissioner it was submitted that termination of employment for the
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purposes of sec. 26(d) required the departure of the taxpayer from the industry and was not satisfied by a mere termination of a particular employer/employee relationship while the taxpayer continued to work in the same field. A similar argument was rejected in10 T.B.R.D. Case K33. The conditions of employment which there operated and which led to that rejection were different from those under which the taxpayer worked. These conditions, to some extent at least, were contained in an award made by Gallagher J. under the Conciliation and Arbitration Act 1904-1970 on 23rd December, 1970. It apparently expressed, with some amendments, the provisions of the award referred to in para. 16, and prescribed conditions which related inter alia to the engagement of marine stewards. It provided for what can be described as a quota system controlled by the permanent head for the time being of the Department of Shipping and Transport, or by his nominee. It required that the names of persons working within the industry be recorded on a register referred to as Register A, and those of people wishing to enter the industry on Register B. There were provisions relating to the increase and decrease in the number of persons on Register A to accord with a quota determined by reference to the number of available positions. Subject to some exceptions, notably those employees on leave, people on Register A who were not actually employed were required to hold themselves immediately available for engagement, and these persons were, we understood, those referred to as being ``on roster''. The corresponding benefit conferred on these persons (again subject to some exceptions) was their entitlement to receive payments called appearance money for each day they remained unemployed.
5. At the present time those in the industry are entitled to long service leave and to benefits provided by a retirement fund. We were informed that funds required for the provision of industrial clothing for employees, for the payment of attendance money and long service leave, and for contributions to the retirement fund in respect of men on roster came from a corporation called ``Australian Maritime Industry Ltd.'' This corporation obtained its funds from levies imposed on ship owners which were calculated in proportion to the number of their sea-going employees.
6. The conditions under which the taxpayer was employed were thus very different from those applicable to the maritime industry at the time Case K33 (supra) was considered. The changes are so substantial that the submission for the Commissioner cannot be dismissed merely on the basis of the earlier decision. Nevertheless, on the view that we take in this reference, it is not necessary to come to any conclusion about the matter and we leave it for consideration on some future occasion.
7. On the other hand, the submission made for the taxpayer was that there was a termination of employment on 21st March, 1973, the date fixed for the cessation of duty by the notice referred to in para. 8 of the agreed facts. Yet, before that time arrived it had been arranged that the taxpayer should continue to render paid service to his employer for a further period. It is true that some change in duties was contemplated and what had earlier been permanent employment became temporary employment, and, as it eventuated, temporary employment of short duration. Nevertheless, the taxpayer continued to act as a marine steward after 21st March, 1973, on the same ship and for the same employer. It appears that the change which occurred on that date did not require the taxpayer to go through the roster system, and it would certainly be strange if it were otherwise. In these circumstances, an attempt was made to distinguish between the employment that the taxpayer had prior to 21st March, which it was said ceased at that date, and his subsequent employment. That is a distinction which is not recognised by the words of sec. 26(d) itself which speaks of employment simpliciter. The cases to which we were referred on the point do not assist the argument for the taxpayer. In
4 T.B.R.D. Case D46, there was a complete cessation of employment and, although prior to retirement the employee was anxious to be re-employed, arrangements for him to re-enter his former employer's service were not made until later. Case J45,
9 T.B.R.D. 236, turned on the fact that the taxpayer in question was held to have retired from an office and because of the meaning of that word the decision has no relevance to a problem concerned with the termination of employment as such. In the circumstances, we find that there was no termination of the taxpayer's employment until 4th April, 1973.
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8. It is now necessary to see how the taxpayer's entitlement to leave arose in respect of which he received the sum of $817.46. Paragraph 10 of the statement deals with this subject. It recites the effect in part of cl. 9(a) of the draft award already referred to, which is expressed in the following terms:
``An employee shall be entitled to 140 intervals of leave from his vessel in a port without loss of pay for each year of employment and such intervals shall accrue at the rate of 5-5/13ths intervals of leave for each fortnightly pay period during the employment.''
An employee proceeding on leave could receive payment at fortnightly intervals or could elect to be paid at the commencement for the entire period.
9. By cl. 9(i) of the draft award, it was provided that:
``Upon termination of employment an employee shall be paid at his salary rate for the last position in which he served for all intervals of leave to which he is entitled at the date of termination in respect of his employment up to the completion of his service on articles.''
This provision may be open to more than one interpretation, and on one view it may do little more than fix the period in respect of which leave is to be calculated and the rate of pay applicable to that period. Payment itself seems to be assured by the provisions of cl. 9(a). The draft award makes no reference to payment in lieu of leave while employment continues, and presumably this is what para. 2 of the ancillary statement is intended to mean. Nevertheless, the fact remains that the taxpayer was entitled to leave which had accrued up to 21st March, 1973; he was in fact paid for that leave, and he did in fact continue in his employment without interruption beyond that date.
10. The question for decision is whether the sum of $817.46 in respect of the accrued leave was paid to the taxpayer ``in consequence of'' the termination of his employment. The meaning of that phrase was considered in
Reseck v. F.C. of T. 75 ATC 4213. At pp. 4216-7, Gibbs J. expressed the view: ``Within the ordinary meaning of the words a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of the termination.'' At p. 4219, Jacobs J. said: ``A consequence in this context is not the same as a result. It does not import causation but rather a `following on'.'' It is not necessary to choose between these two tests. If the former is applied the payment in respect of leave cannot be seen as an effect or result of the termination of the taxpayer's employment on 4th April, 1973. Neither did it ``follow on'' on the termination of the employment for the purpose of the second test. The payment was for leave which had accrued to the taxpayer up to 21st March, 1973, and it was made to him during the course of his employment which continued until 4th April, 1973. It was not paid ``in consequence of'' the termination of the taxpayer's employment which occurred only on the last mentioned date in the sense of that phrase as explained in Reseck's case (supra). The provisions of sec. 26(d) therefore do not apply to it.
11. It should perhaps be mentioned that the effect of the award governing the conditions of employment to which reference has already been made was that the taxpayer was not required to present himself for employment until the expiration of the period of leave for which he had been paid. In consequence he did not go ``on roster'' until 27th April, 1973. Conversely, he was not entitled to appearance money until the later date. In a very real sense, the award treated him as being on leave for the period concerned.
12. The conclusion to which we have come is not in any way inconsistent with the decision in Case K33 (supra). There the taxpayer's leave did not accrue from period to period and his entitlement thereto only arose after a full year's service. If his engagement ended within a year, an entirely different right came into existence. That right consisted of an entitlement to receive a half day's pay for every half month worked. The circumstances were thus entirely different from those in this reference, and it was held that the payment so received was made in consequence of termination of employment and was thus within the terms of sec. 26(d).
13. We now turn to consider the circumstances which gave rise to the receipt of $569.35 described as severance pay. In 1968, an industrial dispute arose because the ship ``Age'', which had operated on the Australian coast, was being sold to an overseas purchaser and would no longer be engaged in the local trade. The dispute was settled by an order of
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Gallagher J. in the Commonwealth Conciliation and Arbitration Commission (No. 1983 of 1968) for payment to each member of the ship's company calculated by reference to his period of service on the vessel. Apparently the practice then arose of making payments determined in the same manner to the crew of any vessel whenever it was sold ``off the coast''. Perhaps the philosophy on which the practice was based can be understood. It may well be thought that when a vessel leaves the Australian trade the opportunities of employment for Australian seamen are reduced, but this does not necessarily follow since a new ship may take the place of the old one. It is of importance for present purposes that the payment received by the taxpayer arose because, and only because, the ship on which he had been employed was being sold overseas. The receipt of the payment had nothing at all to do with the termination of the taxpayer's employment since it was quite possible for him to continue to be employed on another ship operated by the same employer after the receipt of the amount in question. Again, on the tests enunciated in Reseck's case (supra) the payments cannot be regarded as being made ``in consequence of'' the termination of the taxpayer's employment.14. For these reasons, neither of the amounts received by the taxpayer is of the character described by sec. 26(d) and that provision has no application to them. We would therefore uphold the Commissioner's decision on the objection and confirm the assessment.
Claim disallowed
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