Federal Commissioner of Taxation v. Knight

Judges:
Neaves J

Court:
Federal Court

Judgment date: Judgment handed down 12 May 1983.

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Neaves J.

This is an application by the Commissioner of Taxation for leave to appeal from so much of a decision of the Supreme Court of the Australian Capital Territory given on 4 March 1983 (see 83 ATC 4096) as dismissed the Commissioner's appeal from that part of a decision of Board of Review No. 1 [see Case M30,
80 ATC 220] as determined that an amount of $1,385 was not properly included in the assessable income of the respondent for the year ended 30 June 1977. The application is made pursuant to subsec. 196(5) of the Income Tax Assessment Act 1936.

The matter proceeded before the Supreme Court on agreed facts which are in a short compass. The respondent, who had been a permanent officer of the Australian Public Service, retired on 4 March 1977 on the grounds of invalidity. Consequent upon his retirement the respondent became entitled to certain benefits under the Superannuation Act 1976. In the events which happened, including the making of an election under subsec. 68(1) of that Act, those entitlements consisted of a pension equal to a percentage of his final annual rate of salary (an expression defined in subsec. 3(1)) and what is described in the Act as a ``lump sum benefit'' payable in accordance with sec. 68. The amount of the lump sum benefit was subsequently calculated to be $38,023.54 but this calculation was not made until some time in 1978. Pending the final calculation of this amount, an interim payment of $27,707.69 was made to the respondent during the year ended 30 June 1977. The balance, namely a sum of $10,315.85, was paid on 15 December 1978.

The Commissioner, relying upon para. (d) of sec. 26 of the Income Tax Assessment Act 1936, included in the respondent's assessable

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ATC 4276

income for the year ended 30 June 1977 the sum of $1,385, being 5% of the sum of $27,707.69 to which I have referred. The respondent lodged a notice of objection which was disallowed. The decision upon the objection was at the respondent's request referred to a Board of Review which, by majority, upheld the respondent's claim that the sum of $1,385 was not properly included in his assessable income. The Commissioner appealed to the Supreme Court of the Australian Capital Territory and that Court dismissed the Commissioner's appeal.

So far as material, sec. 26(d) in force at the relevant date operated to bring into the assessable income of a taxpayer five per centum of the capital amount of any allowance where that amount was paid in a lump sum in consequence of retirement from, or the termination of, any office or employment, and whether so paid voluntarily, by agreement or by compulsion of law. The provision was subsequently amended but not in any respect material to the consideration of the present application. The question is whether, on the undisputed facts and upon the proper construction of the relevant statutory provision, the payment to the respondent in the year of income of the amount of $27,707.69, not being the total sum payable to him by way of allowance in consequence of his retirement from his employment, is properly described as having been paid in a lump sum. It is clear that if that question is answered in the affirmative, the other conditions of the application of sec. 26(d) are fulfilled. In the decision from which it is sought to appeal the Supreme Court took the view that the phrase ``paid in a lump sum'' as used in sec. 26(d) ``refers to the whole of the capital amount referred to earlier in the section and hence in this case to the sum of $38,023.54, the capitalized or total value of the allowance paid to Mr. Knight consequent upon his retirement'' (83 ATC at pp. 4102-4103).

The approach which a single Judge of this Court should take in considering a question of the kind which now arises for my decision has been discussed by Toohey J. in
Lombardo v. F.C. of T. 79 ATC 4079, by Lockhart J. in
F.C. of T. v. Nixon 79 ATC 4512 and by Northrop J. in
F.C. of T. v. Forsyth 79 ATC 4577.

Counsel for the Commissioner submitted that there is a substantial or real question to be answered on the appeal. He conceded that the amount involved in the appeal was small and that the specific facts of the present case were unlikely to recur in the future because they arose out of a situation of transition from the superannuation scheme for Australian public servants embodied in the Superannuation Act 1922 to that enacted in the Superannuation Act 1976. However, counsel relied upon the fact that some 19 other cases raising the same question as arises in this case are pending and awaiting the final resolution of the present matter (see, for example,
F.C. of T. v. Curtin 80 ATC 4654). He also relied on the circumstance that a similar question could arise under any private superannuation scheme where an amount to which an employee is entitled in consequence of retirement from, or termination of, his employment could be made by more than one payment.

For the Commissioner it was also submitted that the question was one of general importance on which there is no direct authority of an appellate Court. Counsel drew attention to the use of similar language, namely the words ``paid to a taxpayer in a lump sum in consequence of the retirement of the taxpayer... from any office or employment'' in sec. 26AC and 26AD of the Act which bring to charge amounts received on retirement or termination of employment in lieu of annual leave and long service leave respectively. Reference was also made to sec. 158C of the Act.

The Commissioner through his counsel undertook, in the event of leave to appeal being granted, to pay the respondent's reasonable costs on a party and party basis of the appeal irrespective of the result. It was made clear, however, that this undertaking did not extend to any increased costs attributable to any cross-appeal that might be lodged on behalf of the respondent in respect of matters dealt with adversely to the respondent by the Supreme Court.

Counsel for the respondent submitted that leave to appeal should not be granted. He pointed out, correctly, that the existence of a question of law is not of itself enough to warrant the granting of that leave. He submitted that all that the Commissioner had shown was that there was a question of law

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ATC 4277

and that there were no other circumstances sufficient to warrant the granting of leave. The respondent had, he said, been successful in the Board of Review and in the Supreme Court of the Australian Capital Territory. He stressed the small amount involved not only in the instant case but also in the 19 other cases to which the Commissioner had referred as awaiting the outcome of the present proceedings and to the circumstance that the situation which gave rise to the problem in relation to Australian public servants retiring at or about the time of the transition from one superannuation scheme to another was not likely to recur. Finally, he submitted that if the construction of sec. 26(d) adopted by the Supreme Court of the Australian Capital Territory was not acceptable, the Act could be amended to obviate prospectively any problem to which the decision gives rise.

While it is, in my view, no answer to the present application to say that the Act can be amended to overcome any perceived problem for the future, there is considerable force in the other matters upon which counsel for the respondent relied. However, upon full consideration of the matter I have concluded that this is a proper case for the granting of leave to appeal. The question of law involved is an important one and there appears to be no case in which an appellate Court has had to consider the application of sec. 26(d) to facts similar to those of the present case. Further, the matters relied upon by the Commissioner show that the question is of sufficiently general application to warrant the attention of a Full Court of this Court.

Accordingly, on the basis of the Commissioner's undertaking concerning the costs of the appeal, leave is granted to the Commissioner to appeal from so much of the decision of the Supreme Court of the Australian Capital Territory given on 4 March 1983 as held that the amount of $1,385 was not properly included in the assessable income of the respondent for the year ended 30 June 1977. The Commissioner should pay the costs of this application.

ORDER

THE COURT ORDERS THAT:

1. Upon the Commissioner of Taxation undertaking through his counsel to pay the respondent's reasonable costs on a party and party basis of the appeal irrespective of the result (such costs not to include any increased costs attributable to any cross-appeal that may be lodged on behalf of the respondent), leave be granted to the Commissioner of Taxation to appeal from that part of the judgment and order of the Supreme Court of the Australian Capital Territory given and made on 4 March 1983 dismissing the Commissioner's appeal from a decision of Board of Review No. 1 and holding that the respondent's objection to the inclusion of an amount of $1,385 as assessable income of the respondent for the year 1976-77 pursuant to the provisions of sec. 26(d) of the Income Tax Assessment Act 1936 be upheld.

2. The Commissioner of Taxation pay the respondent's costs of this application.