Case U163

Members:
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 6 August 1987.

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K.L. Beddoe (Senior Member)

The question to be decided in this application is whether a lump sum payment received by the applicant upon termination of his employment as a tutor at a college of advanced education is assessable in full or assessable in accordance with para. 26(d) of the Income Tax Assessment Act. The amount of $3,827 in question was received by the applicant during the year of income ended 30 June 1983.

2. At the relevant time and so far as is relevant para. 26(d) read as follows:

"26. The assessable income of a taxpayer shall include -

• ...
• (d) 5% of the capital amount of any allowance, gratuity or compensation where that amount is paid (whether voluntarily, by agreement or by compulsion of law) in a lump sum in consequence of retirement from, or the termination of, any office or employment, not being -
  • ...
  • (ii) an amount to which section 26AC or 26AD applies;"

3. Section 26AC refers to amounts received on retirement from any office or employment of the taxpayer which are paid in lieu of unused annual leave, etc. Section 26AD refers to amounts paid in similar circumstances in respect of unused long service leave.

4. In the return of income lodged by the applicant in respect of the year ended 30 June 1983 he disclosed a payment of $3,827 and returned 5% of that amount as assessable income.

5. The return of income included a schedule referring to the relevant part of the return and which stated:

"The amount of $3,827.50 represents a payment in lieu of superannuation as stated in the Academic Staff Handbook of the... College of Advanced Education:"

"PAYMENTS ON EXPIRY OF FULL-TIME LIMITED-TERM ACADEMIC APPOINTMENTS

1. On expiry of the full term of a contract appointment or sequence of such appointments for a staff member, and subject to receipt of a report from the Director indicating satisfactory service by the staff member, Council will make a lump sum payment to the staff member in lieu of superannuation contributions, of an amount equal to 10% of total salary earned during the appointment.

If during the term of a contract the staff member is transferred to or successfully applies for a tenurable position within the College, payment will be made on a similar basis with respect to the period prior to the change in status.

If for any reason a staff member leaves the service of the College during the term of a contract, such a payment will not normally be made. However, council will consider the particular circumstances of such a case and, at its discretion, may determine to make a payment not to exceed 10% of salary earned."

6. The applicant went on to explain that the amount of $3,827 was a payment in lieu of superannuation. By that he meant that the college made payment to him of an amount which it would otherwise have contributed to a superannuation fund for his benefit if he had been employed as a tenured tutor rather than as a limited term contract tutor, as was his case.

7. The basis of the applicant's claim is clearly set out in his return in the following paragraph:

"My position with... College of Advanced Education was as a senior tutor (contract). I received the lump sum on termination of a

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ATC 950

limited term contract. I was then re-employed as a Tenured Lecturer by (the same) College of Advanced Education. This represents a change in status as discussed in
1958 9 TBRD Case J45 and thus retirement from or the termination of my previous employment as a tutor on contract under the wording of s. 26(d)."

8. A notice of assessment dated 27 September 1983 issued to the applicant. Attached to the notice of assessment was an adjustment sheet which indicated that the Commissioner had adjusted the amount shown on the group certificate and described the adjustment as "Lump Sum Payment on Termination". The adjustment increased the taxable income by $168. It was not made clear to the Tribunal as to what the payment of $168 referred to. What was clear was the fact that the $168 had already been included in the assessable income and the Commissioner had made an error of calculation.

9. The respondent then proceeded to amend the assessment to excise the amount of $168 and, inter alia, to include an amount of $3,636 in the taxable income. The amount of $3,636 is the balance of the $3,827 not returned as assessable income.

10. The evidence before the Tribunal does not establish the basis upon which the respondent formed the view that the amended assessment was authorised by sec. 170 of the Income Tax Assessment Act. That issue was not raised by the notice of objection and was not debated before me and I will not therefore consider the question further.

11. In 1981 the applicant commenced employment as a tutor with the college of advanced education. The terms of his employment were set out in a letter signed by the registrar of the college and dated 24 December 1980. That letter included, inter alia, the following:

      "Level of
      Appointment         -    Senior Tutor, Level 2
      Salary              -    $15,735 per annum
      Tenure              -    3 year contract
      Date of Effect      -    5-1-81, or as soon
                               as possible in
                               January.
            

This appointment will be made on the terms of employment as set out in the enclosed Academic Staff Handbook."

Those terms of employment include the paragraphs quoted in para. 5 above (Exhibit C).

12. Exhibit 1 is a copy of the conditions of employment of limited term academic staff employed in colleges of advanced education. The conditions of employment are laid down by the Board of Education, Queensland.

13. It is not necessary to set the conditions of employment out in full but I will paraphrase the relevant paragraphs. The conditions apply to senior tutors, inter alia, engaged for a limited term of employment in teaching, etc. Limited term of employment is defined to mean employment which is limited by a fixed period of time at the date of making the contract which does not normally exceed three years. Any limited term academic appointment may be terminated either by the college council or by the appointee under conditions specified by the council and accepted by the Board. Long service leave does not accumulate in respect of any limited term appointment. (Viva voce evidence before the Tribunal indicates that such a period of limited term employment may be recognised as eligible service for long service leave purposes in a subsequent tenured appointment.) A limited term appointee is eligible for sick leave and recreation leave as prescribed. Although a college council will not normally make contributions to a superannuation fund, as an employer, on expiry of a contract a council may, at its discretion, make payments to appointees in lieu of superannuation and repatriation with total payments not to exceed 15% of salary earned.

14. The applicant was appointed to a tenured position of Lecturer Grade 1 on 1 February 1983, i.e. approximately 12 months before his limited term appointment as senior tutor was to expire by the effluxion of time. The limited term employment was terminated by the college with effect of and after 31 January 1983.

15. The applicant conducted his own case in a competent manner consistent with his professional background. He submitted that the elements of sec. 26(d) had been satisfied whether the termination of the appointment was a retirement from office or a termination of employment.

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ATC 951

16. The decision of the High Court in
Reseck v. F.C. of T. 75 ATC 4213; (1975) 133 C.L.R. 45, is authority for the proposition that a sum is paid in consequence of the termination of employment when the payment follows as an effect or result of such a termination. The termination does not need to be the dominant cause of the payment and it was recognised by the Court that the termination of employment will very often be the trigger for the payment of an amount which is paid in consequence of past services as well as in consequence of the termination of employment. However, Reseck's case did not decide whether there had been a termination of employment in that case as that issue had apparently been conceded by the Commissioner before the Board of Review and was not, therefore, in issue before the Court (per Gibbs J. (as he then was) at ATC p. 4216; C.L.R. p. 50 and Stephen J. at ATC p. 4218; C.L.R. p. 54).

17. In view of the decision of the High Court in Reseck's case the only issue to be determined in this application is whether there was a relevant termination of employment for the purposes of sec. 26(d). In this regard I am conscious of the obiter dicta of Gibbs J. in Reseck's case at ATC p. 4216; C.L.R. p. 50 where his Honour stated:

"In most cases in which a workman ceased his employment on a Friday and commenced employment again with the same employer on the following Monday it would be impossible to say that his employment had ever been terminated."

In the case before the Court the taxpayer was re-employed under the same conditions as prevailed before his employment was terminated but at a different location. As the issue was not argued before the Court there must be some uncertainty as to whether Gibbs J. intended his obiter dicta to have a wide application or application to cases such as Reseck's case where the taxpayer was re-employed under the same conditions of employment and, I infer, the same rate of pay.

18. As I have noted the question to be decided in this application is the one not decided by the High Court in Reseck's case.

19. In the case of termination of employment there is no basis for a finding for the applicant. In Case C103
(1953) 3 T.B.R.D. 602 at pp. 605-606 Sir John Nimmo, then a member of Taxation Board of Review (No. 2) laid down a test, which has been followed consistently since then, as follows:

"Having regard to the ordinary meaning of `retirement', I consider that, in order to establish, for the purposes of sec. 26(d), that there has been retirement of a taxpayer from an office or employment it is necessary to prove:

• (a) that the taxpayer has in fact relinquished his office or employment, and
• (b) that at the time he relinquished it, he had no intention of ever resuming it."

Those remarks were made in the context of a senior government official holding a life appointment who resigned from the position upon attaining the age of 65 years and then accepted a further appointment to the same position. I think the criteria established by Sir John Nimmo and applied in subsequent cases is equally applicable to this case in the sense that this applicant did at all times intend to continue employment with the college of advanced education. He did not relinquish employment with the college.

20. I respectfully agree with Mr B.R. Pape in Case P3,
82 ATC 5 at p. 15 where the learned member of Taxation Board of Review No. 1 had this to say:

"9. I am of the opinion that the taxpayer fails to satisfy this test because at the time the corporation purported to terminate his employment on 3 March 1978 both parties had the explicit intention that it would be resumed again on 16 March 1978. Accordingly I find that there was no termination of employment by the taxpayer on 3 March 1978. Termination in this section means, in my view, termination of all contracts of employment, see Case N11
(1962) 13 T.B.R.D. 33 where at p. 40 Mr Webb and Mr Daymond said:

• `Neither termination of, nor retirement from, employment in this context means termination of, or retirement from, a particular contractual relationship, but termination of, or retirement from, employment in the sense of all contractual employee/employer relationships previously subsisting."'

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ATC 952

21. I turn now to consider whether there has been a retirement from or termination of an office.

22. Exhibit B sets out the classification of tutors and lecturers under the Board of Advanced Education, Queensland. Although not proved in evidence before me I am prepared to take official notice of the fact that colleges of advanced education in Queensland are established with positions of tutor, senior tutors, lecturers of various grades, senior lecturers, etc. Colleges of advanced education rely, by their very nature, on the existence of these positions and the filling of those positions by persons with suitable qualifications.

23. I think I can infer from the evidence of the personnel manager of a college of advanced education that various positions are created in a college by the authority of the college council. The establishment of such positions will vary from time to time but it is at any time appropriate for a college to describe its establishment as consisting of so many lecturers, tutors, etc.

24. In
Edwards v. Clinch (1982) A.C. 845 the House of Lords (by majority) took the view that an office involved a degree of continuance and an independent existence in the nature of a position to which a person could be appointed and which did not depend for its existence on the appointment of the person for the time being occupying the position. In other words if the position disappeared upon the resignation or retirement of the occupant then the position was personal to the occupant and did not constitute an office. The evidence in this application suggests that the office of senior tutor was not a personal position.

25. There is no evidence of a termination of the office of senior tutor. Furthermore, applying Sir John Nimmo's test there is no evidence which would enable me to find that there was a retirement from office.

26. The applicant was for all purposes an employee of the college employed under a contract of employment. It was his contract of employment as senior tutor which was terminated on 31 January 1983. That termination of the contract of employment was effected so that he could continue employment with the college as a lecturer. This is the sort of case envisaged by Gibbs J. in Reseck's case. The payment was made in consequence of the termination of the contract of employment. As I have found there is no basis for finding that the office of senior tutor was terminated. Even if it was so terminated the applicant did not receive the payment in consequence of the termination of the office, he received it, as I have said, in consequence of the termination of his contract of employment. But to say that the contract of employment was terminated is not to say that the applicant's employment with the college was terminated.

27. I must therefore uphold the submission for the Commissioner that there was no termination of the applicant's employment with the college of advanced education, his service with the college being continuous. The amount of $3,827 was correctly assessed under either sec. 25(1) or 26(e). In this regard the decision of Taxation Board of Review No. 2 in Case P47,
82 ATC 222 involved facts very similar to the present case and the Board arrived at the same conclusion as I have in this application.

28. I have refrained from discussing all the authorities put to me by the applicant and Mrs Pash in their excellent addresses as I have come to the firm conclusion that the applicant lost his case when Sir John Nimmo handed down his reasons in Case C103 (supra).

29. The objection decision will be affirmed.