Case Q3

Judges:
KP Brady Ch
LC Voumard M
JE Stewart M

Court:
No. 2 Board of Review

Judgment date: 26 January 1983.

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K.P. Brady (Chairman); L.C. Voumard and J.E. Stewart (Members)

This reference raises for our consideration whether the taxpayer, a widow and mother of three children and employed in the year of income in issue as a secondary school teacher, should be assessed on amounts of pension received from the State Superannuation Board in respect of each of her children; alternatively, whether such amounts were received by her in the capacity of trustee for her children so that the income was in fact derived not by her, but by them.

2. The taxpayer's husband was employed as a senior officer in the Agriculture Department of State A until his death in April 1976. He was then aged 45. During his working life with the Department he had contributed to the State Superannuation Fund, which in the words of the enabling Act was to make:

``Provision on a Contributory Basis for Superannuation Benefits for certain Public Officers and Employees and Benefits for Certain of their Dependants.''

Administration of the Act was, and is, vested in a Board called the State Superannuation Board.

3. Section 31 of that Act, to the extent it is relevant, states as follows:

``(1) Save as otherwise expressly provided in this Act, on the death of a contributor before retirement there shall be paid to the spouse of the deceased contributor -

• (a) during the life of the spouse, sixty-six and two-thirds per centum of the pension for which the deceased was contributing or was liable to contribute at the time of his death...
• (b) in respect of each of the children of the spouse or the deceased contributor...
  • (i) who are under the age of eighteen years; or
  • (ii) who are between the ages of eighteen years and 25 years and who in the opinion of the Board are full-time students -

a pension at the rate applicable under subsection (1A) or at the rate of $312 per annum whichever is the greater.

(1A) The pension applicable to a child of a contributor shall be -

• (a) where there is not more than three such children, an amount equal to 10 per cent of the contributor's pension;

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• ...

In this sub-section `contributor's pension' means -

• (a) on the death of a contributor before retirement, the pension for which the contributor was liable to contribute at the time of his death...''

4. The taxpayer duly completed a form headed ``Application for Widow's and Children's Pensions'' on 5th May, 1976, and there the children's names and ages were detailed so as to show that they were then under 18 years of age. In fact their respective ages were then 14, 12 and 9. That application form was tendered in evidence by the Commissioner's representative, and as processed by the Superannuation Board it contained the following information as regards the computation of the pension payable:

``WIDOW'S PENSION

                                                          Revenue     Fund
      Section 31 Rate p.a.                   $          $           $
      Commences 27.4.76 sec. 28A(2), (3)     $          $           $
                                             -----------------------------
                                 TOTAL       $          $           $
                                             -----------------------------
      Rate per fortnight                     $220.98    $161.30     $59.68
      Rate p.f. for each child               $ 33.15    $23.68       $9.47
                                             -----------------------------''
            

It would seem that payment of the pension was approved on 12th May, 1976.

5. Although two of the children have since reached their eighteenth birthday, they are full-time tertiary students and therefore the pensions are still paid for all three children.

6. The matter in dispute relates to the pensions paid in respect of the children during the year of income ended 30th June, 1978. It seems that in that year pensions totalling $6,240 were paid to the taxpayer and pensions totalling $2,760 were paid in respect of her children. Whilst the group certificate issued to the taxpayer by the payer of the pensions reflected a gross amount of $9,000 (i.e. $6,240 plus $2,760) paid to her, from which instalments of tax had been deducted amounting to $3,176.20, she included only as assessable income (but additional to her salary income) the amount of $6,240 when compiling her return of income for that year, on the basis that she received the children's pensions only in the capacity of trustee, as opposed to receiving them in her own right. It seems that the pensions were paid fortnightly direct to the taxpayer's own bank account, and that one remittance only covered the sum total of the pension payments.

7. The following exchange which took place in the taxpayer's examination-in-chief reflects her understanding as to the nature of the pension payments made for her children:

``Q. Will you tell the Board what happened to the money after it was received by your bank, the money received in respect of the children? - A. Yes, that and also the child endowment, and often as much as I could of what was given to me, I would put aside in a separate trust account for the children, so that I would have money not only for educational purposes but for anything else that might arise in connection with their education.''

The taxpayer subsequently advised in her evidence that the trust account was opened in her name as trustee for all of her children whose names she designated, for example, Mrs. L.R. Smith as trustee for John, Kevin and Janet Smith.

8. The exchange between the taxpayer and her representative continued as follows:

``Q. Now confining yourself purely to the pension money, would it be fair to say that the money was used exclusively for the benefit, upbringing and education of your children? - A. Yes. Yes it is. In fact I have tried to do everything that I have to do for the children. I try to do it on my own salary so that I have always got the

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other for the children in case of a rainy day.

...

Q. Is it your understanding that the amounts received from the Superannuation Board for the children are in fact for the children's upbringing? - A. Well, yes, yes.

Q. And that is consistent with what you have done with the money? - A. That is right. I have not used it for my own purposes whatsoever.''

In giving the above answers, we believe that the taxpayer was telling the complete truth.

9. If the pensions paid in respect of the children are properly the income of the taxpayer, they are made so by sec. 25(1) of the Assessment Act, which to the extent it is relevant states:

``The assessable income of a taxpayer shall include -

• (a) where the taxpayer is a resident - the gross income derived directly or indirectly from all sources whether in or out of Australia...''

The word ``derived'' is not defined in the Assessment Act but is considered generally to have a wider meaning than the word ``received''. In
F.C. of T. v. Thorogood (1927) 40 C.L.R. 454, Isaacs A.C.J. stated at p. 458 that:

```Derived' is not necessarily actually received, but ordinarily that is the mode of derivation.''

To receive an amount of income, however, is not necessarily to derive it; for instance, it can be received as agent for another person, or in the capacity of a trustee. Isaacs A.C.J. alluded to that kind of situation in
F.C. of T. v. Clarke (1927) 40 C.L.R. 246, where he said at p. 260:

``I ought not to pass by the doubt expressed by the learned primary Judge as to the application of the word `derived' to the profits here in question... It is that no one can `derive' profits that belong to another or are intended for another as owner. No doubt a manager does not `derive' his employer's profits. But it is dependent on circumstances whether anyone, other than the person beneficially entitled, `derives' income within the meaning of the Act.''

10. Section 31 of the Superannuation Act is drafted in such a format so as to show that there are two components of the pension payable to the taxpayer, viz. first, during her lifetime she is to receive 66⅔ per cent of the pension for which her husband was contributing, and secondly, for every child of hers or of her husband (the Act here allowing for the situation where there could be children by a previous marriage), she is to receive a further stipulated amount so long as the children comply with the age and full-time studentship requirements. When providing for the children's pensions, the section uses the words ``in respect of'' each of the children. In
Trustees Executors & Agency Company Limited v. Riley (1941) V.L.R. 110, Mann C.J. stated at p. 111:

``The words `in respect of' are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer.''

11. In
Dampier Mining Co. Ltd. v. F.C. of T. 78 ATC 4237, Jenkinson J. had cause to examine the same words when applied to sec. 123(2) of the Assessment Act to exclude from capital expenditure on specified items:

``... expenditure in respect of -

• (d) railway rolling stock, road vehicles or ships...''

At p. 4244, the learned Judge stated:

``The variety of connection which the phrase `in respect of' expresses has been judicially declared to be extensive: Trustees Executors & Agency Company Limited v. Riley (1941) V.L.R. 110, at p. 111,
Powers v. Maher (1959) 103 C.L.R. 478 at pp. 484-485. And the choice of that phrase strikes a contrast with the words employed elsewhere in sec. 123(2) and sec. 123A(1) to indicate a required connection between expenditure and specified activities and facilities.''

12. The conclusion which we draw from an examination of the various dicta is that the words ``in respect of'' when used in a statute can evince an intention on the part of

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the legislature that there need only exist a loose connection between the two subject matters to which the words refer. And we consider that such a loose connection is intended to exist in the type of situation now before us. If the Act had intended that the spouse should act as trustee for the pensions paid in respect of the children, it doubtless would have used the same words as employed in sec. 41(1), which subsection covers the situation of payment of pensions in the event of the spouse dying following upon the death of the contributor. That provision is in the following terms:

``Where pensions in respect of children are payable under this Act to a spouse the pensions shall, if the spouse dies, be payable to such person or persons as the Board directs on behalf of and for the benefit of the children, and every such pension shall be at the rate of the pension applicable to the child under sub-section (1A) or at the rate of $624, whichever is the greater.''

13. Accordingly, we consider that the Superannuation Act contemplates a trust being created for pensions payable in respect of children, only in the event of the death of the remaining spouse. Some support to that contention is evinced in the following letter received by the taxpayer from the Superannuation Board in answer to her enquiry as to what would happen to the pensions payable in respect of her children upon her death:

``In the event of your death, your children would receive $99.44 per fortnight, each under the provisions of the Superannuation Act.

Such pensions would be paid to the legal guardian and would be payable up to each child's eighteenth birthday, or if full time students after that date, up to the date the child ceased school or reached the age of twenty-five years, whichever was the earlier.''

14. In the situation where a spouse survives the contributor, as is the case before us, the pension in respect of the children is paid to that spouse in her own right, and represents simply an additional pension payable to her by reason of the fact that there are further people for whom the legislature considered the Superannuation Fund should properly provide. The belief which the taxpayer entertained that the children's pension was payable to her, but for their benefit, was doubtless the intention of the legislature. But it does not follow from that proposition that the pension was not her income, and this is so even though she meticulously set aside the amounts for the future welfare of her children.

15. The taxpayer's representative submitted that an amendment made subsequently to the year of income in issue to sec. 31(1), by which there was substituted the words ``to each child'' in lieu of ``in respect of each child'' evinced that the intention of the legislature was always to have that component of the overall pension payment regarded as the children's own pension. We cannot however agree. In our view, the words of sec. 31(1), before the amendment was enacted, are sufficiently explicit so as to leave no room for an alternative construction based on an alleged ambiguity.

16. For the reasons stated above, we uphold the Commissioner's decision on the objection and confirm the assessment.

Claim disallowed