CASE 39/97
Members:J Block SM
Tribunal:
Administrative Appeals Tribunal
J Block (Senior Member)
The Applicant sought the review of two objection decisions made by the Respondent, both in respect of the 1995 tax year, and being:
(a) the disallowance by notice dated 28 October 1996 of an objection dated 16 June 1995, which in turn related to a private ruling which issued on 26 April 1995; references in these Reasons to the objection decision (in the singular) should be construed as references to this objection decision (ie the objection decision related to the private ruling), on the basis that the term ``penalty objection decision'' will be used to refer to the objection decision referred to in sub-clause (b) below;
(b) the disallowance by notice dated 28 October 1996 of an objection dated 14 February 1996, which in turn related to an amended assessment, and pursuant to which a penalty was imposed on the Applicant.
2. The Applicant was represented by Mr J. Eager, a consultant solicitor and the Respondent was represented by Mr Clive Thomas of the Australian Taxation Office. The Tribunal received into evidence the T Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (Cth) and in addition during the course of the hearing accepted into evidence a number of exhibits. Exhibits will be referred to and described as they are dealt with, or otherwise referred to, during the course of these Reasons. In addition, the Applicant has furnished the Tribunal with a most helpful document entitled ``Applicant's Outline of Closing Address'' (referred to in brief as the ``Outline'').
3. Although the T Documents and exhibits are lengthy, the issues in respect of the objection decision fall within a comparatively narrow compass. The Applicant gave oral evidence on his own behalf and in which he confirmed the content of two statements, the first dated 28 April 1997, and which is Exhibit A7, and the second dated 20 June 1997, and which is Exhibit A8. On behalf of the Respondent, M, who is the Director Administrative and Financial Services of the Council, gave evidence in support of his affidavit dated 30 May 1997 which is Exhibit R1, and S who is the Manager Financial Accounting Services gave evidence in support of his affidavit dated 14 May 1997 and which is Exhibit R3. I here note that the affidavit of R, Director Corporate Development of the Council dated 30 May 1997 and which is Exhibit R2 was accepted, because Mr Eager did not require his presence for cross-examination. The Tribunal notes that the evidence of the Applicant was in all respects credit-worthy. The Tribunal considers that each of M and S were mistaken as to certain factual matters, and more particularly as to the basis upon which a payment in lieu of untaken sick leave was made to the Applicant, but that in other respects their evidence too was credit-worthy. It may be noted in general terms that, excepting only in respect of the factual matters referred to, there was no dispute as to the facts which gave rise to the objection decisions.
4. The issue to which the objection decision relates is as to whether a payment of $82,644 (``relevant payment'') made by a City Council (which is referred to as the ``Council'') to the Applicant on 4 July 1995 constituted an eligible
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termination payment within section 27A of the Income Tax Assessment Act 1936 (Cth) (``ITAA'') which relevantly reads as follows:``27A(1) In this Subdivision, unless the contrary intention appears-
...
`eligible termination payment' in relation to a taxpayer means:
- (a) any payment in respect of the taxpayer in consequence of the termination of any employment of the taxpayer,...
`employment' is defined so as to include the holding of an office.''
5. The facts in broad outline may conveniently be set out in this clause 5 as follows:
(a) The Applicant commenced working for the Council on 2 December 1968.
(b) On 1 July 1993, the Local Government Act 1993 (NSW) (the ``1993 Act'') came into effect in replacement of the Local Government Act 1919 (NSW). Section 332 of the 1993 Act required each council to decide on its organisation structure and to review that structure after each ordinary council election. Furthermore, and whenever a council decides on an organisation structure, it is required to decide which positions in the structure are senior staff positions. Sections 337 to 341 of the 1993 Act provide inter alia that, in respect of senior staff members, they must be employed under contracts which are performance based, are for periods between 12 months and 5 years, and that industrial processes do not apply.
(c) Attachment 6 to the Applicant's Statement of Issues, Facts and Contentions (pages 15 to 19 of the T Documents) comprises:
(1) a letter dated 15 December 1993 addressed to the Applicant by the Council which relevantly reads as follows:
``I refer to previous discussions in regard to Council's organisational re-structure in accordance with Section 332 of the Local Government Act 1993.
It is advised that Council, at its meeting held on 23 August 1993, adopted the organisation structure as attached (Annexure `A') with this revised structure to be implemented effective 4 January 1994.
In addition to the organisation structure, your Director and I have agreed to a structure for your Division and this is attached (Annexure `B') which includes you as a Manager in this Division.
Council, at its meeting held on 23 August 1993, resolved that conditions of employment for Managers would be on the basis that the nine day fortnight be discontinued, no annual leave loading be paid, no higher duty payments and no overtime payments, as these matters have now been factored into a total remuneration package. All other conditions of employment would be in accordance with the NSW Local Government (State) Award. Given these conditions, I am now pleased to offer you the position of Manager Building & Development at a total remuneration package of $77,406.00 per annum.
This package comprises the following components:
Base Salary $63,163.00
Motor Vehicle $3,950.00
Council's contribution to Superannuation $10,293.00
----------
TOTAL $77,406.00
...''
(2) As Annexure ``A'' to Attachment 6 the organisation structure adopted by the Council on 23 August 1993 and which (edited only for reasons of anonymity) reads as follows [at page 410]:
(3) As Annexure B to Attachment 6, the management structure of the Environmental Services Division which, again edited for anonymity, reads as follows [at page 411]:
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(d) T Document 24 (pages 78 to 82) is entitled ``Delegation of Authority'' and sets out the functions delegated to the Manager Building & Development by the General Manager; it authorises and empowers the Manager Building & Development, on behalf of the General Manager, to exercise or perform on behalf of the General Manager a number of powers, authorities, duties and functions pertaining to the Environmental Services Division. That five page document details the functions sub- delegated by the General Manager to the Manager Building & Development (the Applicant) on 24 August 1993. I do not think it necessary to burden the record with all of the various sub-delegated functions; suffice it to say that they are many and varied. The capitalised terms ``Manager'' and ``Director'' will henceforth in these Reasons be used to denote the Manager, Building & Development (sometimes referred to as ``Manager Building & Development Branch'') (the branch being separately referred to as the ``Branch'') and the Director of the Environmental Services Division (the division being separately referred to as the ``Division'') respectively.
(e) It is particularly relevant in this context and at this juncture to note that:
(1) the salary package offered to the Applicant (and accepted by him when he accepted the position of Manager) was $77,406 per annum;
(2) apart from certain aspects specifically mentioned in the letter dated 15 December 1993 (referred to in subclause (c)), all other conditions of employment were governed by the NSW Local Government (State) Award (``Award''); the Award conferred (inter alia) certain rights, more fully referred to later in these Reasons, on the Applicant in respect of sick leave;
(3) the structure made it clear that the position offered to the Applicant and accepted by him was of some considerable significance. The Director reported to the General Manager while the Applicant as Manager of the Branch was one of a small number of managers reporting to the Director of the Division. The structure of the Branch sets out the functions of the Applicant, as Manager and in particular that there were a number of employees (referred to as officers of various types) who reported to him;
(4) the Applicant was not cross-examined as to the precise nature of his functions and duties. In answer to a question by the Tribunal (Transcript page 23) the Applicant said:
``In effect I was looking after a building development approval service or process, assessment procedure, within - as one part of the council. Now, to carry out that building development assessment process I had a number of town planners and I had a number of building surveyors, or building and health surveyors, working under me to ensure that all of the information that was appropriate under the provisions of the EP&A Act and the Local Government Act as such, with the Building Code of Australia, were actually put into place and any approval, say, for a development, a development consent, it went out in its proper form and, following that, the building approval, it went out in its proper form - so I was principally responsible for ensuring the process, the assessment of all of those applications, and then ensuring that any issuance of those approvals was done in the correct manner. That's very briefly.''
However, other evidence (and in particular that of M and S) indicated that while the position of a manager is not treated by the Council as falling within senior staff, it is nonetheless a position obtained generally after a number of years of service and experience (10 years in the case of S) and in respect of which a tertiary qualification of some sort would generally (if not mandatory) be a considerable recommendation.
(f) The position of Manager referred to in the preceding sub-clause was accepted by the Applicant by letter dated 20 December 1993. The Applicant held the position of Manager of the Branch from 4 January 1994 until 4 July 1994.
(g) On 18 March 1994, the then Director of the Division tendered his resignation effective 26 May 1994. In April 1994, applications to fill that vacant directorship were called for by public advertisements in various periodicals.
(h) In May 1994, the Applicant applied in writing for the position of Director of the Division. There were 19 applicants for that position. The selection process was conducted
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by an independent organisation in association with a committee of the Council, and at the end of the process, the vacant directorship was offered to the Applicant.(i) On 29 June 1994, the Applicant signed a contract with the Council to serve it as Director of the Division for 5 years from 5 July 1994. That contract which is T10 (pages 29 to 36) of the T Documents catered for a total remuneration package of $95,000 per annum; it was in certain respects performance related.
(j) On 29 June 1994, the General Manager of the Council wrote to the Applicant pointing out that as Director of the Division he could not receive payment for unused sick leave and that on 4 July 1994 he would receive payment of his accumulated sick leave at the end of his service as Manager of the Branch.
(k) On 30 June 1994, the Applicant handed in a formal letter of resignation as Manager of the Branch; that resignation took effect on 4 July 1994.
(l) Exhibit A4 is a copy of Industrial Agreement number 6831 filed with the New South Wales Industrial Registrar on 24 August 1982, and which is the Award. Clause 2(iii) of the Award provided that ``When an employee's services are terminated by resignation, retirement or death and such employee has completed at least twenty (20) years' service with the council, he or his legal representative shall be paid the full monetary value of accumulated untaken sick leave standing to his credit.''. It is relevant at this point to note that clause 2(iii) required both 20 years service and termination (by resignation, retirement or death). It is not necessary for the purposes of these Reasons for me to consider a legislative amendment in early 1993 which prohibited a payment for sick leave after 1993; the relevant payment was in fact paid on 4 July 1994 in respect of the Applicant's untaken sick leave entitlement under the Award.
(m) On 4 July 1994 the Applicant received a cheque for $42,644.37 in respect of his sick leave entitlement together with a sheet of calculations entitled ``Entitlement Based on Sick Leave''; this amount was in fact the relevant payment less tax deducted.
(n) Immediately after the Applicant had commenced in his position as Director of the Division, he became involved in the process of filling the position of Manager of the Branch. That position was advertised and subsequently, on 29 August 1994, C was appointed as Manager of the Branch effective from 6 December 1994.
(o) Clause 30 of the Applicant's statement dated 28 April 1997 (Exhibit A7) is a document entitled ``Staff Structure'' and referable to the Division. It was issued before C was appointed as Manager of the Branch and is referable to the diagrams set out in clause 5. It may be noted that, before he became Manager of the Branch, C had been the Manager of the Environmental & Health Branch in the Division. That diagram (in edited form) is reproduced as follows:
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6. There was no issue between the parties as to the fact that the Applicant, when he became Director of the Division, ceased to be the Manager of the Branch. It was clear that the Applicant could not have held both positions simultaneously. S was under the impression that the Applicant had become entitled to his sick leave payment because he had accumulated 20 years of accumulated service. S said that he had considered that the General Manager could direct payment for the sick leave untaken after 20 years of service; he gave evidence as to his enquiries as to the applicable legal position. S was cross-examined at some length as to his enquiries and his view that 20 years service was sufficient. He accepted (page 43 of the Transcript) that payment had not been made because of a direction to that effect and moreover (also page 43 of the Transcript) that it was correct to say that having regard to the Award, payment could be made only in consequence of satisfaction of two conditions, one being the completion of 20 years service, and the other being termination by reason of resignation, retirement or death. It is relevant to note that Exhibit R4 was not put to S; Exhibit R4 was tendered (by consent) at the argument hearing on 22 August 1997, the evidence having been heard on a prior date.
That the payment was made pursuant to the Award (and not a direction from the General Manager or any other official) is confirmed by Exhibit A2 which is a letter from the Council to the Applicant dated 29 July 1997 reading as follows:
``I refer to $82,644.13 accumulated untaken sick leave which was paid to you on 4 July 1994.
This confirms that your sick leave entitlement arose under subclause 2(iii) of Industrial Agreement No.6691 made on 30 November 1981 between Council and various Unions, as varied by Industrial Agreement No. 6831 made on 24 May 1982 between Council and the same Unions. The NSW Industrial Relations (Sick Leave) Amendment Act 1992 effectively prohibited the cashing-in of any untaken sick leave which accrued after 15 February 1993 (the date of commencement of the 1992 Amendment Act).
The varied Industrial Agreement No.6691 was in force for an initial period of 5 years from 30 November 1981. It continued in force until after 4 July 1994 - firstly, as a result of s13 of the NSW Industrial Arbitration Act 1940 (as amended) and then as a `former industrial agreement' under sections 146 to 150 of the NSW Industrial Relations Act 1991.''
Page 50 of the Transcript contains S's admission that he had made an error when he completed the Applicant's group certificate for the 1995 year.
Exhibit R4 is an internal memorandum from the General Manager of the Council to the Director. The fact that it directed that the relevant payment be made does not in my view have the effect that the payment was made by direction, and not pursuant to the Award; Exhibit A2 makes it clear that payment was made under the Award and I do not think that Exhibit R4 (an internal memorandum) should be construed so as to detract from Exhibit A2. Moreover page 46 of the T Documents (part of a letter dated 8 March 1995 addressed by the Council to the Respondent) again sets out (at paragraph (1)) that ``[the Applicant] received a payment for unused sick leave... in accordance with the provisions of the Industrial Agreement No. 6381....''
7. (a) The evidence of M was ambivalent in relation to clause 4 of Exhibit R1 which reads as follows:
``In circumstances where a Director's position becomes vacant and the position is advertised and an employee currently holding a Manager's position in the organisation of City Council is appointed to the Director's position, the Manager would not be required to resign before taking up the position.''
(b) M was cross-examined as to what was meant by clause 4 and in particular its meaning in the light of clause 2(iii) of the Award. M during his evidence in chief said (Transcript page 27) that advice had been received that there was no actual termination of employment in respect of the Applicant, and also that there was no need for a formal resignation. He said ``My view would be that once a person takes up a new position then they automatically relinquish the old position.'' (bottom of page 27 of the Transcript). In cross-examination he accepted (page 31 of the Transcript) that paragraph 4 of Exhibit R1 was intended to convey this fact. M accepted also that ``the 20
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years service minimum and either termination or resignation or death are cumulative requirements'' (page 33 of the Transcript). These words are of course not in all respects in accord with the relevant wording of the Award which required that the services are terminated by resignation, retirement or death. However nothing turns on this difference. It may be that the Applicant would not have been entitled to the relevant payment if his employment had been terminated by reason of dismissal for cause. But this is not relevant for the purposes of this matter.(c) It emerged during M's evidence that he too had sought a private ruling in respect of the 1995 tax year in circumstances similar to those applicable to the Applicant. That ruling (Exhibit A9) relevantly (edited for anonymity) reads as follows:
``1. M was employed by the City Council as the Director of Financial Services under the council structure applying until 1 July 1993.
2. From 1 July 1993 to 20 March 1995 M acted in the new position of Director Administrative and Financial Services, created as part of the council restructure.
3. During his tenure as acting Director Administrative and Financial Services, M applied for the position on a full-time basis, and was subsequently appointed to the position on 29 March 1995.
4. Upon his acceptance of the new position, the council was required under the council memorandum, to pay M his entitlement to unpaid sick leave.
5. M received a payment of $98,359 on 23 March 1995, representing his unused sick leave entitlement.
6. The amount of $98,359 was included as Gross Salary and Wages, on the group certificate issued to M, by the City Council for the year ended 30 June 1995.
COMMENCEMENT OF ARRANGEMENT:
23 March 1995
RULING:
1. Whether the payment from the City Council of $98,359.09 was made in consequence of a termination of employment.
Yes.
2. Whether M was holding an office in his previous position as director of financial services.
Yes.
3. Should M's previous position constitute an office, whether his current position as Director of Administrative and Financial Services is significantly different from the previous position, so as to constitute a new office.:
Yes.
G.J.Doughty
Commissioner of Taxation
6 January 1997''
(d) The only difference between the position of M and that of the Applicant is that the Applicant ceased to be a Manager and became a Director, whereas M was a Director (Director of Financial Services) who became Director of Financial & Administrative Services. The private ruling in respect of the Applicant indicates that the Respondent considered that the Applicant did not hold an office; the Respondent considered (Exhibit A9) that M did. It should be noted though that, in respect of Exhibit A9, both of questions 1 and 2 were answered in the affirmative.
8. It is clear that the payment to the Applicant on 4 July 1994 will be an eligible termination payment only if it was paid in consequence of the termination of any ``employment''. In accordance with the relevant definition, the term ``employment'' includes an office.
9. (a) There can be no doubt that with effect from 4 July 1994 the Applicant ceased to be the Manager of the Branch and became the Director of the Division. I deal in the first instance with the question of whether the Applicant's position as Manager of the Branch was an office within the definition of ``employment'' for the purposes of section 27A of ITAA.
(b) In
F.C. of T. v Sealy 87 ATC 5076 Pincus J said at 5080:
``But that is not the end of the matter, for Mr Watson contended that the payment was not in consequence of retirement from any office or employment. As I have mentioned, it was common ground that there was no employment, because of the supposed impossibility of a partner's being an
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employee of the partnership. Mr Watson said that the post of manager of the business was not an `office' and referred to the decision of the House of Lords in
Edwards v Clinch (1982) A.C. 845, apparently as supporting the contention that to be an `office' within the meaning of the relevant section, the position must have an existence independently of its holder from time to time. Mr Watson referred to Lord Wilberforce's statement in that case that:`... the word must involve a degree of continuance (not necessarily continuity) and of independent existence: it must connote a post to which a person can be appointed, which he can vacate and to which a successor can be appointed'
(p. 861D).
Lord Wilberforce also referred to previous authority for the view that the word in English tax legislation referred to a ` subsisting, permanent, substantive position '.
I doubt if it is sound to assume that the Australian parliament necessarily intended this definition of `office', established in the construction of the United Kingdom's tax legislation, to be applied in construing sec. 26AD. The word `office' has a range of meanings: see Collins English Dictionary (meaning no. 7), Shorter Oxford English Dictionary (meaning 4), Great Western Railway v Bater (1921) 2 KB 128 at pp 136-137. In some contexts, it refers to a position of authority in a governmental or other public organisation . I see no reason so to restrict its meaning here. The intention apparently was to cover the case in which, there being no cessation of an employment, a payment of the character mentioned is made in respect of retirement from or termination of an office. It is difficult to think of any reason why the legislature should have intended to confine the concession given by the section to instances in which the terminated position is one of a public character or of any high degree of permanency . Presumably, no one would dispute that the position of managing director of a public company could be regarded as an `office'. I cannot see why that of managing partner of a grazing partnership should not be so regarded.''
(emphasis added)
Sealy's case is clear authority for the proposition that the meaning of the term ``office'' enunciated by Lord Wilberforce in Edwards v Clinch (referred to as the ``restricted UK view'') is not the law in Australia, at any rate in relation to the interpretation of that term for the purposes of section 27A of ITAA. Nor does it require that the position be one of authority in a governmental or other public organisation. The restricted UK view, reduced to its essentials, requires continuance, independent existence, and succession (in the sense that a person can in respect of that position be appointed, resign, and a successor appointed).
(c) In
Grealy v F.C. of T. 89 ATC 4192, the Full Federal Court held at page 4197:
``A possible view, sufficient to warrant the upholding of the decision appealed against, is that an employment is not terminated if the employee continues to work for the same employer without a break. On that view, if at the end of a tenured career a university professor retired from his chair but immediately accepted a temporary post with the same institution, a payment made on retirement would not fall within sec. 26(d). It is unnecessary to decide whether the broad rule just enunciated is correct, for we are satisfied that here the employment was not terminated, although the first contract of employment was terminated and replaced by another.
The applicant continued to perform the same work for the same employer for about the same remuneration. His new contract gave him, in our opinion, about the same status as did the old, although it has to be conceded that a tenured appointment is regarded by tertiary staff as one of a significantly different kind. Using the broad notion of continuity of employment which appears to us inherent in Reseck's case, it appears to us that one cannot avoid the conclusion that there was no termination of the applicant's employment when the three-year contract expired.
The applicant also argued that there was a termination of an `office'. He relied upon the decision in
F.C. of T. v. Sealy 87 ATC 5076; (1987) 78 A.L.R. 387 where it was held that the position of managing partner of a substantial grazing partnership constituted
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an `office' for the purpose of sec. 26AD of the Act. In that case, the Court doubted the relevance of certain English authorities, defining the word in a different context, to the problem of its meaning in sec. 26AD of the Act, but did not attempt to define the terms for the purpose of that provision. We accept that, as in sec. 26AD, here the word should not be confined to positions of a public character or a high degree of permanency . But however widely the term is used in sec. 26(d), one would not ordinarily speak of a lecturer at a tertiary institution working on a short fixed term as holding an `office'. It has to be conceded that the word is capable of a variety of meanings, and its definition greatly troubled the Court of Appeal in
Great Western Railway Company v Bater (1921) 2 K.B. 128, especially at pp. 138 and 142. The word `office' usually connotes a position of defined authority in an organisation, such as director of a company or tertiary educational body, president of a club or holder of a position with statutory powers . The applicant's job is not of this sort, nor has it any other characteristic which would tend to make one use in relation to it the description `office'. The applicant, like other holders of professional employments, is not made an office holder merely because his position has a name.''(Emphasis added)
Grealy's case is interesting in particular not only for its decision as to the meaning of the term ``office'', but also because of its view (expressed as a possible view) that an employment is not terminated if the employee ``continues to work for the same employer without a break''. That ``possible view'' was expressed in the context of an applicant who performed the same work for the same employer for about the same remuneration and where the status was much the same. The Full Federal Court in these particular circumstances found it unnecessary to decide whether that ``broad rule'' was correct. It may be that if the Full Federal Court had found it necessary to decide the point, and if the work under the first contract was sufficiently different (inter alia as to status and remuneration) from the second, it might have taken a different view. The Full Federal Court found relevantly for the purposes of these Reasons, that an office is not confined to positions of a public character or a high degree of permanency, but rather that it may encompass a position of defined authority in an organisation.
(d) In
Platell v F.C. of T. 92 ATC 2018, the Administrative Appeals Tribunal (Deputy President Johnston, Senior Member Barnett and Fayle, Member) found that in respect of the taxpayer in that case, there were articles written by him which occasionally bore the words ``Homes Editor or Motoring Editor'' whereas similar articles appearing after August 1991 did not. Under cross examination, the applicant confirmed that if there was such a position as Home Editor or Motoring Editor it did not exist independently of himself. The Tribunal went on to find that ``so it is possible that an official position established under the authority of the Board of Directors and designated `Homes Editor' could well constitute an office. But for an editor to simply use the designation as an appendage to the name of the journalist who wrote a published article is not sufficient''. The Tribunal went on to find that there was no specific office of either Homes Editor or Motoring Editor.
The Tribunal noted, presumably with approval, the decision of Senior Member Beddoe in Case U163,
87 ATC 948 applying
Edwards v Clinch (1982) AC 845, a decision of the House of Lords, in which he referred to:
``... an office involved a degree of continuance and an independent existence in the nature of a position to which a person could be appointed...''
(e) In Case 9/93,
93 ATC 148 Deputy President B.J. McMahon dealt with a case of a woman who had been an Inspector of Schools and who became (when that position was phased out) a Cluster Director. Paragraphs 14 to 17 of Deputy McMahon's decision read as follows:
``14. The word `office' is a word that had been considered in many cases but no satisfactory definition has emerged. As was pointed out in Grealy's case the word usually connotes a position of defined authority in an organisation, such as a director of a company, or a tertiary educational body. Their Honours held (at 4197 column 2) that it was not a word normally applicable to a relatively low level employee, such as a university lecturer. As the court observed the applicant, like many holders of professional employment, is not
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made an office holder merely because her position has a name.15. This view was consistently taken by the Boards of Review. For example, in Case K4,
78 ATC 29, Mr Dempsey suggested than an office connotes something more than substantial, something more in the nature of a continuing executive position, the holder of which has distinct responsibilities. In Grealy's case itself, their Honours noted that the word `office' usually connoted a position of defined authority.16. In my view, the position of Inspector of Schools/Secondary was such an office. It was a position that was not a common one. There were 10 regions for administration purposes throughout the whole of New South Wales and 4 of them were in the City of Sydney. The number of inspectors in the Metropolitan East district, where the applicant held her position, indicates that it was a position of some seniority and responsibility and it was a position that was recognised as a separate position. In fact the way in which it was subsequently dealt with in the reorganisation of education services indicates that it must have been regarded as almost fundamental to the concepts of education which the Government wished to change. I am, therefore, satisfied that the position which the applicant held was an office until the relevant date.
17. The next question to be determined is whether the applicant retired from that office or whether the office itself was terminated or whether both events happened. The only way in which it could be suggested that the applicant had not retired from the office would be to show that the duties of the Cluster Director and the duties of Inspector of Schools/Secondary were equivalent. The evidence compels a finding that only in the grossest way could this submission be acceded to. The 2 positions bear some similarity only in that they are both concerned with education and they are both offices in the same Department of School Education. In my view, this is not sufficient to establish a continuity of tenure of office. The position of Cluster Director was the result of the implementation of a new and radically different philosophy of education. The Cluster Director occupied significantly new premises, designed to emphasise the difference in the functions of that appointment from those of a school inspector. The new responsibilities, the devolution of responsibilities to local schools, and the introduction of financial management into the applicant's duties, all played a part in the reorganisation. In my view the applicant retired from an office. Furthermore, the evidence supports a finding in relation to the second branch of s 26AD(1), namely that the office itself was terminated.''
The decision of Deputy-President McMahon is relevant for another reason; in clause 13 he said:
``... it is probably true to say that she did not retire from her employment. As in Grealy's case, her first contract of employment was terminated and replaced by another. In my view, however, it is not necessary to form a concluded view on this question whether she retired from her employment or whether the conditions under which she was previously employed and the conditions under which she was subsequently employed by the same employer formed a continuum.''
Although Deputy-President McMahon found it unnecessary to decide whether she had retired from her employment, he did take the view that one contract of employment had been terminated and replaced with another.
(f) In Case U75,
87 ATC 453 Senior Member Roach dealt with the position of an applicant who was a Chief Executive. He said at pages 456 and 457:
``13. Section 27A succeeds 26(d) which had as its subject amounts paid `in consequence of retirement from, or the termination of, any office or employment'. I do not think a different meaning is to be attributed to the concept of `office' in sec. 27A . In the circumstances of the applicant I am satisfied that as chief executive of Austco the applicant did in fact hold an `office' in the relevant sense. I do not think that the concept of `office' in these times is to be confined to a `public employment regulated by law'. In keeping with Blackstone's view, it is appropriately described as `a right to exercise a public or private employment, and to take the fees and emoluments thereunto belonging' (2 B1. Com. 36 as quoted in Stroud's Judicial Dictionary) or as
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Rowlatt J. described it in
Great Western Rly Co. v Bater (1922) 8 T.C. 231 at p. 235 (when considering whether an experienced clerk held an `office') it refers to:`... a subsisting, permanent, substantive position, which had an existence independent from the person who filled it, which went on and was filled by successive holders; and if you merely had a man who was engaged on whatever terms, to do duties which were assigned to him, his employment to do those things did not create an office to which those duties were attached.'
(cf. also Case 9
(1947) 15 C.T.B.R.).14. In my view an appointee who discharges the responsibilities of chief executive in such an organisation is aptly referred to as the holder of an `office'. Accordingly I conclude that, in the case of the applicant, he was appointed to an `office' and in due course he retired from it. His appointment and his retirement were no less so because he assumed the responsibilities and later shed them and the power and status attending them, in accordance with directions given by his employers, whoever they might have been; or by `the organisation'.''
(Emphasis added)
The Tribunal agrees with the view expressed by Senior Member Roach that the term ``office'' should be interpreted in relation to section 27A in the manner which was applicable to its predecessor, section 26(d). The same view was taken by Deputy-President Thompson in Case W31,
89 ATC 307.
(g) Deputy-President Thompson, in W31, dealt at some length with cases in the United Kingdom in respect of the concept of an office; see in particular clauses 27 to 36 of his decision. I do not consider that it is necessary for me to refer further to his helpful analysis, more particularly having regard to the fact that Pincus J in Sealy's case did not accept that the restricted UK view was correct. Deputy- President Thompson then went on to adopt the observation of Lord Edmund-Davies in Edwards v Clinch in clauses 38 and 39 of his decision, in the following terms:
``38. I would respectfully adopt the observation of Lord Edmund-Davies in Edwards v. Clinch that `the word (office) is not a term of art, but a wide-ranging noun of ordinary usage, as the dictionary definitions demonstrate'. In the Shorter Oxford English Dictionary one meaning of the word `office' is given as a `position to which certain duties are attached, especially a place of trust, authority, or service under constituted authority'. That is, I consider, the meaning which is appropriate to the context in which the word is used in the definition of `eligible termination payment' in sec. 27A(1) of the Act . It is appropriate because persons in such positions are frequently paid for the performance of their duties and may further be paid an amount on ceasing to hold the position in recognition of the services which they have rendered.
39. In my view, the position of a minister of the church while engaged in active service, as that expression is used in the regulations of the church, is generally a position to which certain duties are attached. They are either the duties of a minister settled in a parish or those of a minister settled in a `position of responsibility for the regular discharge of the duties of the ministerial office under the jurisdiction of the Church' (reg. 2.4.1(a)). It is a position of trust and service under the constituted authority of the church. It differs from the situation of a minister without a settlement; although by virtue of Reg. 2.3.10 he has duties imposed on him, he is not placed in a position of responsibility for the regular discharge of those duties.''
(Emphasis added)
In
Great Western Railway Co v Bater [1920] 3 K.B. 266 Rowlatt J had held that an office was a ``subsisting, permanent, substantive position which had an existence independent of the person who filled it, which went on and was filled in succession by successive holders''.
I consider, with respect, that the meaning attributed to the term ``office'' by Deputy President Thompson in W31 is for Australian purposes, correct. That test would require that it is a position to which ``duties are attached, especially a place of trust, authority or service under constituted authority''. It is thus clear that the restricted UK view is narrow, when contrasted with the less restricted Australian approach.
(h) In this particular case, the Applicant held the position of Manager of the Branch before he became Director of the Division on 4 July 1994. The position of Manager of the Branch is
ATC 422
perhaps most aptly characterised as being in the middle of the Council hierarchy. The Applicant in his position as Manager of the Branch was vested with substantial powers and duties enumerated in some detail previously in these Reasons. That position was ongoing and had a separate existence; after the Applicant relinquished it was held by C who had previously been a Manager in the same Division but in a different managerial post. The position of the Applicant in this case is in some respects stronger than that of the taxpayer in Case 9 1993 where the post relinquished disappeared. Insofar as the salary package payable is in any respects a guide to the importance or otherwise of the position, the Applicant's salary package as Manager while not princely, was substantial. The position of the Applicant is in the opinion of the Tribunal clearly distinguishable from that of the lecturer in Grealy's case or the journalist in Platell's case. His designation as Manager was by no means merely a descriptive term without meaning; it was on the contrary altogether apt to describe a managerial function. If the manager of a grazing partnership has an office (as Pincus J found in Sealy's case) then that description is appropriate to describe the Applicant in his capacity as Manager of the Branch.The Tribunal considers moreover that the position held by the Applicant as Manager, satisfied both the Australian approach, and would, had this been necessary, have satisfied the restricted UK view. That position existed independently if its holder could be (and was) vacated, was a post to which a person could be (and was) appointed, and to which a successor could be (and was) appointed. Moreover the concept of continuance is reinforced by the terms of the 1993 Act and particularly section 378(2) considered in the light of the Interpretation Act, and in particular sections 49(1), 49(8) and 49(10) of that Act. The Delegation of Authority previously referred to in these Reasons, (delegating some 65 separate functions), and being ``powers, authorities, duties and functions'' within section 3(2) of the Interpretation Act establishes that it was expressed to be a sub-delegation by the General Manager under section 378(2) of the 1993 Act, and that having regard to the Interpretation Act, it was made in favour of the Manager Building and Development, Mr (the Applicant) - ie to ``a particular officer'' and to the ``holder of a particular office by reference to the title of the office concerned''.
The nature of the position of Manager would, also as the Applicant has contended (and see A2.8 of the Outline) have satisfied under the other (restricted) notion of office referred to in Sealy's case, in that it was a position of authority in a governmental or other public organisation. The fact that as appears from Exhibit R2, there were at the relevant time 30 managers altogether, does not in my view have the effect of minimising the relevance or importance of the position of the Manager of the Branch, and so that it was relegated to something less than an office.
The test as to whether a position is an office will no doubt usually be one involving questions of fact and degree. However, the Tribunal considers that the nature of the position held by the Applicant as Manager, when analysed in the light of the Council structure and the duties and functions performed by the Manager, constituted an office in accordance with section 27A of ITAA. If, as appears to be the case, it is necessary to draw a line, the Applicant, in the view of the Tribunal is on the right side of that line.
10. (a) Having found that the Applicant did have an office and that the holding of such office was terminated, and that the relevant payment was, therefore, an eligible termination payment under section 27A(1) of ITAA, it is not strictly necessary for me to decide whether any employment terminated. However, and because there has been mention in this matter (page 3 of the Transcript) of the possibility of it being taken to another jurisdiction, it is perhaps appropriate that I refer to it, albeit briefly, in the hope that my views will (if relevant) be of assistance.
(b) The use of the word ``any'' in the context of employment is not easy to understand. It is capable, in the view of the Tribunal, of two quite different meanings; at one end of the spectrum, it might mean that a payment is an eligible termination payment in consequence of the termination of one of a number of employments held by a person; at the other end of the spectrum it could mean that there will be an eligible termination payment only when all relevant employments have terminated.
(c) In
Reseck v F.C. of T 75 ATC 4213 Gibb J (as he then was) said at page 4216:
ATC 423
``The question in the present case is whether the amounts received by the taxpayer were allowances of the kind described in sec. 26 (d). This matter was referred to the Supreme Court of Queensland by way of a case stated by a Board of Review and according to the facts so stated the employment of the taxpayer was terminated by his employer on 24th September 1971, he recommenced work for the same employer (although in a different district) on 27th September 1971 and his employment was again terminated on 11th February 1972. 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. If there were a contract agreement or arrangement whereby the employment of the workman was terminated and recommenced it would no doubt be possible to invoke the provisions of sec. 260 of the Act, but even without the aid of that section in many cases when all the facts had been regarded the proper conclusion to be drawn would be that there had been no termination of the workman's employment at all. I of course do not cast any doubt on the correctness of the finding of the Board of Review in the present case, but I do think it necessary to emphasize that we have before us an unchallenged finding by the Board and that it is not open to us to hold that the services of the taxpayer were not terminated. Accordingly, our decision cannot be regarded as authority for holding in similar circumstances that there was a termination of the employment of the taxpayer.''
(d) In this case, there was no gap in time between the two contracts of employment; on the contrary the Applicant resigned as Manager simultaneously with his appointment as a Director. But the two contracts were very different in nature; apart from a substantially increased salary package, the Applicant became a member of the senior staff, on a term contract, but without the protection of an industrial award and without a sick leave entitlement. Although the appointment of the Applicant as Director of the Division, represented a significant step up in some respects, it did nonetheless in other respects leave him rather more exposed. It does not seem to me that it is correct to say that there is any rule of law to the effect that there must always and of necessity be a gap in time (however short) between one contract of employment and another for an employment to terminate. The court was prepared to hold in Reseck's case that there had been a termination even though the period involved was short and where the two employments were much the same. In this case there was no gap in time; on the other hand, and paraphrasing Deputy-President McMahon in case 9/1993, the only similarities between the two contracts are that they were both in the same Division with the same Council. Once again, there may be questions of fact and degree. But where a man is a junior employee in a company and then becomes its general manager, on sharply improved or different terms, it seems to me that is by no means inapposite to say that there is a new contract of employment and that the old contract is terminated. A simple promotion whereby an employee receives an increase in one or more of salary, position or status may be one in respect of which it is apt to say that the contract of employment has merely been varied and that it has not been terminated. But this is, in my view, not the case where an employee is appointed to a different position on significantly different terms. In this case, the evidence of M and S (in cross-examination) (together with Exhibit A2) was to the point; the sick pay benefit was paid under the Award, and the Award required the satisfaction of two conditions, firstly 20 years of service and secondly termination. Put in other words, the evidence clearly reveals that the payment could not have been made in the absence of a termination.
(e) While it is true to say that there is as between employer and employee, a relationship, that relationship is of necessity one which sounds in contract. This being so, the employment must terminate when the contract which governs it terminates, and this will be so even so where a new and different contract becomes effective in substitution. The distinction between a contract variation, and between two different contracts of employment may at times be fine, but it is not, in the opinion of the Tribunal, difficult in this case to conclude that there was (and indeed having regard to the Award and Exhibit A2 must have been) a termination of the Manager's contract. This being so the Tribunal holds that even if there
ATC 424
was not a termination of an office, there was a termination of the employment.11. Mr Thomas on behalf of the Respondent agreed that if the Tribunal decided the objection decision in favour of the Applicant, the Respondent would not pursue the penalty objection decision. Accordingly, it is not necessary for me to deal with it.
12. I note in conclusion that the objection decision with which the Tribunal is concerned relates to the private ruling in which the Respondent ruled that the relevant payment was an eligible termination payment. It does not relate to any assessment or any amended assessment which is referable to the relevant payment. The Tribunal considers that for the Reasons previously set out, a ruling that the relevant payment was an eligible termination payment would have been correct. Mr Eager, in his closing submission, and if I understood him correctly, urged the Tribunal to make findings as to the components of the eligible termination payment. This, however, is a matter for the Respondent.
13. Accordingly, both objection decisions are set aside, and the Respondent is directed to rule that the relevant payment was an eligible termination payment within section 27A(1) of ITAA.
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