Case V84

Members:
Spender J
DP Breen DP
KL Beddoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 1 June 1988.

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Spender J. (President), D.P. Breen (Deputy President) and K.L. Beddoe (Senior Member)

The applicant was 29 years of age at 30 June 1982. During the 1982 year of income he paid $120 to a superannuation fund then known as the ``Wales Retirement Fund''. The applicant claimed a deduction for this amount in his 1982 income tax return, which claim was rejected by the respondent Commissioner on the basis that the applicant was not an eligible person. There was no dispute that the Wales Retirement Fund was a qualifying superannuation fund.

2. The question before the Tribunal is therefore whether the applicant is an ``eligible person'' and therefore entitled to a deduction under sec. 82AAT of the Income Tax Assessment Act in respect of the $120 paid to the fund.

3. The notice of objection of the taxpayer stated, in reference to the disallowance of the sum of $120 claimed by him as a deduction in the 1982 income tax return, that:

``You disallowed the above `in view of superannuation support provided by your employer'. I wish to point out that I am only on probabation [sic] with the Railways Department. The Railways Department only provides superannuation for permanent staff and I cannot join the permanent staff until a vacancy arises - I therefore do not have superannuation support from the Railways. In order to provide some future protection I have therefore covered myself with a Superannuation Policy with the Wales Retirement Fund.''

4. In his statement given pursuant to Income Tax Regulations, reg. 35, the respondent Commissioner gave his reasons for disallowing the applicant's claim as follows:

``To be entitled to a deduction under section 82AAT of the Act, the taxpayer must qualify as `an eligible person' as that term is defined in section 82AAS. This taxpayer does not so qualify in that during the relevant year it was reasonable to expect that superannuation benefits as defined would be provided for him upon retirement, other than from contributions made wholly by himself and other than from income or accretions arising from such contributions.''

The case for the Commissioner therefore is based on subsec. 82AAS(2).

5. The relevant statutory provisions are:

``82AAT(1) Subject to sub-section (2), there shall be allowed as a deduction from the assessable income of an eligible person of a year of income the amount of any contribution, or the sum of the amounts of any contributions, made by the eligible person during the year of income and after 19 August 1980 to a qualifying superannuation fund, being contributions made to obtain superannuation benefits for the eligible person or, in the event of the death of the eligible person, for the dependants of the eligible person.

(2) The deduction allowable to a taxpayer under this section from the assessable income of a year of income shall not exceed $1,200.''

``82AAS(1)...

(2) Subject to sub-section (3), a person (in this sub-section referred to as the `relevant person') is an eligible person in relation to a year of income for the purposes of this Subdivision unless -

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• (a) during the whole or a part of the year of income circumstances existed by reason of which it was reasonable to expect that superannuation benefits would be provided for the relevant person upon retirement or for dependants of the relevant person in the event of the death of the relevant person (whether or not any condition other than the retirement or death of the relevant person would be required to be satisfied in order that those benefits be provided); and
• (b) to the extent to which those benefits would be attributable to the year of income -
  • (i) the benefits would be wholly or partly attributable to contributions made to a superannuation fund in relation to the relevant person by a person other than the relevant person; or
  • (ii) the benefits would, in whole or in part, be paid out of moneys that would not represent -
    • (A) contributions made by the relevant person to a superannuation fund;
    • (B) contributions made by the relevant person under a scheme for the payment of benefits upon retirement or death, being a scheme constituted by or under a law of the Commonwealth or of a State or Territory; or
    • (C) income or accretions arising from contributions referred to in sub-sub-paragraph (A) or (B).

(3) Where, apart from this sub-section, a person would not be an eligible person in relation to a year of income for the purposes of this Subdivision by reason of the operation of sub-section (2) in relation to a part only of a year of income and the Commissioner, having regard to -

• (a) the period or periods during the year of income or during any preceding year of income during which circumstances of the kind specified in that sub-section existed in relation to the person; and
• (b) such other matters as the Commissioner thinks relevant,

is of the opinion that it is reasonable that the person should be treated as an eligible person in relation to the year of income for the purposes of this Subdivision, the person shall be deemed to be an eligible person in relation to the year of income for the purposes of this Subdivision.''

``6(1)... `superannuation benefits' means individual personal benefits, pensions or retiring allowances.''

6. During the 1982 year of income, the applicant was employed as a temporary porter with the Queensland Railways. He had commenced this employment with the railways on 9 June 1981, having previously worked with a bank for 12 years. Apparently, the applicant had suffered health problems and had some difficulty in coping with his position at the bank. He had therefore taken a less demanding position with the railways.

7. The applicant gave evidence that, while he intends to work until he is 60 or 65, he has no particular intention of remaining with the railways until he reaches that age; he did not rule out the possibility that he would in fact continue with the railways. He said in evidence, having referred to medical problems from which he was still suffering:

``I am still having a few troubles with nervous dyspepsia of the stomach, and I will just, sort of, see what comes up. It does not mean to say I will stay with the railway until I retire. I could leave in two years; five years; 10 years. I am just undecided at the moment.''

8. In March 1983, that is to say, after the tax year with which the present question is concerned, the applicant was appointed to the permanent staff of the railways, but has not yet been invited to join the State superannuation scheme. A letter dated 25 January 1983 from the Office of the Chief Accountant, Queensland Railways, recited:

``This is to advise that... is employed as a Temporary Porter with the Railway Department at the Mayne Carriage Shed.

As a temporary employee he is not elegible [sic] to contribute, to the `State Service Superannuation Scheme' however, once placed on the permanent staff, he can elect to join the Fund.

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Temporary employees however, are entitled to be paid a Retiring Allowance, if applicable upon Retirement from the Railway Department.''

9. Paragraph 26(b) of By-law 690 made by the Commissioner for Railways, at the relevant time provided:

``(b) Should it become necessary for any employee to be retired from the service for any of the foregoing causes, or because he has attained the age fixed by the Government as the age at which employees of the Commissioner shall be retired, there shall be paid to him as a retiring allowance a sum equal to salary or wages at the rate he was receiving at the date of retirement for a period according to the following scale, but in no case, excepting with the special approval of the Commissioner, shall such rate be more than the rate applicable to his permanent classification: -

• To any such employee who has for a period of at least fifteen years continuously been in the service, three months; to any such employee who has for a period of at least twenty years continuously been in the service, four-and-a-half months; to any such employee who has for a period of at least twenty-five years continuously been in the service, six months; a proportionate time and pay being allowed for intermediate service between the periods: Provided that the Commissioner may grant to any such employee who has for a period of at least ten years but not more than fifteen years continuously been in the service a retiring allowance for a period equal to that proportion of three months that the period such employee has continuously been in the service bears to fifteen years: Provided further that an employee who at the 31st March, 1965, was an employee who had attained the age of 30 years shall be paid a Retiring Allowance for a period, extending beyond 25 years of continuous service as prescribed, according to the following scale - after 30 years of continuous service, 7½ months on full pay; after 35 years of continuous service, 9 months on full pay; after 40 years of continuous service, 10½ months on full pay; after 45 years of continuous service, 12 months on full pay; with proportionate time being allowed for intermediate service between the periods, including intermediate service between 25 years and 30 years: Provided, also, that for any such period herein referred to no employee shall be entitled to receive any emoluments other than salary.
• Under no circumstances shall an employee who has had more than one period of service with the Commissioner, be paid retiring allowance (inclusive of any retiring allowance which may have been paid to him in respect of any previous period or periods of service) for a greater period than that to which he would have been entitled had his periods of service with the Commissioner been aggregated and had such aggregated period been regarded as continuous service.''

10. Paragraph 26(a) of By-law 690 referred to employees unable to perform their regular duties because of permanent ill-health, defective eyesight, or other cause rendering the employee physically or mentally unfit for those duties. These are the ``foregoing causes'' referred to in para. 26(b) above.

11. The ``retiring allowance'' provided by By-law 690 is hardly generous. If the applicant were to retire at 60 years, his service would exceed 30 years; he would, if all other impediments did not apply, be entitled to a sum equal to his salary for six months. However, the quantum of the ``superannuation benefits'' (which include individual benefits, pensions and retirement allowances: sec. 6(1) of the Act) is not material, except in assessing the prospect, if a permanent position in the railway service was achieved, whether the applicant would elect to join the State Service Superannuation Scheme. The question is whether it is ``reasonable to expect'' that the ``retiring allowance'' would be paid to him on retirement.

12. The explanatory memorandum in respect of the Bill which resulted in the enactment of sec. 82AAS and 82AAT of the Act, stated in part:

``Broadly stated, persons eligible for the new concession will be persons in gainful

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occupations for whom no provision for superannuation benefits on retirement or death is funded by an employer or any person other than the taxpayer.

...

Sub-section (2) of the new section 82AAS will deny eligibility for the special deduction to any person who in relation to the year of income is the object of superannuation support from an employer or some other person. This `support' may be given directly by way of specific contributions to a superannuation fund established for the benefit of the person or a class of persons of which he or she is a member. It may arise, indirectly, through the employer, or other person, undertaking through a scheme that a retirement benefit will be paid (whether or not a fund has been set aside) on the person's retirement from an office or employment, for example, as is the situation in some public sector schemes.

...

Accordingly, sub-section (2) treats a person as an eligible person in relation to a year of income for the purposes of the new deduction unless paragraphs (a) and (b) are satisfied. These paragraphs, in combination, in effect describe who is a `supported' person. Paragraph (a) will be satisfied if there are circumstances existing in part or the whole of a year that make it reasonable to expect that the person will have superannuation benefits provided for him or her or for his or her dependants. Paragraph (b) will be satisfied if, to the extent that those expected benefits, when paid, are attributable back to the year, they would to any extent relate to contributions made to a superannuation fund for the person by another person, or would to any degree come out of moneys other than those representing the person's own contributions to a superannuation fund or public sector superannuation scheme (or earnings from those latter contributions).''

13. The evidence establishes that the applicant did not have any rights to superannuation support from his employer during the year of income except whatever rights he might have arising under By-law 690.

14. Clause 26 of the By-law provides for payment on retirement from the service or in respect of death of employees. Under that clause, provision is made for payment of the allowance in circumstances of retirement due to age, retirement due to ill health, or death prior to retirement. In the event of death prior to retirement or retirement due to ill health, the retiring allowance is refundable to the Commissioner for Railways if compensation becomes payable under the Workers Compensation Act to the retired employee or to the dependants of the deceased employee. The possibility of these events occurring is not to be ignored in answering the question at issue.

15. Clause 26 makes it clear that payment is to be made upon retirement at maximum age (apparently 65 years) or at retirement over 60 years of age or at early retirement due to ill health. There is nothing unusual about those criteria. They are the common everyday events which result in superannuation benefits being paid to employees.

16. There was no evidence of the existence of a separate fund, and the inference to be drawn is that the retiring allowance is paid from departmental funds. Paragraph 26(m) provides that employees accepted as contributors under the provisions of the Public Service Superannuation Acts are not entitled to receive any retiring allowance under cl. 26 - nor is there any entitlement for their dependants.

17. Contrary to the view advanced that the question of whether there is ``reason to expect'' that the retiring allowance provided by By-law 690 would be provided for the applicant upon retirement can be equated with whether that event is ``reasonably foreseeable'', in the opinion of the Tribunal, the question of whether there is ``reason to believe'' that superannuation benefits will be payable on retirement to a person is whether there are grounds, presently existing, on which one can predict with confidence that the event will happen. In the present context ``to expect'' means ``to regard as likely to happen''. In other words, there is ``reason to believe'', when there are grounds presently existing on which one can regard the payment of a retiring allowance to the applicant as likely to happen.

18. In the opinion of the Tribunal, this test of who is ``an eligible person'' accords with the statements of intention in the explanatory

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memorandum. In our view, it gives effect to the perceived purpose of Subdiv. AB of Div. 3 of the Act.

19. The circumstances against which the question is to be answered, are those existing in the relevant year of income.

20. So understood, the question of whether a person is an ``eligible person'' is one of fact and degree.

21. The Tribunal is of the view that the applicant was, in the 1982 year, an ``eligible person''. At that time, he was a temporary porter in the railways. He had started in the railways only on 9 June 1981. Whether he would remain with the railways until retirement, i.e., at least 31 years, was one very serious aspect of whether there was reason to believe he would be paid a retiring allowance. That question also involved whether he would be appointed to the permanent staff; and, if so, whether he would elect to join the State superannuation scheme. Such joining would disentitle him to any entitlement to the retiring allowance. Given the background of the applicant, his status during the relevant tax year, his expressed uncertainty as to his future employment by the railways, the uncertainty at that time as to his attaining permanent status, the prospect in reality of his continuing in the service of the railways until at least age 60 years, and whether, during that service, he would have chosen to join the State superannuation scheme, the Tribunal is of the opinion that the applicant was not a person of whom there was reason to believe that a retiring allowance would be provided for him on his retirement.

22. The Commissioner's decision on the objection should be set aside and the objection will be wholly allowed.