CASE 1/97
Members:BH Burns DP
Tribunal:
Administrative Appeals Tribunal
BH Burns (Deputy President)
This is an application for review of a decision of the respondent on 19 December 1995 to disallow the applicant's objection dated 24 August 1995.
2. The background to the application is that on 5 July 1995 the applicant lodged an annual tax return for the 1995 year of income with the respondent pursuant to s. 161 of the Income Tax Assessment Act 1936 (``the Act''). The respondent's assessment of the applicant's taxable income and the amount of tax payable for the 1995 year of income led to the issuing of a Notice of Assessment dated 14 July 1995. On 24 August 1995 the applicant lodged an objection against the Notice of Assessment requesting that the taxable income be reduced by $12,628 and on 19 December 1995 the respondent took the decision which is now the subject of review.
3. The applicant appeared on his own behalf and the respondent was represented by Ms Arlene Macdonald of counsel. This matter proceeded without the need to call any oral evidence. The Tribunal has before it the documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1955 (``the T documents'') together with the exhibits tendered by the parties and their written submissions.
4. The Tribunal makes the following findings of fact based upon a statement of agreed facts which was tendered by the parties (Exhibit A1):
`` Relevant Period
1. The Relevant Period is the financial year 1 July 1994 to 30 June 1995 (`the Relevant Period')
Background
2. During the Relevant Period:-
- 2.1 The Australian Public Service was the Public Service constituted by the Commonwealth of Australia [under s. 10 of the Public Service Act 1922 (`PSA')].
- 2.2 The Australian Taxation Office [ `ATO'] was part of the Australian Public Service.
- 2.3 The Commissioner of Taxation [`the Commissioner'] was responsible for the general working and business of the ATO [under s. 25 of PSA].
- 2.4 The Applicant worked at the ATO.
- 2.5 The Applicant was classified under the PSA and Department of Industrial Relations [`DIR'] determinations as a Senior Officer Grade C, and was entitled to be remunerated in accordance with the relevant determinations and industrial awards.
- 2.6 For the purposes of the Fringe Benefits Tax Assessment Act 1986 and the Fringe Benefits Tax Act 1986 the ATO is or would be the employer of the Applicant.
- 2.7 For the purposes of the Fringe Benefits Tax (Application to the Commonwealth) Act 1986 the ATO is or would be the `responsible Department'.
- 2.8 The Applicant was entitled to remuneration for personal services of $53,920.
- 2.9 The Applicant received a 1995 Group Certificate [T4] showing `gross salary, wages, bonus, etc' of $53,920.
- 2.10 The word `remunerate' has the ordinary meaning ascribed to that term, namely `1. to pay, recompense, or reward for work etc.' `2. to yield recompense for (work, services etc)' (the Macquarie Dictionary) and other grammatical forms of that word have a corresponding meaning.
3. During the Relevant Period:
- 3.1 The Applicant was paid remuneration fortnightly on paydays.
- 3.2 The Applicant was entitled to receive the fortnightly balance of his remuneration after deduction for income tax instalment and superannuation contribution payment by the Department of Finance on behalf of the ATO (`the fortnightly balance of his remuneration').
- 3.3 No part of the Applicant's remuneration was allowed to be paid, or was paid, by cash or cheque.
Payment Authority and Payment Requests during the Relevant Period
4. Prior to the commencement of the Relevant Period:-
- 4.1 The Applicant was required by the ATO to furnish a payment authority naming an account with an approved
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financial institution for the purpose of enabling the fortnightly balance of his remuneration to be made by direct credit. - 4.2 The ATO accepted the Applicant's payment authority (operative for paydays 14/7/94 to 23/2/95) directing the fortnightly balance of his remuneration to be paid into an account with the CPS Credit Union [`CPS'].
- 4.3 The ATO allowed the Applicant's payment request (operative for all paydays in the Relevant Period) to pay from the fortnightly balance of his remuneration his fortnightly health insurance contributions to Medibank Private.
- 4.4 The ATO allowed the Applicant's payment request (operative for paydays 14/7/94 to 1/12/94) to pay from the fortnightly balance of his remuneration a fortnightly amount of $275 to an account with the CPS.
- 4.5 The ATO allowed the Applicant's payment requests (operative for all paydays in the Relevant Period) to pay from the fortnightly balance of his remuneration fortnightly amounts with regard to his Union contributions, Staff Welfare contributions and private insurance contributions.
5. During the Relevant Period:
- 5.1 On or about 30/11/94 the Applicant withdrew the payment request referred to at paragraph 4.4 as the ATO would allow the Applicant only one direct credit payment to a CPS account (that being payment pursuant to the payment authority at paragraph 4.2).
- 5.2 On or about the 24/02/95 the ATO allowed the Applicant's payment request to pay from the fortnightly balance of his remuneration:
- (i) a fortnightly amount of $725 into an account with the CPS (operative for paydays 9/3/95 and 23/3/95); and
- (ii) pay the balance of what remained into a Visa account with the Adelaide Bank (operative for paydays 9/3/95 to 29/6/95).
- 5.3 On or about the 23/03/95 the ATO allowed the Applicant's payment request to reduce the amount of $725 [referred to at 5.2(i)] to $325 (operative for paydays 6/4/95 to 29/6/95).
- 5.4 The payment request referred to at paragraph 5.3 had the result that the amount paid into the Applicant's Visa account with the Adelaide Bank pursuant to the payment request at paragraph 5.2(ii) increased by $400 fortnightly.
6. In reference to the payment authority and payment requests referred to in paragraphs 4 and 5 above:-
- 6.1 The payment authorities and requests did not inform the ATO whether the credit union or bank accounts were savings or loan accounts or the debit or credit status of the accounts.
- 6.2 The ATO only requested details of the name of the branch of the financial institution, name of the account and the account number. The ATO never enquired of the nature or balance status of the accounts nor requested any other details with regard to any of the payment authorities or requests.
Payments made pursuant to the Payment Authority and Payment Requests
7. During the Relevant Period the Department of Finance on behalf of the ATO made the deduction and payment referred to in paragraph 3.2 and paid the following amounts pursuant to the payment authority and payment requests referred to in paragraphs 4 and 5 above:-
7.1 $16,877 to the Commissioner being instalments of tax deducted
pursuant to ss. 221C(1) of the Income Tax Assessment Act
1936.
7.2 $ 2,474 to the Commonwealth of Australia being superannuation
contributions pursuant to s.45 of the Superannuation Act
1976.
7.3 $ 1,724 to Medibank Private pursuant to the payment request at
paragraph 4.3, being amounts payable by the Applicant for
expenditure incurred with regard to his health insurance
contributions. The amount was applied by Medibank Private
for the payment of the health contributions.
7.4 $ 6,750 to the CPS Credit Union pursuant to the payment requests:
(a) at paragraph 4.4 (being $3,025 for paydays 14/7/94 to
1/12/95);
(b) at paragraph 5.2(i) (being $1,450 for paydays 9/3/95
and 23/3/95); and
(c) at paragraph 5.3 (being $2,275 for paydays 6/4/95 to
29/6/95);
7.5 $ 32 to the Public Sector Union being amounts payable by the
Applicant for union membership.
7.6 $ 5 to the ATO Staff Welfare Fund being contributions payable by
the Applicant.
7.7 $ 108 to the Victorian and Tasmanian P.S. Provident Fund being
contributions payable by the Applicant.
7.8 $18,544 to the CPS Credit Union (for paydays 14/7/94 to 23/2/95)
pursuant to the payment authority at paragraph 4.2, being the
balance of the Applicant's remuneration after making the
payments referred to in paragraphs 7.1 to 7.3; 7.4(a)(for
paydays 14/7/94 to 1/12/95); and 7.5 to 7.7 above.
7.9 $ 7,405 to the Adelaide Bank Visa account (for paydays 9/3/95 to
29/6/95) pursuant to the payment request at paragraph 5.2(ii),
being the balance of the Applicant's remuneration that
remained after making the payments referred to in
paragraphs 7.1 to 7.3; 7.4(b) (for paydays 9/3/95 and
23/3/95); 7.4(c) (for paydays 6/4/95 to 29/6/95); and 7.5 to 7.7
above. At the time of payment the Visa account with the bank
was in debit balance.
(Note: $ 1 Rounding error)
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$53,920
8. The amounts referred to in paragraph 7 are the totals of the relevant payments which were paid on a fortnightly basis. Of these total amounts, the following are the subject matter of dispute(*):-
8.1 $1,724* being payment to Medibank Private being for the Applicant's
health contributions,
8.2 $4,550* being payment from the total of $25294 ($6750 + $18544)
paid to the CPS Credit Union which was applied to the
Applicant's personal loan account (debit balance) and
comprised:-
$1925 pursuant to the payment request at paragraph 4.4
(and see further at paragraph 10(b)(i));
$1575 pursuant to the payment request at paragraph
5.2(i) and 5.3 (and see further at paragraph 12(a);
and
-----
$3500 (and see further at paragraph 9(a))
$1050 pursuant to the payment authority at paragraph
4.2 (and see further at paragraph 11(a));
=====
$4550*
8.3 $7,405* being payment to the Adelaide Bank Visa account which at
the time of payment was in debit balance.
Breakdown of CPS Credit Union Payments
9. The amount referred to in 7.4 was applied by the CPS Credit Union:
- (a) in an amount of $3,500 in reduction of the Applicant's personal loan account; which at the time of payment was in debit balance; and
- (b) in an amount of $3,250 deposited into specific savings accounts, which at the time of payment were in credit balance.
10. During the Relevant Period, in particular, 14/07/94 to 01/12/94 a total amount of $13,852 was paid to the CPS Credit Union:
- (a) in the amount of $10,827 pursuant to the payment authority at paragraph 4.2, being the balance of the Applicant's remuneration after making fortnightly payments of the kind included in paragraphs 7.1 to 7.7 above, which was applied to the CPS Credit Union by way of deposit into specific savings accounts which at the time of payment were in credit balance; and
- (b) in the amount of $3,025 pursuant to the payment request at paragraph 4.4 [ being 11 @$275 per fortnight], which was applied by the CPS Credit Union:
- (i) in the amount of $1,925 in reduction of the Applicant's personal loan account which at the time of payment was in debit balance;
- (ii) in the amount of $1,100 by way of deposit into a savings account which was in credit at the time of payment.
11. During the Relevant Period, in particular, 15/12/94 to 23/2/95 a total amount of $7,717 was paid to the CPS Credit Union pursuant to the payment authority at paragraph 4.2, being the balance of the Applicant's remuneration after making fortnightly payments of the kind included in paragraphs 7.1 to 7.3 and 7.5 to 7.7 above (ie excluding 7.4) which was applied by the CPS Credit Union:
- (a) in the amount of $1,050 [being 6 @$175 per fortnight] in reduction of the Applicant's personal loan account which at the time of payment was in debit balance; and
- (b) in the amount of $6,667 by way of deposit into specific savings accounts which at the time of payment were in credit balance.
12. During the Relevant Period, in particular, 09/03/94 to 29/06/95 a total amount of $3,725 was paid to the CPS Credit Union pursuant to the payment authority at paragraphs 5.2(i) and 5.3 above [ being 2 @$725 per fortnight and 7 @$325 per fortnight] which was applied by the CPS Credit Union:
- (a) in the amount of $1,575 [being 9 @$175 per fortnight] in reduction of the Applicant's personal loan account which at the time of payment was in a debit balance; and
- (b) in the amount of $2,150 by way of deposit into specific savings accounts which at the time of payment were in credit balance.
Other
13. Amounts that were paid into the Applicant's accounts that were in credit balance at the time of payment were part of the Applicant's remuneration.
14. The amounts referred to in 7.3 to 7.7 were paid in partial satisfaction of the Applicant's remuneration.
15. The payments referred to in paragraphs 7.3 to 7.7 were made by the Department of Finance on behalf of the ATO which approved the payment requests of the Applicant.
16. The payments referred to in paragraphs 7.8, 7.9, 9, 10, 11 and 12 were made by the Department of Finance on behalf of the ATO which approved the authorised
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payment authority and payment requests of the Applicant.17. The paydays in the Relevant Period were:-
14/07/94 12/01/95
28/07/94 26/01/95
11/08/94 09/02/95
25/08/94 23/02/95
08/09/94 09/03/95
22/09/94 23/03/95
06/10/94 06/04/95
20/10/94 20/04/95
03/11/94 04/05/95
17/11/94 18/05/95
01/12/94 01/06/95
15/12/94 15/06/95
22/12/94 29/06/95'
5. The issue as between the parties relates to the amounts set out at paragraphs 8.1, 8.2 and 8.3 of the agreed statement of facts comprising in total the amount of $13,679 in lieu of the amount shown in the applicant's Notice of Objection, namely $12,628.
6. The amount of $13,679 is made up of the three amounts described by the parties, for the purpose of these proceedings, as the ``payments-in-issue''. The issue between the parties has been described in the written submissions, on the one hand by the applicant as:
``... Whether the amounts, which I will refer to as the payments-in-issue: of,
$4,550 being Repayments of a Personal Loan with CPS Credit Union,
$1,723 being Medical Insurance Premiums paid to Medi-Bank Private,
$7,405 being Adelaide Bank Visa Card repayments,
totalling $13,678 [rounded to 9] paid by the Department of Finance on behalf of my employer, to these third parties, are benefits, categorised as `Expense Payment Fringe Benefits', or alternatively as `residual benefits.' As such, are they exempt from income tax in my hands?''
and on the other hand by the respondent:
``The issue in this case is whether that part of [the applicant's] remuneration paid by his employer to his medical insurance fund and to his debit accounts at his bank and credit union (referred to as `payment-in-issue') is assessable income to [the applicant]. The issue will be determined by the answer as to whether [the applicant's] remuneration was paid as fringe benefits or as salary.''
The Tribunal is grateful to both parties for the many and various submissions which they have, from time to time, placed before the Tribunal. I see no useful purpose served in outlining them in detail in these reasons. They have been considered by the Tribunal and no doubt are clear in the minds of the parties.
8. In summary, the applicant essentially maintains:
- 1. That the payments-in-issue were not derived by him before their payment by the Department of Finance on behalf of his employer as expense payments but even if they were so derived, they are still fringe benefits and exempt from income tax in his hands and further, that even if this is not so, then he relies on s. 170BA of the Act and paragraph 1 of Tax Determination TD 93/229.
- 2. The payments-in-issue are benefits in accordance with paragraph (a) of s. 20 of the Fringe Benefits Tax Assessment Act 1986 (``the FBTA Act'') and by the definition in s. 136 of that Act, they are ``expense payment fringe benefits'' and if not then they are ``residual benefits'' under s. 45 of the FBTA Act.
- 3. The payments-in-issue do not fall within the meaning of ``salary or wages'' as defined in s. 221A of the Act and they are not excluded as payments of salary or wages by paragraph (f) of the definition of ``fringe benefit'' in s. 136 of the FBTA Act.
- 4. The payments-in-issue, as expense payment benefits, are fringe benefits or, at the least, residual benefits which are exempt income by virtue of s. 23L of the Act.
On the other hand, the respondent essentially maintains:
- 1. The applicant as an employee was entitled to be paid and was paid salary by his employer.
- 2. All of the applicant's remuneration for personal services was derived income which included the payments-in-issue and was included in his gross income.
- 3. The applicant's gross income is assessable unless exempt.
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- 4. Where fringe benefits are paid and where they are also derived as income, their receipt is exempt income.
- 5. All of the applicant's income was paid to him as salary.
- 6. Even if it could be said that any amounts were paid as benefits, these benefits were not fringe benefits because the definition of fringe benefits excludes salary.
- 7. None of the payments-in-issue were paid as fringe benefits and so they are not exempt income to the applicant.
- 8. All of the income, including the payments-in-issue, is assessable to the applicant.
10. The abovementioned summaries have been enlarged upon [by] the parties in some detail in their written submissions and these in turn have been reflected upon [by] the Tribunal.
11. At the very heart of the dispute between the parties lies the essential nature of the ``payments-in-issue'' when viewed in the light of the relevant legislation (the Act and the FBTA Act) and the factual information before the Tribunal. The relevant legislation, for present purposes is as follows. Section 25(1) of the Act relevantly provides:
``Gross income from certain sources
25(1) 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;
- ...
which is not exempt income, ...''
12. Section 23L(1) of the Act relevantly provides:
``Exemption of certain benefits in the nature of income
23L(1) Where the taxpayer derives income by way of the provision of:
- (a) a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986;...
- ...
the income is exempt income.''
13. Section 19 of the Act provides:
``Money credited, reinvested etc. to be deemed to be derived
19 Income or money shall be deemed to have been derived by a person although it is not actually paid over to him but is reinvested, accumulated, capitalized, carried to any reserve, sinking fund or insurance fund however designated, or otherwise dealt with on his behalf or as he directs.''
14. Section 221A(1) of the Act provides the following definitions:
``Interpretation
221A(1) In this Division, unless the contrary intention appears:
...
`eligible person' means:
- (a) a person who is an employee within the ordinary meaning of that expression; ...
...
`employee' means a person who receives, or is entitled to receive, salary or wages;
`employer' means a person who pays or is liable to pay any salary or wages, and includes:
- ...
- (c) a government body.
...
`government body' means the Commonwealth ...
...
`salary or wages' means salary, wages ... paid... to an eligible person as such, ...''
15. Section 4(1) of the Fringe Benefits Tax (Application to Commonwealth) Act 1986 provides:
``Application of Assessment Act in relation to Commonwealth employment
4(1) Subject to this Act and to such modifications as are prescribed, the Assessment Act applies, in respect of any matter or thing in respect of the employment of a Commonwealth employee, as if:
- (a) the employee were employed by the responsible Department and not by the Commonwealth;
- (b) the responsible Department were a company and each other Department, and each authority of the Commonwealth,
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were a company related to the responsible Department; and- (c) the responsible Department were a government body.''
16. Section 159(2) of the FBTA Act relevantly provides:
``Associates and relatives
159(2) For the purposes of this Act, but without limiting the generality of the expression `associate' -
- ...
- (b) the Commonwealth shall be deemed to be an associate of each authority of the Commonwealth;
- ...''
17. Section 136(1) of the FBTA Act relevantly provides:
``Interpretation
136(1) In this Act, unless the contrary intention appears:
...
`fringe benefit' , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:
- (a) provided at any time during the year of tax; or
- (b) provided in respect of the year of tax;
being a benefit provided to the employee ... by:
- (c) the employer;
- (d) an associate of the employer;
- ...
in respect of the employment of the employee, but does not include:
- (f) a payment of salary or wages ...''
18. Section 136(1) of the FBTA Act defines salary or wages as follows:
```salary or wages' means assessable income, being salary or wages within the meaning of section 221A of the Income Tax Assessment Act 1936;''
19. It is not in dispute for the purposes of the FBTA Act that the taxpayer was at all material times an employee and that the Australian Taxation Office (``ATO'') was his employer. For the purposes of the Act, the taxpayer's employer was the Commonwealth of Australia.
20. During the relevant year it is clear that the taxpayer provided personal services to his employer in his capacity as a classified officer. For the year in question, he was entitled to gross remuneration of $53,920. The applicant was paid remuneration fortnightly on paydays.
21. Pursuant to the payment authority and payment requests referred to in paragraphs 4 and 5 of the agreed facts, the Department of Finance on behalf of the ATO paid the $53,920 as outlined in paragraph 7 of the agreed facts. No part of the applicant's remuneration was allowed to be paid or was paid by cash or cheque. Payment was made by electronic transfer. There can be no doubt that the $53,920 is the gross sum of money earned by the applicant as a result of the rendering of services in accordance with the contract of employment between himself and the Commonwealth. There can also be no doubt that the said sum constitutes ``gross income'' for the purposes of s. 25(1) of the Act.
22. The next question is as to whether the applicant derived the said gross income for the purposes of s. 25(1) of the Act. The taxpayer acknowledges this to be the case at page 4 of his written submissions and in any event, there can be no doubt that this is so and the Tribunal so finds. In this respect, it is clear from the provisions of s. 19 of the Act, that in respect of the income comprising the payments-in-issue, there was a deemed derivation of that income when it was ``dealt with on his behalf or as he directs''. The applicant derived the payments- in-issue by way of constructive receipt and the Tribunal so finds.
23. The taxpayer maintains, however, that the payments-in-dispute forming part of the gross income, ie $13,679, was paid in such a manner that make it a fringe benefit which is exempt income and not assessable. However, it must be remembered that s. 136(1) of the FBTA Act excludes ``a payment of salary or wages...'' from being a ``fringe benefit'' (paragraph (f)) and defines ``salary or wages'' as assessable income, being salary or wages within the meaning of s. 221A of the Act which in turn defines ``salary or wages'' as meaning ``salary, wages... paid... to an eligible person as such,...'', ``eligible person'' as ``a person who is an employee within the ordinary meaning of that expression'' and ``employee'' as ``a person who receives, or is entitled to receive, salary or wages''.
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24. The Tribunal now turns to consider the meaning of ``salary'' for the purposes of the Act and the FBTA Act particularly bearing in mind the provisions of s.221A(1) of the Act regarding the definitions referred to earlier in these reasons.
25. In the terms of s.221A(1) of the Act, for present purposes, the Tribunal is of the view and so finds that for the relevant year the applicant was an ``eligible person'', he was an ``employee'' and the Commonwealth was the ``employer'' for the reasons enunciated by the respondent.
26. The crucial matter in issue is whether or not the payments-in-issue were salary or wages paid to the applicant.
27. ``Salary'' or ``wages'' are not defined in any detail but it is clear from the context in which the words appear, having regard to the well known objectives of the legislation, that they are to take their ordinary everyday meaning and in that regard, the Macquarie Dictionary's definition accords with that of the Tribunal's, namely ``salary'' to mean:
``a fixed periodical payment, usu. monthly, paid to a person for regular work or services esp. work other than that of a manual, mechanical, or menial kind.''
and ``wages'' as meaning:
``that which is paid for work or services, as by the day or week; hire; pay.''
28. It is clear from the agreed facts and the above meaning of ``salary'' that the amount of $53,920 falls to be defined as comprising fortnightly payments of what can only be described as salary and the Tribunal so finds. What then of the payments-in-issue? These were paid from time to time by electronic transfer at the direction of the applicant. They formed part of his salary - they were salary. It was his salary which was, at the taxpayer's direction, channelled in the fashion outlined in the agreed statement of facts. The amounts in question comprised part of that which he had produced by the provision of his services to his employer under the terms of his contract of employment. The applicant had earned his salary and the payments-in-issue were payments of it and constructively received by him when electronically transferred by the Department of Finance as he directed.
29. The Tribunal is of the opinion that the applicant was in no different position than had he been paid his fortnightly portion of salary in cash and had then made the payments in question. The taxpayer had the benefit of his salary though he didn't physically have it in his hands. The Tribunal is of the view that it is without question that he received the monies in dispute and received them as salary. Each payment to the taxpayer was effected when the electronic transfer took place. Each payment-in- issue was salary and it was paid to him as an eligible person by his employer and the Tribunal so finds.
30. It follows that each payment-in-issue was a payment of salary and was not a fringe benefit for the purposes of s. 136(1) of the FBTA Act. Whilst it is not claimed that any of the other deductions from the applicant's salary were fringe benefits, the Tribunal would indicate for completeness sake that each of them were also payments of salary and were not fringe benefits.
31. The Tribunal has in its reasons directed its focus upon that which, as it turns out, is determinative of the issue before the Tribunal. Many other matters were raised in the applicant's written submissions which the Tribunal does not consider necessary to address in these reasons but the Tribunal would indicate that it has reflected upon them and is of the view that the submissions of the respondent adequately and most persuasively answer each and every one of them.
32. In conclusion, the Tribunal finds the whole of the applicant's salary of $53,920 is gross income derived from his employer which is not exempt and pursuant to s. 25(1) of the Act is accordingly assessable income. Accordingly, the decision under review is affirmed.
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