• The impact of this case on ATO policy is discussed in Decision Impact Statement: Bains and Commissioner of Taxation (2021/5828).

Bains v FC of T

Members:
R Olding SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2023] AATA 2477

Decision date: 11 August 2023

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R Olding (Senior Member)

WHAT IS THIS CASE ABOUT?

1. Before he exited the Victorian taxi industry, the applicant, Mr Bains, held three taxi licences.

2. The industry has undergone significant changes and reforms adversely affecting taxi licence holders. One such change is the emergence of Uber services. Another involves reforms to Victorian laws which have had the effect of revoking existing tradeable taxi licences, for which licence-holders had paid significant sums, and replacing those licences with non-tradeable licences.

3. To address the disruption caused by the reforms, the Victorian Government provided various forms of financial relief which included the Victorian Taxi Reform Hardship Fund and Transitional Assistance Payments tailored to provide some relief against particular consequences of the reforms.

4. Additionally, the Victorian Taxi Reform Fairness Fund ('the Fund') was set up to provide support to persons facing significant financial hardship as a result of the reforms. Mr Bains received a payment of $250,000 from the Fund ('the Payment').

5. The sole issue for determination in this case is whether the Payment is subject to income tax as income according to ordinary concepts.^[1] Income Tax Assessment Act 1997 (Cth) s 6-5.

BACKGROUND

6. The facts in this matter are largely undisputed. Except where otherwise indicated, the facts outlined below are drawn from Mr Bains' witness statement. The Commissioner did not cross-examine Mr Bains. I accept his statement as truthful.

Mr Bains' involvement in the taxi industry

7. Mr Bains and his wife acquired their first taxi licence, a 'perpetual' licence, in 2001 at a cost of $280,000 funded by an ANZ Bank loan secured against their family home. Mr Bains did not drive a taxi using that licence. Rather, he provided vehicles to drivers to operate under the licence.

8. Mr and Mrs Bains acquired a second licence in 2006 at a cost of $385,000 funded by a further loan from ANZ Bank, again secured against their home. This licence was also operated by third party drivers until 2013 when Mr Bains commenced operating the licence - that is, driving the vehicle - himself.

9. In 2010, Mr Bains acquired a third licence - a 10-year fixed term licence - at a cost of $180,000 funded by further borrowings from ANZ Bank. Mr Bains also operated this licence himself.

10. In about September 2016, Mr Bains received a payment of $62,500 from the Hardship Fund. About a year later, he received three Transition Assistance Payments totalling $183,750.

11. Mr Bains received the Payment from the Fairness Fund on 6 March 2018.

12. Mr Bains exited the taxi industry in about June 2018.

13. By that time, it appears all three of the licences had been revoked. Before the Tribunal, there was only specific evidence of the revocation of the first of the licences, on 9 October 2017.^[2] Letter dated 6 November 2017, Taxi Services Commission to Mr Bains. However, if not revoked sooner, the remaining licences would have been revoked by statute with effect from 1 July 2018.^[3] Respondent’s Outline of Submissions, footnote 7. The parties agreed that the precise date of revocation is of no consequence.

Fairness Fund - eligibility and process

14. Mr Bains received notification of approval of the Payment by letter dated 25 February 2018 from the Department of Economic Development, Jobs, Transport and Resources.^[4] Witness Statement of Jaswinder Bains, [17], JB-4. The letter provided no reasons for the decision relating either to how the eligibility

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criteria were satisfied or how the amount of $250,000 was calculated.

15. An information notice,^[5] Hearing Book, 22-23. forming part of the application form, describes the eligibility criteria and assessment process in these terms:

Who will be eligible?

People who had an ownership interest in a taxi or hire car licence at any time in the period 1 January 2016 to 23 August 2016 and who are facing significant financial hardship as a result of the proposed reforms may qualify for an assistance payment where any or all of the following can be demonstrated:

• • A lack of current income or the loss of a future income stream that is significantly impacting on household spending capacity
• • Significant difficulty in meeting ongoing debt obligations related to the licence(s) held
• • A lack of available funds to meet financial commitments

Special consideration may also be given to applicants with extenuating circumstances that are resulting in financial hardship of a different nature …

Assessment of your eligibility

To establish eligibility, applicants will be means-tested and assessed against a set of guidelines supporting the outlined eligibility criteria. Eligibility will be reviewed on a case-by-case basis and will be determined based on a number of factors, including income, indebtedness and availability of funds . . .

Information and documentation provided in the application is subject to audit and additional information may be requested after the form has been submitted.

16. So far as the evidence reveals, nothing titled a 'set of guidelines supporting the eligibility criteria' has been published. However, in response to a summons issued to the Department, the Victorian Government Solicitor's Office ('VGSO'), by letter dated 12 October 2022,^[6] Ibid 256-259. produced what it described as:

• (a) A redacted extract of 'KPMG - Fairness Fund - Workshop #17', with the unredacted information on page 9 being the information in that document relating to Mr Bains' eligibility assessment (Mr Bains is marked as applicant #85 in the table on that page).^[7] Ibid 268.
• (b) An unredacted copy of the 'Transport for Victoria eligibility framework, February 2018'.^[8] Ibid 269.

17. I will return to these documents, which will be more readily understood with the details of Mr Bains' application, later in these reasons.

Mr Bains' application

18. The application form required details of:

• (a) the taxi licences in which Mr Bains held an interest;
• (b) the basis of the claim, which Mr Bains' lawyers set out in a covering letter;
• (c) his partner and dependents, against which Mr Bains listed Mrs Bains, as well as, curiously, his adult children;
• (d) value of assets and liabilities, including:
  • (i) bank accounts, real estate, shares and superannuation, and vehicles;
  • (ii) 'licence debt' i.e. outstanding loans associated with the licences;
  • (iii) other debts;
• (e) after tax income of Mr and Mrs Bains for the 2015/16 year; and
• (f) 'assignment lease income' for 2015/16.

19. The covering letter supporting the application provided information under the four headings appearing below.

Personal circumstances

20. Under this heading the letter referenced the following:

• (a) That Mr Bains was:

  finding it extremely difficult to service current repayments and anticipates he will fall behind in the near future. Given the changes to the industry he is worried about his future capacity to service his taxi licence debt.

• (b) The diagnosis of his eldest son with a brain tumour and the high costs of treatment.
• (c) Mrs Bains leaving full time employment in November 2016 to care for their son and that Mrs Bains was awaiting processing of her application for a carer's allowance, leaving Mr and Mrs Bains relying solely on taxi

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  income.
• (d) The debt associated with acquisition of the licences secured against the family home.
• (e) While the first taxi licence had been leased since 2001 and for the majority of this time the leasing price was $2000 per month, with the introduction of Uber into the Victorian market the price had fallen to $1700 per month.
• (f) The second licence was leased for $2000 per month until 2013 but since then Mr Bains had been unable to find another assignee and has operated this vehicle himself.

Impact of Victorian taxi and hire car industry reforms

21. Under this heading, the covering letter referenced:

• (a) Mr Bains' taxi income reduced 'over the last two years'. In the 2014/15 year, his tax returns showed his taxable income was $17,499 but this reduced to $13,498 for 2015/2016.
• (b) That there were now significantly less passengers since Uber commenced operating in Victoria and often lengthy waiting periods without a job.
• (c) It had become nearly impossible to find drivers, which had impacted on Mr Bains' health - he suffers from diabetes and has had heart surgery - and his ability to work full time hours. The vehicle was regularly left in the driveway not making income.
• (d) Mr Bains expected the assignee would require the lease price to be reduced further below the already reduced amount of $1700 per month.

Financial hardship

22. Under this heading, the letter noted that Mr Bains' 'income has dropped substantially' and 'he is struggling to meet business and personal expenses.' He would have to rely on loans from his family and his credit card as he did not have enough income to cover his expenses.

Actions taken by client to address their financial situation

23. Under this heading, the covering letter noted that Mr Bains could no longer sell his taxi licences to repay his debts as they were worth nothing. He could not sell the taxi vehicle as it was subject to finance, and he relied on the small amount of income it was producing.

Transport for Victoria eligibility framework

24. The document so-described in the covering letter from the VGSO responding to the summons issued to the Department to produce relevant documents is headed 'Proposed updated eligibility framework' and marked 'Cabinet-in-Confidence'.

25. Although there is no direct evidence of this, combined with the other document produced, which is also marked Cabinet-in-Confidence and to which the framework appears as an attachment, it appears that KPMG audited applications for payments from the Fairness Fund against the framework. This is consistent with the following statements in a report of the Victorian Ombudsman^[9] Victorian Ombudsman, Investigation into the administration of the Fairness Fund for taxi and hire car licence holders (Report, June 2018) (‘Ombudsman Report’). referenced in the Commissioner's submissions and included in the Commissioner's bundle of authorities:^[10] Respondent’s Outline of Submissions, footnote 6.

60. Applications to the Fund were received by the department and then provided to external auditors engaged by the department to fully audit applicants' financial information . . .

62. Once each application had been fully audited, the Chair of the Fund was responsible for determining the outcome, in accordance with policy decided by the Minister. The department explained that:

'While the Fairness Fund payments are discretionary financial payments from the Victorian Government … the Department's assessment and authorisation of individual payments occurred within an eligibility and payment framework agreed by the Minister, following a thorough audit and on the recommendation of the Chair of the Fund (who was appointed by the Minister) . . .'

26. Although unexplained, it is apparent on its face that the 'framework' tested for eligibility through three tests resulting respectively in the following payment

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calculations:

• (a) ' Asset test ' -

  Difference between annual income and income test threshold, plus 50% of net debt. Rounded down to nearest payment tier* subject to $50,000 minimum payment.

• (b) ' Indebtedness test ' - 50% of net debt, rounded down to nearest payment tier*.
• (c) ' Mortgage test ' - $50,000 flat payment.

27. The payment tiers are stated to be: $50,000, $100,000, $150,000, $250,000, $350,000, $450,000, $550,000 and $650,000.

28. It is apparent that the payment of $250,000 received by Mr Bains aligns with the application of the Asset test, adopting the unredacted numbers specific to Mr Bains appearing in the redacted report, applied as follows:

[(Yearly income threshold applicable to Mr Bains' status i.e. Couple combined, no children - Net yearly after tax income less lease income)] + ½ Net debt excluding home/personal = Calculated amount to be rounded down to nearest payment tier

[$86,528 - $27,291] + ½ $464,102 = $291,288, rounded down to $250,000.^[11] I am indebted to Ms Clarebrough, who appeared for the Commissioner and, as Ms Clarebrough put it, ‘reverse-engineered’ the information in the redacted report relating to Mr Bains against the framework to demonstrate this calculation.

29. This confirms that, consistent with the eligibility criteria, the Payment was calculated taking into account Mr Bains' income and his indebtedness.

30. The VGSO letter responding to the summons emphasised that, while in practice the eligibility framework 'guided' the assessment process, it was not applied strictly, but rather discretion and judgement were applied. The letter went on to state:

That meant that even if on the face of the Eligibility Framework it appeared that an applicant had not met a particular requirement as described in the flowchart (e.g. if they 'failed' the income test, or any other test), that would not necessarily be fatal to their eligibility and that the other factors would possibly be taken into account, as part of a holistic assessment around their financial hardship. That reflects the discretion applied to assessments.

31. The Commissioner submitted that no weight should be given to the VGSO letter as the author was not available for cross-examination. However, I am prepared to infer that it was prepared under instructions from the Department. In that regard, the comments in the letter are consistent with Departmental advice cited in the Ombudsman's Report^[12] Ombudsman Report (n 9) [121]. that the Fund is a one-off discretionary measure and there were a number of applications where judgement had to be applied based on the eligibility criteria principles and not just the financial assessment process. Further, the references to discretion and judgement, and approval of applications falling outside the framework, are consistent with the eligibility guidelines themselves. The guidelines, in addition to the three eligibility criteria, specifically contemplate consideration of applicants suffering financial hardship of a different nature. In any case, as already noted, it is apparent that, in Mr Bains' case, calculation of the payment amount of $250,000 was consistent with application of the eligibility framework.

IS THE PAYMENT INCOME ACCORDING TO ORDINARY CONCEPTS?

Principles derived from case law

32. The parties were in broad agreement regarding the principles to be applied in determining whether the Payment was income according to ordinary concepts.

33. At the most fundamental level, whether a particular receipt is an income receipt is to be determined 'in accordance with the ordinary concepts and usages of mankind' (assuming, as in this case, there is no statutory provision that provides otherwise).^[13] Federal Commissioner of Taxation v Harris (1980) 30 ALR 10 , 13 (‘ Harris ’). At least in contentious cases, the issue is rarely resolved by reference to a single consideration but rather a range of considerations. Where there are circumstances pointing in different directions, the decision whether a receipt is income according to ordinary concepts 'turns on questions of emphasis and degree.'^[14] Ibid 20.

34. The fact that a payment is made ex gratia is not conclusive. Perhaps in the case of voluntary payments, the required approach has been mostly clearly summarised in this way:

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The question whether a receipt comes in as income must always depend for its answer upon a consideration of the whole of the circumstances; and even in the case of a true gift it is necessary to inquire how and why it came about …^[15] Squatting Investment Co Ltd v Federal Commissioner of Taxation (1953) 86 CLR 570 , 627-8 .

35. Or as the majority of the High Court in
Federal Commissioner of Taxation v Rowe ('Rowe') expressed it: 'in the case of a voluntary payment the first inquiry must be to identify what the payment is for.'^[16] (1997) 187 CLR 266 , 277 (‘ Rowe ’).

36. Relevant considerations include:

• (a) Whether or not a particular receipt is income depends upon its quality in the hands of the recipient.
• (b) The motives of the donor may be relevant but are seldom decisive.
• (c) The regularity and periodicity of payments will be relevant though not generally decisive considerations.
• (d) A generally decisive consideration is whether the receipt is the product in a real sense of employment of, or services rendered by, the recipient, or any business or revenue-producing activity carried on by the recipient.
• (e) A payment in substitution for income acquires the character of that for which it is substituted.^[17] For a discussion of the applicable principles, see Harris (n 13) 14-16.

37. The parties also agreed the character of a receipt is not controlled by its intended or actual use by the recipient. Hence, neither party submitted that Mr Bains deploying the Payment to repay debt was relevant to its characterisation.

Application of the legal principles to the facts

38. Both parties relied on cases concerning the character of particular receipts. Not surprisingly, those cases turned upon their particular facts. Accordingly, I did not find consideration of examples of earlier decisions, one way or the other, particularly helpful in resolving the current matter.

39. For example, Mr Bains relied upon the High Court judgment in
Federal Commissioner of Taxation v Dixon ('Dixon').^[18] (1952) 86 CLR 540 (‘ Dixon ’). In that case, an employer agreed to top up the military pay of employees if they enlisted to fight in the Second World War. The payments were held to be income. However, because of the differing approaches of members of the Court, there is an acknowledged difficulty^[19] Harris (n 13) 15. in discerning a single ratio decidendi for the decision. In any case, the facts, involving regular payments and a connection with employment, are a far cry from the current matter.

40. An illustration of the fact-specific nature of the inquiry is provided by the contrary decision in Harris,^[20] Harris (n 13). in which ex gratia additional payments made by a bank to former employees receiving a bank pension, consequent upon the prevailing increased rate of inflation, were held not to be income. Separate judgments were delivered by the members of the Court with one dissenting. Fisher J distinguished Dixon on the basis of the payment being a single lump sum within the income year and to a person who was not in an employment relationship to which the payment could be said to be incidental. However, the current case has the feature, emphasised by the Commissioner, that Mr Bains was, at the time he received the Payment, apparently still in business as a taxi driver, albeit in a reduced fashion.

41. Perhaps, as the Commissioner submitted, the case most analogous to the current matter is Berghofer and Commissioner of Taxation ('Berghofer').^[21] [2008] AATA 1138 (‘ Berghofer ’). The Queensland Parliament passed legislation restricting clearing of remnant vegetation. Mr Berghofer applied for and received an 'Enterprise Assistance Grant' under a scheme introduced to provide financial assistance to farmers affected by the restrictions. The purpose of the grant was to enable Mr Berghofer to construct a dam to provide irrigation that it was hoped would drought proof his property. Deputy President Hack held the payments were ordinary income. The relevant part of the Tribunal's reasoning included the following:

38. Next, it is relevant to have regard to the fact that the payments were, in one sense, gratuitous; that is, the payment was not compensation in the strict sense. They were not, as Mr Berghofer said in his objection, 'compensation for the loss of [the] right to clear trees' because he had no entitlement to compensation in those terms. Mr Berghofer did not become entitled to payment because his land was affected land; rather, because

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his land was affected he became entitled to be considered for a grant provided the other matters required to be shown were shown. The payment here is, for that reason, to be distinguished from a payment made for the compulsory acquisition of an asset where what is acquired will generally be the whole of the interest in the asset acquired. In those cases the receipt will ordinarily be on the capital account and will fall to be dealt with for taxation purposes, if at all, under the capital gains tax regime.

39. The payments were received as recoupment of expenditure undoubtedly made in the course of Mr Berghofer's business. It represented a profit or gain made by Mr Berghofer in the course of his business. The occasion for the payments was unusual, but that does not mean that it was not received in the ordinary course. The construction of a dam and the creation of an area of cultivation are ordinary incidents of that business even though they may be undertaken infrequently. And to my mind it matters not that Mr Berghofer was required to expend the money prior to being reimbursed. In terms of Mr Berghofer's bank balances the result may appear to be neutral. However, the profit or gain arises from the value or worth of what was acquired.

(Emphasis added.)

42. It is clear the decision was significantly influenced by the grant being in reimbursement of business expenditure. Additionally, the Tribunal regarded it as of 'some relevance' that the reimbursed expenditure had been deducted for tax purposes.^[22] Ibid 20 [40]. It is not immediately clear to me why this factor would necessarily be relevant to the characterisation of the payment. Those features are not present in the current matter.

43. I turn now to consider the application of the general principles identified above to the facts of this matter and start, as the authorities indicate I must, with the question of, as the Commissioner put it, the 'how and why' of the Payment or, adopting the majority's formulation in Rowe set out above, what the Payment was for.

44. At a high level, it is clear from the eligibility criteria that the purpose of the Fairness Fund was to provide relief for those 'who [were] facing significant financial hardship as a result of the proposed reforms'.^[23] See paragraph [15] above.

45. Mr Bains submits that the Payment was 'payable in recognition of financial hardship occasioned by the destruction of value in a particular form of licence owned during a particular time.'^[24] Applicant’s Outline of Submissions, 7 [19]. I am, with respect, unable to accept that as an accurate or complete characterisation of the Payment.

46. There is no doubt that Mr Bains suffered financially because of the loss of value of his licences. He paid some hundreds of thousands of dollars for the licences and they became, as a consequence of the reforms, worthless.

47. But to focus only on the destruction in value of the licences would be to disregard both the expressed purpose of the Fund and, so far as it is known, the basis on which the Payment was calculated. The expressed purpose of the Fund is not said to be financial hardship resulting from destruction in value of the licences but rather from the reforms. Those reforms introduced greater flexibility into the industry which could be expected to impact on entry barriers, competition and pricing.^[25] Explanatory Memorandum, Commercial Passenger Vehicle Industry Bill 2017 (Vic). Mr Bains' own application emphasised the drop in passengers and income he suffered as a consequence of the assignee fees falling and his vehicle standing idle due to, I infer, greater competition. These features were put forward by Mr Bains' lawyers in support of his application for a payment from the Fairness Fund which was conditioned upon financial hardship arising 'as a result of the proposed reforms'.

48. On the other hand, the Commissioner's approach of focussing on Mr Bains' reduced income to the exclusion of other factors also leads, in my view, to an unbalanced characterisation of the 'why' of the Payment. It is true that Mr Bains' application emphasised the drop in his income as a consequence of the reforms and his inability to meet business and personal expenses. But he also referred to his substantial indebtedness and his inability to sell the licences to repay that indebtedness.

49. It is not determinative, but neither it is irrelevant, that the Payment was not calculated as a substitute or recompense for a particular amount or estimate of forgone income, nor was

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it paid on a periodic or regular basis. It was a one-off discretionary payment.

50. Ms Clarebrough, who appeared for the Commissioner, sought to draw support for the Commissioner's position from the fact that Mr Bains had received Transition Assistance Payments which were referable to the cancellation of the licences. There was no direct evidence of this but even assuming this premise for the payments to be accurate it would not follow that the Payment from the Fairness Fund could not also, at least in part, relate to hardship arising out of the loss of value of the licences. Based on the amounts he paid for the licences, the amounts received by Mr Bains did not cover the whole of the loss of value he suffered.

51. Ms Clarebrough also emphasised that Mr Bains was still in business when he received the Payment and submitted the Payment was received in the ordinary course of Mr Bains' taxi business. In that regard, Ms Clarebrough drew attention to the comment, highlighted in the extract from Berghofer above, that the occasion for a payment may be unusual but that does not mean it was not received in the ordinary course of the taxpayer's business.

52. That is undoubtedly so. However, it is also clear that not all payments received by a person in business are income. That may be especially the case when the recipient is an individual natural person rather than, for example, a company or partnership. The question is not whether the recipient was carrying on a business but whether the receipt was a product of carrying on the business.

53. The eligibility criteria do not require applicants to be in business. There was no requirement that, at the time of the application, an applicant must hold a taxi licence, provided they held an ownership interest in a licence at any time in the period 1 January 2016 to 23 August 2016.

54. Nor do the eligibility criteria require there to be current business income. The first of the main three criteria in fact refers to a 'lack of current income or loss of future income stream' significantly impacting on household spending capacity. The third refers to lack of available funds 'to meet financial commitments' which is not in terms limited to business commitments. Only the second criterion refers to debt obligations relating to licences and, in any case, it was sufficient for applicants to satisfy any one of the criteria.

55. Rowe, already referenced above, concerned an engineer, employed by a shire council, who incurred legal fees relating to an inquiry at which he was cleared of charges of misconduct or neglect. Subsequent to the termination of his employment, he received an ex gratia payment equivalent to the expenses incurred.

56. A majority of the High Court concluded the payment was 'not a remuneration but a reparation.'^[26] Rowe (n 16) 280. The majority also concurred with a statement by Beaumont J below that:

In deciding to make the ex gratia payment, the Treasury could have been seen as acting so as to vindicate the public interest in ensuring that fair and liberal treatment is afforded to those citizens who participate in public inquiries.^[27] Rowe (n 16) 279 quoting Commissioner of Taxation v Rowe (1995) 60 FCR 99 , 108 .

57. The current matter is by no means directly analogous with Rowe. In Rowe, the taxpayer was no longer an employee of the council when the payment was made, whereas in the current matter Mr Bains continued to be in business, albeit on a reduced scale.

58. However, there is a parallel in the sense that, as indicated by its very name, the Fairness Fund could be seen as compensating for the unfairness suffered by applicants as a consequence of a regulatory change. That unfairness is manifest in licence holders having paid substantial amounts of money for their licences and, through no fault of their own, having the value of the licences destroyed by legislative reform, and the reduction in income consequent upon the reforms. And further, as in the case of Mr Bains, being left with substantial debts they were no longer able to service and certainly could not discharge by selling their licences as they could have before the reforms.

59. In my view, this matter is finely balanced with considerations pointing in both directions. However, when consideration is given, as the authorities require, to what the Payment was for, I consider the better view to be that it was for the alleviation of the unfairness of licence holders suffering financial hardship from the reforms. Such hardship is not limited to financial implications for the business

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or from loss of income. This is not a case where payments were made to encourage recipients to remain in business or to subsidise the cost of doing business. Being in business was not a prerequisite for payments from the Fund.

60. These and other considerations outlined above persuade me the balance favours the view that the Payment is a one-off discretionary payment paid as a matter of public policy for the relief of unfair financial hardship, rather than a product of Mr Bains' remaining taxi business, such as it was at the time, or as a substitute for or estimate of income forgone.

CONCLUSION

61. For the reasons set out above, I am persuaded the Payment was not income according to ordinary concepts. It follows that the objection decision disallowing Mr Bains' objection against the Commissioner's assessment treating the Payment as assessable income, must be set aside and substituted with a decision wholly allowing the objection.