Case V106
Members:PM Roach SM
Tribunal:
Administrative Appeals Tribunal
P.M. Roach (Senior Member)
The applicant and her husband are Australian residents. She is a lady who is not only an Australian resident, but a descendant of a member of the First Fleet. Although her ancestor who arrived on that voyage was named it was not indicated whether he was the person of that name who was an officer or a convict. It does not matter. Her husband is also an Australian ex-serviceman who has been in receipt of a 100% war service disability pension since 1956. He was born in 1922. There has not been any issue of the marriage. As they describe themselves as Darby and Joan, I shall use those names to refer to them.
2. Darby represented his wife at the hearing. It was clear that they were not only a devoted couple but also had shared concern at the injustice they perceived as having been done to Joan in the matter of the assessment of her liability to income tax and Medicare levy in relation to the year of income ended 30 June 1984.
3. Following his retirement from the service of a large company in 1980 Darby commuted so much of his pension entitlement as he could and since then the income on the capital so obtained has been derived by Joan. Darby has derived, by way of exempt income, a disability pension and by way of assessable income, a superannuation pension, dividend income and insignificant interest income. For the year of income ended 30 June 1984 he derived by way of exempt income the 1984 equivalent of approximately $4,400 per annum and $9,994 by way of taxable income. Joan derived income from investments in the same period and thereby had a taxable income of $15,310. Both were assessed as liable to pay income tax and their liability in that regard is not in dispute.
4. The difference between Joan and the Commissioner relates to the liability assessed against her in the sum of $63.68 imposed pursuant to the provisions of the Medicare Levy Act 1983. It is acknowledged that, if Darby and Joan had neither been married nor living in a de facto relationship, Joan would have been liable in the amount assessed in relation to the Medicare levy and Darby would not have been liable at all. The rationale for that would seem to be that, being a war disability pensioner, he is entitled to all medical, hospital and incidental benefits free of charge. Had each been assessed on that basis, it is likely that no issue would have arisen. But the Commissioner assessed Joan as liable to $63.68 being the standard rate of Medicare levy - 0.416% on $15,310 and Darby as liable to $20.78 being half of the standard rate of Medicare levy applied to $9,994. They object. They have objected to everyone they have been able to think of. They object because of the injustice they see as being done, not only to themselves, but to every other couple of the many couples in similar circumstances. Furthermore, they object that the levy is inequitably imposed, but also that it is inefficiently imposed. They say that, although it is supposed to be a levy equitably distributed among families according to their capacity - with threshold limits below which there is to be no liability to contribute and with upper limits to the contributions required - it is not fairly levied against families. They object that the Medicare Levy Act 1983 does not follow the principle of family liability in that it operates with inconsistent effect on particular levels of family income according to the distribution of that income within the family. They contend, for example, that where a married couple have a family income of $32,000 the levy can be increased as net income falls. They put forward the following figures:
Variable Net Levy @
Levy Basis: Gross Less Family 1.25% of
Gross Income Spouse Net Income Means: Gross
Income Tax Rebate Tax Net Income Income Comment
Example 1
*Full Spouse
(A) 32,000 8,801.00 830* 7,971.00 24,029.00 400.00
Those contentions raise political questions which are the province of the law makers: the Parliament. It is no part of the Tribunal's responsibility to express any views on such matters. Its concern is to have regard to such arguments in so far as they shed light on the correct interpretation of the legislation.
5. Their second contention is that, as a married couple, they are called on to pay too much. They say that, in accordance with the equitable principle mentioned in the previous paragraph, their liability should be one-half of the ordinary rate of levy applicable to their combined income; and that as Darby has been assessed to half of that rate on his taxable income, Joan should likewise be assessed to liability for only half of that ordinary rate in relation to her taxable income. I shall return to consider that in due course. For the moment I observe that it does not seem to have occurred to them that the injustice (if any) might have been done to Darby rather than Joan: perhaps he should not have been liable at all rather than that, as they contend, Joan's liability should be reduced by half. Had that been the case then their liability to tax would not have been increased by reason only of their being married.
6. Although the amounts involved for this couple are small, that is not a fair indication of the significance of the issue. $2.00 per taxpayer represents a sum in excess of $13,000,000.
7. The question I have to address is whether the Parliament intended that Joan should be assessed as she has been assessed. In considering that question I will consider whether the Parliament intended that Darby should be assessed as he was, but if I happen to consider his assessment excessive I have no power to grant relief. He is not an applicant before the Tribunal. He is not a person who has protested the assessment made against him.
8. The questions I have to determine have to be decided by reference to the provisions of the Medicare Levy Act 1983 (``the Levy Act'') and Pt VIIB of the Income Tax Assessment Act 1936 (``the Assessment Act'').
9. In approaching those questions the Commissioner's representative acknowledges that there may be anomalies in any legislation and, no less, in taxation legislation. He argued that as this is an imperfect world, anomalies are to be expected. Indeed the world is imperfect. But that is not a reason for being indifferent to injustice; or for not seeking to do justice. The fact that sometimes the sound construction of legislation produces unjust results does not mean that a construction which avoids unjust results is not sound; or that a construction of
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legislation which produces unjust results is to be preferred to one which does not.10. In my view the general intent of the Levy Act is plain. It was to raise revenue for medical purposes by imposing tax at a rate of 0.416% on taxable income. Thereby the imposition paid no regard to the capital resources or wealth of citizens. Thereby the Act also ignored exempt income, such as that derived by Darby by way of disability pension. However, the generality was not left unqualified. It was modified in its application by imposing upper limits on the taxable income to be taken into account; by relieving individuals with low levels of taxable income from liability and, above that figure, by phasing in liability; and by relieving individuals in family situations from liability according to the extent of their responsibility for dependants. Much of the argument for the applicant was critical of those criteria, but I make no observations in that regard. It is no part of the Tribunal's competence or responsibility to propose what alternative ought to have been advanced in the framing of the legislation.
11. Other qualifications to the application of the general principle came in relation to ``prescribed persons'', and in relation to their spouses. A ``prescribed person'' such as Darby, had he not been married or living in a de facto relationship, would have had no liability to the levy. Alternatively, neither he nor Joan would have had liability to the levy if both had been ``prescribed persons''.
12. So far as the assessment of Joan is concerned, she is liable to the levy pursuant to sec. 251S(1) of the Assessment Act. She is not excluded from liability by reason of sec. 251T of the Assessment Act because she is not a ``prescribed person'' as defined by sec. 251U(1) of the Assessment Act.
13. So far as Darby is concerned he is a ``prescribed person'' within the meaning of sec. 251U of the Act and therefore, on the face of it, and notwithstanding the provisions of sec. 251S of the Assessment Act, he was not liable to pay the levy (sec. 251T). Unfortunately for Darby and, accordingly, unfortunately for Darby and Joan, the matter does not stop there. Section 251U(1), having in subsec. (1) defined ``prescribed person'' so as to include persons such as Darby, then proceeds to further define ``prescribed person'' so as to exclude Darby from that status. As applied to the circumstances of Darby and Joan subsec. (2) provides:
``Darby shall not be taken to have been a prescribed person... unless every person who was a dependant of Darby... is to be taken,... to have been a prescribed person...''
14. That provision gives rise to a question in these circumstances as to whether Joan, as the person having the greater income (taxable income $15,310 cf. Darby's taxable income $9,994 + exempt income less than 4,000) was a dependant of Darby. Section 251R dealt with that subject. Section 251R(3) provides that a person shall be taken to be a dependant of another person if married to that other and if that other contributed to the maintenance of the first-mentioned person.
15. Section 251R(2) provides:
``Where... a man and a woman have lived together as husband and wife on a bona fide domestic basis although they were not legally married to each other, this part and any Act imposing levy have effect in relation to that period as if those persons were legally married to each other and neither of them was married to any other person.''
Such a drafting provision has commonly been used to extend the legal benefits arising from marriage to the unmarried. But in this instance the provision operates to cast on the unmarried burdens already cast upon the married.
16. However, even so sec. 251R(3) would have left open the question whether in the circumstances it could fairly be said that Darby ``contributed to the maintenance of'' Joan. But that issue is dealt with in sec. 251R(6) which provides:
``For the purposes of paragraph 3(c), a person shall be taken to have contributed to the maintenance of another person during any period during which the person and that other person resided together, unless the contrary is established to the satisfaction of the Commissioner.''
The difficulties of that task can be seen upon considering the decision in Case S31,
85 ATC 284.
17. Were there no other relevant provisions or circumstances, the result would be that a full
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Medicare levy would be exacted of any married person who, but for his marriage, would have been a prescribed person. But there is yet a further provision of sec. 251U to be considered. Subsection (3) of that section, as applied to the present circumstances, effectively provides that:``Where -
- (a) Darby would not, but for this sub-section, be taken to have been a prescribed person,... during a particular period; and
- (b) Darby would, but for sub-section (2), be taken to have been a prescribed person,... during that period...
Darby shall be taken to have been a prescribed person, for the purposes of this Part and of any Act imposing levy, during one-half of that period.''
18. The force of all those provisions comes together with sec. 10 of the Levy Act. It provides that, in the case of a person who was a prescribed person during a part or parts only of the year of income, ``the amount of levy payable by that person but for this section shall be reduced by so much of that amount as bears to that amount the same proportion as the number of days in the part, or the sum of the number of days in the parts, of the year of income during which the person was a prescribed person bears to the number of days in the year of income''.
19. In Case U18,
87 ATC 180, Deputy President Gerber was considering an assessment against a prescribed person (such as Darby) rather than a case in relation to the wife of a prescribed person (such as Joan). He said:
``The decision in this case is as ridiculous as the legislative provisions which determine the result.''
He went on to acknowledge that ``there are thousands of prescribed persons who are themselves exempt from the Medicare Levy and yet liable for contribution for a spouse who is him/herself liable to pay the requisite levy''. None the less he concluded:
``However, given the clear expression of the legislature in the Act, I am compelled to affirm the decision under review.''
20. I might quibble about the use of the word ``clear'', but I do not disagree with his conclusion. Whether it did so deliberately or inadvertently, in my view the Parliament definitely provided that in circumstances such as these a married prescribed person would have to pay the levy at half rates; and his spouse would have to pay the levy at full rates - despite the entitlement of the prescribed person to free medical and hospital treatment and despite the fact that, but for his marriage, he would have been exempt from the levy.
21. Disappointing though it may be to the applicant, to her spouse, and to thousands of other persons in the community, I cannot but come to that conclusion. The remedy sought by this couple for themselves and for others can only be provided by the Parliament which created the problem.
22. The determination of the Commissioner upon the objection under review shall be affirmed.
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