COOPER v FC of T

Members:
M Allen M

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2003] AATA 296

Decision date: 28 March 2003

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M Allen (Member)

This is an application to review the decision of the respondent, the Commissioner of Taxation, to disallow an objection by the applicant, Mr Cooper, against an assessment of income tax based on Mr Cooper's income for the year ended 30 June 2000 (the 2000 year). The objection was against the inclusion in assessable income of a lump sum paid to Mr Cooper in the 2000 year as arrears of invalidity benefits in respect of the years between 1975 and 2000 pursuant to the Defence Force Retirement and Death Benefits Act 1973 (the DFRDB Act).

2. At the hearing Mr Cooper was represented by Mr Sceales and the Commissioner was represented by Ms Kelley, a departmental employee. The Tribunal received into evidence the documents filed by the Commissioner pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (the AAT Act). A Statement of Agreed Facts was submitted by the parties and oral evidence was given by Mr Cooper and a consulting actuary, Mr Dennis Barton. I will refer to specific aspects of that oral evidence later in these reasons.

Background

3. There was no dispute about the essential facts of the case, which can be summarised as follows based on the agreed facts and the evidence given at the hearing, and the following findings of fact made:

• (a) Mr Cooper was born in April 1954 and enlisted in the Australian Army in April 1972. In August 1972 he was injured as a result of a training accident involving explosives.
• (b) In March 1975 Mr Cooper was discharged from the Army. At the time he was suffering from an undiagnosed Post Traumatic Stress Disorder and in the succeeding years the Defence Force Retirement and Death Benefits Authority (the Authority) concluded that he would not be treated as having been retired on the ground of physical or mental incapacity to perform his duties for the purposes of the DFRDB Act.
• (c) It was not until March 2000 that the Authority decided that Mr Cooper should be treated as if he had been discharged on the grounds of physical or mental incapacity to perform duties. In April 2000 the Authority decided that Mr Cooper's invalidity classification should be Class B between March 1975 and February 1994 and Class A thereafter. In June 2000, on the basis of those classifications, Comsuper as the administering authority informed Mr Cooper (T10) that he would receive an on-going pension of $25,702.08 per annum payable by fortnightly instalments, the first of which would be made on 15 June 2000 and that he would receive arrears of benefit in respect of the period between 20 June 1975 and 29 June 2000 totalling $286,448.03. This latter sum was calculated by the addition of the amounts that would have been paid to Mr Cooper in each of the years in that period. Tax at the rate of 22.5% (totalling $64,649.71) was to be deducted based on what Comsuper said was advice from the Australian Taxation Office - but with the stated proviso that this amount might not cover all the recipient's taxation liability - and Mr Cooper was to receive a net amount of $221, 798.32 (T10, folios 62 and 63).
• (d) For the year ended 30 June 2000 Mr Cooper received three group certificates - from Comsuper, the Commonwealth of Australia and the Australian Defence Organisation (ADO). These showed, respectively, the amounts of $288,419.69, $5,936 and $14,533 as ``gross salary, wages, bonus etc'' and the amounts of $64,847.91, $1,061.80 and $2,361.70 as ``tax instalments deducted''. In October 2000 Mr Cooper lodged his tax return for the 2000 year. The gross amounts shown on the group certificates from the Commonwealth and ADO were shown in the ``main salary and wage occupation'' section of the return and the amount paid by Comsuper was shown in the ``other income'' section of the return. Total taxable income was shown as $308,908 (T4).
• (e) In November 2000 a Notice of Assessment (T5) was issued by the Commissioner. Tax of $135,788.76 was payable on the taxable income (which was accepted as being $308,908) and a Medicare levy of $7,722.70 (including a Medicare Levy surcharge of $3089.08) was also payable. A lump sum in arrears rebate of

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  $18,681.77 was allowed as a credit and after allowing for tax instalments already deducted the sum of $56,588.25 was payable under the Assessment.
• (f) Mr Cooper objected to that assessment in February 2001 on the grounds that taxable income received from Comsuper in the 2000 year should not exceed $23,659.92; that the balance of arrears of benefits received in the 2000 year from Comsuper (ie the amount of $264,759.77) was income in the various years between 1975 and 30 June 1999 rather than the 2000 year; or, alternatively, that the amounts received for the years between 1975 and 1995 related to periods that were more than four years before the date of assessment and need not be returned in the absence of fraud or evasion.
• (g) That objection was disallowed by the Commissioner in April 2001 (T11) but notice was given that the assessment would be amended to allow an additional $66.82 credit for the lump sum payment in arrears rebate. An amended assessment to that effect was issued in May 2001(T13). Mr Cooper then applied to this Tribunal for a review of the decision to disallow the objection in accordance with s 14ZW of the Taxation Administration Act 1953 (the Administration Act).
• (h) The consensus of the medical practitioners who have treated Mr Cooper for some years is that he suffers from a severe psychiatric disorder, ie post traumatic stress disorder, as well as other medical problems; he is totally and permanently incapacitated for any employment for which he is reasonably qualified; and that he is unable to be retrained or rehabilitated and will remain unemployable in any capacity whatsoever on a permanent basis.
• (i) During the 1980s and 1990s Mr Cooper had been judged eligible to receive, and did receive, periodic and lump sum compensation in respect of his reduced earning capacity and his injuries under the relevant workers compensation legislation for Commonwealth employees.

4. Section 14ZZK(b) of the Administration Act provides that an applicant to this Tribunal who has objected to an assessment has the burden of proving that the assessment is excessive. The ordinary civil standard of proof on the balance of probabilities is to be applied. Mr Cooper sought to discharge that onus by asserting that the assessment in question was incorrect and excessive on the grounds considered below.

Consideration of the issues

Was the income derived on a yearly basis or in the 2000 year?

5. The first ground advanced on behalf of the applicant was that the arrears of invalidity benefits - received in the 2000 year but in respect of the years between 1975 and 1999 - were calculated and became due on a year by year basis and, although not paid to the applicant each year, they should have been and the applicant was at all times legally entitled to the amount each year. Such income was therefore derived in each year and tax on those arrears should be computed on a year by year basis and not on a lump sum basis in the year of receipt. Before 1 July 1997 the applicant was deemed to have derived such income on a year by year basis by virtue of s 19(1) of the Income Tax Assessment Act 1936 (ITAA36) and after that date by virtue of s 6-5(4) and s 6-10(3) of the Income Tax Assessment Act 1997 (ITAA97).

6. As I understood the points made, the submissions made by Mr Sceales in support of this general ground can be summarised as follows:

• • The relevant provisions of the DFRDB ACT (in particular ss 23, 26 and 31) provide that a contributing member who is retired on the grounds of invalidity or incapacity to perform duties is entitled, on his retirement, to invalidity benefits at rates applicable to the member in accordance with that Act.
• • Mr Cooper therefore became entitled to benefits on his retirement in accordance with the classification of his incapacity from the date of his retirement - even though he was kept from those entitlements for many years by the original decision of the Authority that he would not be treated as having been retired because of incapacity to perform duties. The decision made in 2000 to treat him as having been discharged on the grounds of physical or mental incapacity and to pay him entitlements backdated to 1975 confirmed that entitlement. It was not necessary for a demand for payment to be made for that entitlement on retirement to

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  arise. Actual receipt was not an essential element in derivation.
• • Because the entitlement to benefits vested in possession as and from the date of retirement he should be taken to have derived the income at and from that time. The amounts were receivable and recoverable in each of the years following his retirement and should be treated as having been derived on a year by year basis: s 19(1) of the ATAA36 and s 6-5(4) of ITAA97.
• • A receipts basis of accounting for income was not appropriate because the money received was not received as an employee.
• • Because the amounts became payable by virtue of the legislation on retirement the payments were time barred and unenforceable - and, therefore, all amounts that accrued before 1994 were time barred and the payments for those years was on an ex gratia basis and not income.
• • The payments to which Mr Cooper became entitled in the period from 1975 to 30 June 1995 related to periods more than four years before the date of the assessment in respect of the 2000 year and such amounts (in the absence of fraud or failure to disclose) did not have to be returned as income and the Commissioner is precluded from revisiting those periods.

7. Ms Kelley made the following submissions on behalf of the Commissioner in relation to this general ground:

• • The lump sum amount was assessable income because it comprised the amounts that would have been paid to Mr Cooper by fortnightly instalments but for the previous decision of the Authority;
• • had fortnightly payments been made from the time of retirement they would have been characterised as income because they would have been periodic, the recipient would have relied on them for support, there would have been an expectation of receipt, payment would have been calculated by reference to earnings prior to invalidity, and payment would have been effectively a substitute or replacement for income;
• • the fact that payment is received in arrears as a lump sum will not change the fact that payment is stamped with the character of income;
• • Section 55-5 of ITAA97 specifically provides that payments under the DFRDB Act are not exempt from income tax.
• • ``Salary or wages'' is defined in ss 221A(1) of ITAA36 to include payments covered by Division 55 of ITAA97, payments by way of superannuation or pension, and weekly or periodical payments by way of compensation or of sickness or accident pay in respect of incapacity for work. The invalidity payments received are a form of compensation or sickness pay in respect of the taxpayer's incapacity to work and therefore ``salary or wages'' as defined in s 221A(1) of the ITAA36.
• • As a former member of the defence forces the taxpayer is an eligible person and an employee for the purposes of Division 2 of Part VI of the ITAA36. The employer (Comsuper in this case) is obliged to deduct tax instalments from the invalidity pay under s 221C of the ITAA36.

8. The DFRB Act provides a regime whereby certain types of benefits and payments can be paid to former members of the defence forces. Of particular relevance to Mr Cooper, s26 provides that ``... where a contributing member is retired on the ground of invalidity or of physical or mental incapacity to perform his duties, he is entitled, on his retirement, to invalidity benefit in accordance with this Part.'' Section 30 requires the Authority to determine the percentage of incapacity of a member who is, or is about to become, entitled to invalidity benefit and to classify the member as Class A, B or C according to the assessed incapacity. Section 31 provides that a member who is entitled to invalidity benefit and is classified as Class A or Class B (whether on retirement or by reason of subsequent reclassification) is entitled to invalidity pay at the rate applicable, being for Class A and Class B recipients 76.5% and 38.25% respectively of the annual rate of pay applicable to the member immediately before his retirement. Section 32 provides for invalidity benefits for those classified as Class C and s 32A provides a process by which a Class C recipient can make an election to commute a portion of invalidity pay into a lump sum in accordance with that section. Section 37 provides that if a member has been retired otherwise than on the ground of invalidity or of physical or mental incapacity to perform duties, then, after the retirement, certain specified

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senior officers or authorised persons can inform the Authority that at the time of the retirement grounds existed on which the member could have been retired on those grounds. In that case the member may, for the purposes of the Act, be treated as if he had been retired on that ground.

9. Mr Cooper was not retired on the grounds of invalidity or physical or mental incapacity to perform duties in 1975 and prior to the year 2000 the Authority did not determine that he was, nor did it assess his percentage incapacity or classify him. It was not until, in 2000, the provisions of s 37 were applied in his favour that the Authority (acting by its Committee of Alternates) concluded (T9):

``Classification of Invalidity - Section 30

In accordance with the provisions of s 26, as Mr Cooper was now considered to have been retired on the ground of invalidity or physical or mental incapacity to perform his duties, he is entitled to invalidity benefit''

and classified his incapacity as initially Class B and then Class A as described above.

10. Being an Australian resident, in the 2000 year s 6-5 of ITAA97 provided that Mr Cooper's assessable income included income according to ordinary concepts (ordinary income) which he derived directly or indirectly from all sources during that income year and that he would be taken to derive income as soon as it was applied or dealt with in any way on his behalf or as he directed.

11. The amount received by Mr Cooper in the 2000 year from Comsuper under the DFRDB Act was money received under a superannuation scheme: see the analysis of the DFRB Act regime by Deputy President Forgie in
Hammerton v Comcare 21 AAR 204. It was not in contention that the amounts so received constituted ordinary income of Mr Cooper, and it is clear that this is so. The lump sum comprised the arrears of payments due plus the entitlement in the 2000 year, being the annual amounts that would have been paid each year by fortnightly instalments and which were calculated by reference to earnings that Mr Cooper would have received had he remained a soldier. Such fortnightly instalments would have been relied on by Mr Cooper for support and he would have had an expectation of regular receipt. The amounts were not paid as compensation for injuries sustained as Mr Cooper had previously received compensation of that type - and the lump sum was not therefore of a capital nature. Payment in arrears by lump sum will not change the character of income: see generally
Purdon v FC of T 2001 ATC 2064 (Senior Member MD Allen) and Case X21,
90 ATC 239 (Deputy President Gerber).

12. The question that must then be answered is whether the income was derived by Mr Cooper in the 2000 year or in earlier years as submitted on his behalf. This Tribunal has dealt with many cases in which a taxpayer has been aggrieved that, in a variety of circumstances, an amount received in one year but wholly or partly in respect of another year has been treated as assessable income in the year of receipt. At times the Tribunal has expressed a degree of sympathy with the taxpayer's situation, but has taken the view that the taxation laws of this country have been applied consistently in that way - that employees or former employees are assessable upon the amounts actually received by them in a particular year of income, irrespective of whether some part could be said to relate to another year of income: see, for example,
Hannavy v FC of T 2001 ATC 2162; [2001] AATA 370, Senior Member Muller. The rebate available for taxpayers who receive certain types of lump sums in a particular year pursuant to ITAA36 ss 159ZR to 159ZRD can be seen as an attempt by the Parliament to respond to the perception that such situations can have unfair consequences. Mr Cooper received the benefit of this statutory rebate in the present case.

13. At the outset I would observe that I see no reason in the circumstances of the case to adopt anything other than a cash or receipts basis to account for the income of this taxpayer for the purpose of determing when income is derived. Although the case concerned income from professional services, the much-quoted passages from the judgement of Dixon J (as he then was) in what became known as Carden's case that the accounting method to be applied is the one that in the circumstances of the case is calculated to give a substantially correct reflex of the taxpayer's true income:
(1938) 5 ATD 98 at 131; (1938) 63 CLR 108 at 154, and that the objective is to discover what gains have during the period of account ``come home to the taxpayer in a realized or immediately realizable

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form'' (at ATD 132; CLR 155) are appropriate in this case; see also Case R79,
84 ATC 543.

14. In my opinion, the references in the above-mentioned sections of the DFRDB Act to entitlement from the time of retirement rather than from some other time are designed to ensure that a person who is ultimately judged to have been retired on invalidity or incapacity grounds (whether before or at the time or retirement, soon thereafter, or a very long time thereafter as in Mr Cooper's case) will receive the appropriate benefits from the date of retirement and not from any earlier or later date. Although it can be said that a right to receive the relevant benefits arises from the time of retirement, it is a right that is dependent upon certain things happening. At the time of retirement there will need to be a decision by a proper person to retire the member on invalidity or incapacity grounds and a determination by the Authority regarding the extent of incapacity before any right to receive invalidity benefits will arise. At a time after retirement (as in Mr Cooper's case) there will need to be a decision by one of the persons specified in s 37 and a determination by the Authority regarding classification. In the latter case the calculation of the benefits payable will, of course, be backdated to the date of retirement to reflect the entitlement from that date that s 26 confers.

15. Mr Cooper had the right, in 1975 at the time of his retirement and at all times thereafter, to claim either that he had in fact been retired on invalidity or incapacity grounds or that, subsequently, the power under s 37 should have been exercised in his favour and to have any decisions made in relation thereto reviewed administratively or judicially by whatever means were available to him. The fact that he was not able until 2000 to achieve the result that he was entitled to is a matter of great regret. The fact that he was able eventually to achieve that result with benefits backdated to the date of retirement does not, in my opinion, mean that he can be said to have derived those benefits for income tax purposes in the years between retirement and receipt of them. Until the Authority approved of the payment and, importantly, determined his classification, Mr Cooper had no right to any payment, no amount could be ascertained as due to him, and there had been no segregation of any amount due to to him from the fund (which I take to be the consolidated revenue of the Commonwealth). There was no amount that could be applied or dealt with in any way on his behalf or as he directed for the purposes of s 6-5(4) of ITAA97 or that could be reinvested, accumulated, capitalised, carried to any reserve etc or otherwise dealt with on his behalf or as he directed for the purposes of s 19 of ITAA 36 in relation to years prior to 1997/98. In my opinion no amount ``came home'' to Mr Cooper in any realizable form until the 2000 year.

16. Any other conclusion would, in my opinion, be strange to say the least. It would require a conclusion that in the years before 2000 the ``entitlement'' of Mr Cooper was such that he should have brought to account for taxation purposes the income that he had not received and which at the time he had no right to receive.

17. In my opinion the lump sum amount received by Mr Cooper in the 2000 year of arrears of invalidity benefits for previous years must be treated as part of his ordinary income in that year unless exempted or made not assessable on some other ground. I therefore turn to consider the second main ground advanced on behalf of Mr Cooper.

Was the lump sum an eligible termination payment?

18. It was argued that the gross amount of $286,448.03 paid to the applicant as a lump sum constituted an ``eligible termination payment'' (ETP) for the purposes of s 27A of the ITAA36 and only 5% of that amount should be included in taxable income for the 2000 year because Mr Cooper's period of service ended prior to 1July 1983 and his service was a ``pre- July 1983 component'' under s 27AA of ITAA 36. Such would be the case if the lump sum was an ETP as defined in s 27A(1) which, so far as is relevant to Mr Cooper, defines an ETP in both inclusive and exclusive terms as:

``(a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment:

• (i) made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or was a member of the fund;
• (ii)...

(b) any payment made from a superannuation fund in respect of the taxpayer by reason that the taxpayer is or

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was a member of the fund, not being a payment:

• (i) that is income of the taxpayer;
• (ii)...

...

(d) any payment made in respect of the taxpayer in relation to the commutation, in whole or in part, of a superannuation pension that was payable to the taxpayer;

...

but does not include:

...

(n) consideration of a capital nature for, or in respect of, personal injury to the taxpayer to the extent to which the amount or value of the consideration is, in the opinion of the Commisssioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion:...''

19. It was conceded on behalf of Mr Cooper that paragraphs (a) and (b) were not applicable in the present case because the payments were made from a superannuation fund of which Mr Cooper was a member and that the amount received was income of Mr Cooper. It was claimed that paragraph (d) did apply to Mr Cooper because what Mr Cooper received represented the commutation of what was due to him in respect of the superannuation pension that was payable to him. Specifically, it was argued that the gross lump sum received was the commuted value of a superannuation pension in that:

• (i) Mr Cooper did not claim interest on the amounts due to him over the years;
• (ii) he did not pursue recovery of the pension that should have been paid for the period 17 March 1975 (when he actually retired) to 20 June 1975 (the date to which the arrears payments were backdated - T10, folio 63));
• (iii) Comsuper now says that the amount paid as arrears for the year to June 1977 included an overpayment that it proposes to recover - which Mr Cooper does not accept; and
• (iv) the majority of the arrears (claim) was time barred and was paid on an ex gratia basis and was not received as income.

20. It was conceded on behalf of the respondent that the invalidity benefit payments under the DFRB Act paid to Mr Cooper were payments made from a superannuation fund and that they satisfy the requirements for a pension under Regulation 1.06 of the Superannuation Industry (Supervision) Regulations 1994 - and hence for a pension within the meaning of the Superannuation Industry (Supervision) Act 1993. They are, therefore, a pension as defined in s 27A(1) of ITAA 36. The issue to be determined is whether the lump sum payment received constitutes a commutation of the pension in whole or in part.

21. Mr Barton, who is a consulting actuary and a former State Actuary for Western Australia, gave evidence that he had made calculations as at 6 June 2000, based on certain assumptions, and prepared a schedule showing the present value on that date of the payment entitlements of Mr Cooper between June 1975 and June 2000 using the amounts set out in T10. His assumptions were that the appropriate interest rate to use to find a present value of the payments was 6% for the entire period and, secondly, in an ex poste calculation of that type it was appropriate to make no allowance in the interest rate for mortality - because Mr Cooper had not in fact died. His calculations showed that had interest been earned on the annual pension entitlements at the rate of 6% per annum compounded then in June 2000 Mr Cooper would have received or been entitled to receive an amount of in excess of $500,000. Mr Barton described this amount as the ``commutation of Mr Cooper's pension entitlements'' - using ``... the common definition of `commutation' (the substitution of one type of payment [a lump sum] for another [ a series of fortnightly payments]).'' (document A1). Mr Barton also expressed the conclusion in a slightly different way - that the calculated present value of just over $500,000 represented the amount Mr Cooper would have had in June 2000 if he had been able to put all the money he could have received in the form of fortnightly instalments between 1975 to 2000 in the bank and earned 6% per annum compound on it (ignoring the impact of tax and assuming that Mr Cooper had other means of support).

22. The thrust of the submission made on behalf of Mr Cooper was that he could have sued for the various annual payments with interest and this would have amounted to well

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in excess of the amount of arrears that he ultimately accepted from Comsuper - and that he has, essentially, commuted all his rights to various amounts in favour of a different amount, and that brings the payment within s 27A(1)(d) of ITAA 36.

23. It was subsequently conceded on behalf of Mr Cooper that he had never claimed or made an enquiry with Comsuper about payments of interest on the arrears.

24. Ms Kelley pointed out that the DFRDB Act provides for the commutation of future payments for Class C recipients of invalidity benefits but makes no provision for commutation in respect of Class A or B benefits. As they cannot be commuted under the Act the payments cannot be an ETP under s 27A(1)(d). In any event, Ms Kelley submitted that on any definition of commutation the lump sum of arrears paid to Mr Cooper could not be considered to be a commutation of the pension to which he was entitled. She referred to the comments of Deputy President Forgie in Hammerton v Comcare (supra) as follows:

``44.... the commuted retirement pay... is an amount paid in accordance with the provisions of a superannuation scheme and is paid as a once and only payment in respect of a portion of Mr Hammertons's on-going entitlements to receive a fortnightly pension and in extinguishment of his rights to receive that portion in the future.

...

47.... the commutation has had the effect of changing the essential nature of periodical pension payments into something else. That seems to me to accord with what happens when a single payment takes the place of an on- going periodic payment of pension. It also accords with the normal meaning of commute ie `to exchange for another or something else... interchange 2. to change (one kind of payment) into or for another by substitution... to make a collective payment, esp of a reduced amount, as an equivalent for a number of payments...' (Macquarie Dictionary).''

25. Ms Kelley submitted that the lump sum was made up of arrears for Class A and B benefits and were not in substitution or exchange for any right Mr Cooper had - they were simply the arrears to which he was entitled under the DFRB Act that he had become entitled to; the amount was simply the individual fortnightly payments that could have otherwise been paid; and there was no discounting of future payments as is usually the case when future payments are commuted. Section 27A(1)(d) is concerned with the commutation of a superannuation pension otherwise payable and the substitution of a lump sum for the future right to receive the pension.

26. I agree with those submissions and would add that any commutation must be in accordance with the provisions of the superannuation scheme in question. In my opinion a commutation of a superannuation pension requires a beneficiary to make a conscious decision to exchange future entitlements, or a mixture of past and future entitlements, for some other form of benefit (usually a lump sum) as permitted by the scheme. Mr Cooper made no such decision. Once the Authority had determined that he would be treated as having been retired on invalidity or incapacity grounds he became entitled to receive his arrears from the date of retirement and a future pension. The arrears could only be calculated and paid as a lump sum in the way that it was by the Authority. I have no reason to doubt Mr Barton's evidence of the calculations that he made or the appropriateness of his assumptions. I do not, however, believe that his evidence established that there was a commutation of a pension. There is nothing in the DFRDB Act that entitles a person who recovers arrears of benefits backdated to the date of retirement to receive interest on the arrears and there was no evidence that Mr Cooper was entitled to interest on some other basis. Nor was there any evidence that there had been negotiations with Comsuper in relation to the short period after the date of retirement for which benefits have apparently not been paid. On the evidence I consider that Mr Cooper received his full entitlement as to arrears and that receipt of arrears did not alter in any way the right to receive the pension in future in the same amount and on the same terms. There was no exchange or substitution of anything. There was no commutation of future pension entitlements and the payment of the arrears by a lump sum was not a commutation of past pension entitlements. In the circumstances I do not

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consider that there was a commutation of a pension in whole or in part and it follows that the lump sum was not an ETP as defined in s 27A(1)(d).

27. Because the lump sum is not an ETP on any of the relevant grounds within s 27A(1) advanced by the applicant, it is only necessary to note that s 27G of ITAA 36, which deals with invalidity payments in certain circumstances, and which the applicant submitted would apply to exempt the whole of the lump sum from tax, will not be applicable to Mr Cooper because s 27G(a) requires that the invalidity payment also be an ETP - and it is not.

Payments prior to 30 June 1995

28. In the outline of submissions document tendered at the hearing, at para 5.27, Mr Sceales submitted that the payments to which Mr Cooper became entitled in the period between 20 June 1975 to 30 June 1995 related to periods which were more than four years before the date of the assessment issued to the applicant in respect of the 2000 year. It was submitted that such amounts need not be returned as assessable income, there having been no fraud or failure to disclose by the applicant in those periods and the respondent is precluded from revisiting those periods. In his oral submissions Mr Sceales identified s 170 of ITAA 36 as the relevant statutory provision that has this effect. I note that both the original objection to the assessment and the application to this Tribunal contained the same ground (T7, para 6.7, T1, para 5.8) and that both the original decision on the objection (T12) and the statement provided by the respondent under s 37 of the Administrative Appeals Tribunal Act 1975 (as amended by s 14ZZF of the Administration Act) (T2) did not address it; nor was any submission made on behalf of the respondent on the point at the hearing.

29. Section 170 appears in Part IV of ITAA 36, which deals with returns and assessments generally including the Commissioner's ability to investigate a person's affairs, issue assessments where no return has been submitted, and, by s 170, to issue amended assessments where it is considered that an amendment to the original (or earlier amended) assessment is necessary. From the 1989/90 year s 170 was significantly amended (by Taxation Laws Amendment Act (No 5) 1989) to reflect changes made necessary by the movement to the self-assessment system of processing returns. The concept of a person making a ``full and true disclosure'' was no longer appropriate and, in relation to amendments of assessments to increase a taxpayer's liability to tax, an amendment could only be made where there has been an avoidance of tax. Speaking generally, if the Commissioner considers the avoidance to be due to ``fraud or evasion'' the assessment can be amended at any time - but in any other case the amendment must be made within four years.

30. In the present case the applicant disclosed the amounts received in the 2000 year and the assessment of the tax that gave rise to the objection was the original assessment. The only amended assessment issued was in May 2001 in respect of the 2000 year to reduce the amount of tax payable because of the recalculation of the lump sum rebate to which the applicant was entitled. The Commissioner at no time attempted to revisit the applicant's income tax assessments for any years prior to the 2000 year (because of the view taken that the lump sum was income derived in that year). The time limitation in s 170 would only seem to have relevance if the submission that the lump sum amount had been derived on a year-by-year basis between 1975 and 2000 was judged to be correct. On that basis, presumably, the amount for each year would be assessable in each year - which would necessitate the Commissioner having to issue amended assessments for each prior year. In the absence of fraud or evasion the Commissioner could issue amended assessments only for the four years prior to 2000. Whether that is the correct interpretation or not, it is not relevant in this case because of the view I have taken that the lump sum amount was assessable income derived in the 2000 year. In my opinion the issue of any time limits on the Commissioner's ability to amend the assessments in the years before 2000 does not arise for consideration in this case.

A final issue

31. After the hearing of the matter, but before this decision was finalised, the parties wrote to the Tribunal to advise that it had been established that Mr Cooper had been eligible for free medical treatment from 20 May 2000; that he was, therefore, a ``prescribed person'' from that date pursuant to s 251U of the ITAA 36 and the provisions of the Medicare Levy Act 1986; and that he was neither married nor living in a de facto relationship from that date. He

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was, therefore, entitled to a reduction of the Medicare levy and surcharge for the proportion of the year in which he was a prescribed person ie 42 days. Consequently, the parties were in agreement that the Medicare levy imposed on Mr Cooper for the 2000 year should be reduced from $4624.64 to $4100.44 and the Medicare surcharge should be reduced from $3089.08 to $2733.62. I am satisfied that that is correct and the assessment under review should be amended to reflect those changes. I exercise my discretion under s 14ZZK(a) of the Administration Act to permit the addition of this ground of objection to the assessment.

Conclusion and decision

32. I have concluded that the portion of the lump sum arrears received by the applicant in the 2000 year that related to prior years represented assessable income of the applicant that was derived in the 2000 year; that the lump sum was not an eligible termination payment; and that any time limits on the Commissioner's ability to amend original tax assessments have no relevance in this case. To that extent the applicant's original grounds of objection to the assessment have not, therefore, been made out and the applicant has not discharged the onus on him to demonstrate that the assessment of tax objected to is excessive. However, I am satisfied that the amounts assessed in respect of the Medicare levy and surcharge are excessive. My decision is that the amended assessment dated 17 May 2001 in respect of the 2000 year must be further amended by reducing the Medicare levy from $4624.64 to $4100.44 and the Medicare surcharge from $3089.08 to $2733.62.