Case Q111
Judges:KP Brady Ch
JE Stewart M
DJ Trowse M
Court:
No. 2 Board of Review
K.P. Brady (Chairman), J.E. Stewart and D.J. Trowse (Members)
At issue in this reference are two unrelated items comprised in the taxpayer's return of income for the year ended 30th June 1981, namely his entitlement to receive a sole parent rebate, and the assessability of interest income on two savings bank balances.
ATC 571
2. The taxpayer is a salaried civil engineer employed by a mining company. He lived and worked at one of the company's main operational centres in an isolated area some 600 kilometres from the capital city of T. Additionally, he did some minor consultancy work.
3. His return of income disclosed that he was divorced from his wife, and was a sole parent for the whole of the year of income. In claiming a zone rebate, he disclosed that he had a son, A, and a daughter, B, both at university, and aged approximately 22 and 20 respectively, and a younger daughter, C, aged about 16, and still at school and living with her mother. In studying at the university, it seems that both the older children lived in rented accommodation at M, a suburb of T and located a few miles from the university; vacations were spent with the taxpayer. His claim to the sole parent rebate has been put in issue because of the view taken by the Commissioner that B's separate net income exceeded the permitted maximum of $1,719. It seems that the income of the eldest child, A, was of such order as to preclude the taxpayer from entitlement to a sole parent rebate in respect of that dependant.
4. The sole parent rebate is allowable under sec. 159K to a resident taxpayer who has the sole care of one or more ``dependants'' being a child under 16 years of age, or a student. The maximum rebate, which was $559 in the year of income, is allowable irrespective of the number of persons in the care of the taxpayer. The requirements as to rebate entitlement for dependants are set out in sec. 159J, and so it is necessary to examine the terms of that section as well as those of sec. 159K in order to gauge the validity of the taxpayer's claim. Section 159K, so far as it is considered to be relevant, is as follows:
``(1) Where, during the whole of the year of income, a taxpayer has the sole care of a dependant or dependants included in class 3 or class 4 in the table in sub-section (2) of section 159J, being a dependant or dependants in respect of whom he would be entitled to a rebate of tax under that section in his assessment in respect of income of the year of income but for sub-section (1A) of that section, he is entitled, subject to sub-section (3), to a rebate of tax, in his assessment in respect of income of that year of income, of -
- (a) if he is not entitled, in respect of the year of income, to a rebate of tax under section 159J in respect of a spouse or daughter-housekeeper or under section 159L in respect of a housekeeper - an amount of $559; and
- (b)...
(2)...
(3)...''
(Subsection (3) of sec. 159K deals with the situation where the taxpayer is married.)
5. Rebates for children and student children were abolished as from the 1975/76 year of income, and thus we have the allusion in sec. 159K(1) to sec. 159J(1A). However, they are notionally retained by sec. 159K(1) for the purposes of determining entitlement to other rebates of which the sole parent rebate is one. Accordingly, we now turn our attention to the relevant provisions of sec. 159J in regard to rebates allowable for children and student children. They are in the following terms:
``(1) Where, during the year of income, a taxpayer contributes to the maintenance of a person (in this section referred to as a `dependant') specified in the second column of the table set out in sub-section (2) and that person is a resident, the taxpayer is entitled, in his assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section.
(1A) A taxpayer is not entitled in his assessment in respect of income of a year of income after the year of income that ends on 30th June 1976 to a rebate under this section in respect of a person by reason that the person is included in class 3 or class 4 in the table set out in sub-section (2).
(2) Subject to this section, the amount of the rebate allowable in the assessment of the taxpayer in respect of a dependant under this section is the relevant amount specified in column 3 of the following table: -
Column 1 Column 2 Column 3 Class Dependant Amounts of Rebate 1 Spouse of the taxpayer $800 2 Daughter-housekeeper $800 3 Child less than 16 years of age In respect of 1 (not being a student) such child- $362 In respect of each other such child - $272 4 Student $362 5 Invalid relative $362 6 Parent of the taxpayer or of his spouse $722 (3)...
(4) The amount of the rebate otherwise allowable under this section in respect of a dependant shall be reduced by $1 for every $4 by which the separate net income derived by the dependant in the year of income exceeds $272.
(5) Where, during the whole or part of the year of income, the taxpayer and a person of a kind specified in column 2 of the table in sub-section (2) resided together and that person has a separate net income in that year, then, for the purposes of this section, the taxpayer shall be regarded, unless the contrary is established to the satisfaction of the Commissioner, as having contributed to the maintenance of that person during the whole or that part of the year of income, as the case may be.
(6) In this section -
- ...
- `separate net income', in relation to a dependant -
- (a) does not include child endowment, or a handicapped child's allowance, paid under the Social Services Act 1947-1975, amounts paid under a scheme for the provision by the Commonwealth of assistance in connexion with the education of isolated children or domiciliary nursing care benefit paid under Division 5B of Part V of the National Health Act 1953-1975; and
- (b) in the case of a dependant included in class 3 or class 4 in the table in sub-section (2) -
- (i) includes the value or amount of any assistance (other than child endowment, a handicapped child's allowance or an amount paid under a scheme for the provision by the Commonwealth of assistance in connexion with the education of isolated children) provided to the dependant or any other person by the Commonwealth or a State by way of, or for the purpose of, maintenance or accommodation of the dependant in connexion with the education of the dependant; and
- (ii) does not include the value or amount of any scholarship, bursary, exhibition or prize, except to the extent that it consists of assistance referred to in sub-paragraph (i);
`student' means a person who is less than 25 years of age and is receiving full-time education at a school, college or university.''
6. Thus, assistance provided to a dependant by the Commonwealth or a State for that person's maintenance or accommodation in connection with his or her education forms part of the dependant's separate net income. The situation is
ATC 573
different, however, if the amount is paid under a scheme instituted by the Commonwealth to assist with the education of isolated children. Accordingly, the issue before us is one of categorisation; what was the true nature of the payment made by the Commonwealth to B?7. It seems that B's income in the year of income comprised:
$
(i) Earnings from vacation employment 1,403
(ii) Interest income 283
-----
1,686
(iii) Money paid under the Tertiary Education
Assistance Scheme (TEAS) 750
-----
2,436
-----
The taxpayer submitted that only the total of $1,686 represented the separate net income of his daughter, B. Thus it was lower than the permitted maximum of $1,719, enabling him (so he alleged) to properly claim the sole parent rebate.
8. In advancing his arguments, the taxpayer pointed out that TEAS was a means-tested scheme and students qualified on the basis of need. He contended that the TEAS payments made to his daughter in the year of income comprised two components: a component of $476 comprising a living-away-from-home allowance, and a component of $274 comprising a family allowance. He maintained that the first component was specifically excluded from his daughter's separate net income by subpara. (i) of para. (b) of the definition of separate net income included in subsec. (6) of sec. 159J. He contended that that was so because it represented payments made by the Commonwealth in connection with the education of isolated children; the second component was incorrectly included because it did not comprise assessable income.
9. That contention was rebutted by an officer of the Commonwealth Department of Education and Youth Affairs (hereafter called ``the Department'') who gave evidence as a witness for the Commissioner. He stated that he had been involved with tertiary education assistance since 1974. He advised us that tertiary education assistance payments are made under a Commonwealth Act, the Student Assistance Act 1973. Section 4 of that Act, which was tendered as an exhibit, states:
``The object of this Act is to make provision for and in relation to benefits to students by way of assistance in the form of Senior Secondary Scholarships of the kind provided for in Part II, Tertiary Education Assistance of the kind provided for in Part III and Post-graduate Awards of the kind provided for in Part IV.''
Part III is headed ``Tertiary Education Assistance''. The first provision contained in that Part, namely sec. 10 of the Act, is in the following terms:
``An authorized person may, subject to and in accordance with the regulations, approve the grant of Tertiary Education Assistance to a person who is an Australian citizen or a permanent resident of Australia and is undertaking, or proposes to undertake, at a tertiary education institution a course of study or instruction approved by the Minister for the purposes of this Section.''
The term ``tertiary education institution'' is defined by sec. 5 to mean:
``(a) a university;
(b) an advanced education institution; or
(c) a technical college,
and includes any other educational institution, or any other institution, authority or body, in Australia that, under the regulations, is to be treated as a tertiary education institution for the purposes of this Act;''
Pursuant to the recipients of the assistance being specified in sec. 10, sec. 11 describes the benefits to be paid as under:
ATC 574
``(a) the payment of amounts equal to any fees of a prescribed kind paid or payable by or in respect of the person; and
(b) where the person is a full-time student and a living allowance is payable under the regulations in respect of the person, or in respect of the person and his dependants - the payment of -
- (i) a living allowance at such rate as is determined in accordance with the regulations; d
- (ii) an allowance, to be known as an incidentals allowance, at such rate as is prescribed for the purposes of this paragraph in relation to the class of students in which the person is included; and
- (iii) such amounts as are determined in accordance with the regulations in respect of fares paid or payable by or in respect of the person.''
10. We accept as a fact that the taxpayer's daughter, B, was both an Australian citizen and a permanent resident of Australia. Additionally, the evidence disclosed that she was undertaking an approved course of study, a Science degree, at a tertiary education institution, the University of Western Australia. She thus met all the requirements of sec. 10. The officer of the Department confirmed that she was a grantee under the Student Assistance Act in both the years 1980 and 1981. (In so doing, he advised us that his Department works in calendar years rather than financial years.) He advised us that there were three forms of allowance paid to B in the financial year ended 30th June 1981 and provided details as follows:
1. Living Allowance
Amount of
Date of payment payment
$
8th July 1980 56.29
5th August 1980 56.29
2nd September 1980 56.29
30th September 1980 56.29
28th October 1980 56.29
11th November 1980 114.59
11th November 1980 2.01
5th February 1981 58.68
19th February 1981 58.68
19th March 1981 58.68
16th April 1981 58.68
14th May 1981 58.68
11th June 1981 58.68
------
Total: 750.13
------
2. Incidentals Allowance
5th February 1981 100.00
------
3. Fares Allowance
Date of authorisation
March 1981 70.20
April 1981 21.92
June 1981 25.48
------
117.60
------
4. Total Payments 967.73
------
11. It seems that the living allowance is paid to all students meeting the requirements of sec. 10. It is paid to students who live at home as well as those who do not, and to a third category who are termed ``independent'' and who, in the generality of cases, comprise students who have either turned 25 years of age or who have married. That latter category need not concern us here; we note, however, that they are paid the living allowance at the highest rate. The allowance is paid at the lowest rate to those who live at home, and at an approximately 50% higher rate (which we shall call rate 2) to those who live away from home. The payments are made to the student, not to his or her parents. Regulation 42 of the Student Assistance Regulations provides that the higher rate of allowance (rate 2) will be paid to a grantee other than one who is deemed to be of independent status:
- (a) where living-in at the particular tertiary education institution is compulsory;
- (b) where daily travel between the parents' home and the institution is impracticable because of the travel time involved (within that context, we were advised that more than one hour's travel time to or from the home/institution would meet the Department's requirements);
- (c) where it would be impracticable for the student to reside with his or her parents by reason of inadequacy of opportunity or facilities for study at his or
ATC 575
her parents' permanent home or other similar circumstances. (We were informed that the view of the Department is that if the student does not have a separate bedroom in which to study, that is regarded as amounting to a lack of opportunity for him to study at home. Other circumstances would be inter family member arguments and disputes, alcoholism in the family, assault and sexual abuse.) We were also told by the Departmental officer that if the home environment was not suitable it would not matter where the alternative accommodation was situated in relation to the educational institution; ``students can, and do, live in a house next door''
12. The taxpayer referred us to the TEAS Handbook for 1981 which indicated at pages 14 and 15 that the living allowance both at-home and away-from-home included a component for transfer of family allowance. The amount was stated to be $273 a year and was the same in the previous year. It seems that the term ``family allowances'' covers a number of payments made by the Department of Social Security, of which child endowment forms one. Those payments are exempt from tax under sec. 23AD(3)(d)(i) (see CCH Australian Federal Tax Reporter pp. 4543 and 4544). Consistent with that exemption, child endowment receipts are excluded from a dependant's separate net income as indicated in sec. 159J(6). Thus, we consider that the taxpayer was correct in holding that the family allowance component should not be taken into account in determining his claim to the sole parent rebate.
13. Different, however, in our view, is the living allowance properly so called amounting to $476. That allowance was paid at the higher rate to B because her parent's home was situated a considerable distance from the university. It is not open to the taxpayer to say that the incremental amount paid as a consequence of his daughter living away from home was in fact paid as a form of assistance in the education of isolated children. The incremental amount, as with the basic amount, was paid under the Tertiary Education Assistance Scheme as a living allowance. It represented an additional amount paid to B because she had proper reason according to the Department to live away from home. It can thus only be regarded as part of the living allowance paid under the Student Assistance Act. It has nothing to do with ``amounts paid under a scheme for the provision by the Commonwealth of assistance in connexion with the education of isolated children''. In B's hands the living allowance of $476 represented a regular receipt of money which she received as of right and, whilst the moneys were intended for her maintenance, they were, when received, under her full control and could be used or disposed of as she herself decided. In our view, that allowance had all the attributes of income according to ``the ordinary concepts and usages of mankind'' (per Jordon C.J. in
Scott v. C. of T. (N.S.W.) (1935) 3 A.T.D. 142 at p. 144). As such, it forms part of her separate net income. Accordingly, that income amounted to $2,162 in the year of income precluding the taxpayer from making claim to the sole parent rebate. Also his claim for the zone rebate is consequentially reduced under the formula for its calculation contained in sec. 79A(2)(b).
14. The second item in issue relates to the assessability of interest credited on two savings account balances, and amounting to $472. In preparing his return, the taxpayer provided information on the balances of principal but omitted to include the interest income and included the following note by way of explanation:
``As this interest was paid on principal on which I had already paid tax and as the interest is merely to offset the loss in value due to depreciation and inflation and is not gained for profit making, the interest has not been included as income. There appears to be no provision in the Income Tax Assessment Act that specifically allows Savings Bank interest to be included as taxable income.''
15. The taxpayer's contentions, however, lack substance. There is no definition of the word ``income'' in the Assessment Act, and so whether a particular item constitutes assessable income is determined by that word's general meaning. Amongst the various meanings given to ``income'' in the Shorter Oxford English Dictionary is the following:
ATC 576
``That which comes in as the periodical produce of one's work, business, lands or investments (commonly expressed in terms of money).''
16. In the instant case we view the interest of $472 as the produce of the taxpayer's investments with the two banks, and as such it is income according to that word's ordinary meaning. It is rendered assessable to tax by virtue of sec. 25(1). The fact that it is savings bank interest and not described in the Assessment Act to be specifically assessable is not to the point. The fact, too, that tax may have been paid on the principal sums is irrelevant as the Act generally does not make an item not assessable because of any antecedent incidence of tax.
17. In similar vein, the interest item is not rendered non-assessable because a profit in real terms may not have been made on the taxpayer's investment transaction. As was stated recently by the Chairman of No. 3 Board in Case Q77,
83 ATC 388 at p. 397, the Income Tax Assessment Act operates on the basis of historical accounting and does not have regard to real profit in the strict economic sense. Therefore, the amount of interest in the instant case continues to represent assessable income to its full money value of $472, even though inflation might well have reduced that value to an appreciably lower figure and, indeed, even induced an economic loss on the investment transaction.
18. For the reasons stated above, we uphold the Commissioner's decision on the objection and confirm the assessment.
Claim disallowed
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