Reseck v. Federal Commissioner of Taxation.

Judges:
Hanger CJ

Court:
Supreme Court of Queensland

Judgment date: Judgment handed down 15 November 1974.

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Hanger C.J.: This matter requires the decision of questions of law arising on facts stated by the Board of Review.

The taxpayer had been employed by Fluor Australia Pty. Ltd. for two periods, from 25th November, 1969, to 24th September, 1971, and from 27th September, 1971, to 11th February, 1972. Between the two periods, Saturday and Sunday had intervened.

The employer was engaged in the construction of a railway line between Goonyella and Hay Point, in the development of an open-cut mine at Goonyella, in the construction of a water pipe line from Eungella to Goonyella, in the construction of a deepwater port at Hay Point and in the development of an open-cut coal mine at Peak Downs. During the first period of employment, the taxpayer worked in the Hay Point District; his employment was terminated by the employer because work was no longer available in that district for the taxpayer. On the day his employment ceased, that is, on 24th

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September, 1971, the taxpayer applied in writing to the same employer for work in the Peak Downs district and was engaged again so that he began work on 27th September, 1971. He worked there until 11th February, 1972, when his employment was again terminated by the employer because work was no longer available in the Peak Downs district for him.

The work done by the taxpayer was covered by the Railway Workers' Construction Award and he was paid wages in accordance with the Award; but there was also current an agreement which was applicable, dated 1st September, 1969, made between the industrial unions concerned and the employer. The taxpayer had signed a copy of this agreement on or about 25th November, 1969. It provided that unless otherwise specified, wages and conditions should be those prescribed in the Awards; but it also provided in Clause 3 that in addition to wages as specified in the parent award, employees should receive a site allowance of $17.00 per week in lieu of disabilities prescribed in the Award; $2.5 per day attendance severance bonus for each normal shift worked: and that tested welders should receive some additional payment, the details of which do not concern me.

The agreement also provided that where an employee's services were terminated by the employer for other than serious misconduct, he should be paid 1 week's wages in lieu of notice. The Award had provided in Clause 35 that all employees should be entitled to receive from and should give to their employer two days notice of termination of employment; and that in the event of this provision not being complied with, two days pay should be received or forfeited as the case might be. It appears, then, that while the agreement required an employer to give a week's notice, the employee had to give only the two days notice required by the Award.

The terms of the agreement were varied several times.

On 21st September, 1970, the provision as to the site allowance was continued, provision was continued for the extra payment to tested welders and boom welders; but the provision for severance payment was taken out of Clause 3 and we find in Clause 7 under the heading ``Termination Payment'', which had previously contained only the provision for a week's notice by the employer, the following -

``On satisfactory termination of employment, an employee shall be paid a severance payment, calculated at the rate of $2.50 per shift, for each normal shift worked during the period of his employment.''

On 29th March, 1971, this clause was retained in the same position but the $2.50 became $3.00; and the following additions were made -

``(c) 7 day rostered workers to be paid an additional $2.00 per shift, on satisfactory termination of employment (past Bent 104).''

and

``(d) on satisfactory termination of employment the employee shall be paid a service payment of $2.00 for each week worked.''

On 1st June, 1971, the agreement was varied; but the provision for severance payment remained the same with the addition of a definition of a normal day or shift.

The provision for 7 day rostered workers to receive an additional $2.00 per shift was deleted.

At the end of the first period of employment, the taxpayer was paid the sums to which he was entitled by this agreement on satisfactory termination of employment; and again at the end of the second period. In his income tax returns, the taxpayer disclosed these receipts and claimed that he was taxable on only 5% of the amounts. The Commissioner has treated the whole of the amounts as taxable income. The taxpayer requested the matter be referred to a Board of Review and the Board has now stated the facts and asked whether the whole of the amounts are assessable income within sec. 25(1)(a) or sec. 26(e) of the Income Tax Assessment Act as being wages or bonus payments or other remuneration earned in the course of the taxpayer's employment with payment agreed to be deferred until the termination of the employment or is otherwise income generally; and whether the sums are

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lump sums paid by the employer in consequence of termination of employment within the meaning of sec. 26(d) of the Income Tax Assessment Act whereby only five per cent. of the sum is to be included in the assessable income of the taxpayer.

Section 25(1) provides -

``The assessable income of a taxpayer shall include -

(a) where the taxpayer is a resident - the gross income derived directly or indirectly from all sources whether in or out of Australia;''

Section 26 provides -

``The assessable income of a taxpayer shall include -

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• (d) five per centum of the capital amount of any allowance, gratuity or compensation where that amount is paid in a lump sum in consequence of retirement from, or the termination of, any office or employment, and whether so paid voluntarily, by agreement or by compulsion of law:''

(The clause goes on to except amounts which under any provision of the Act are deemed to be dividends paid to the recipient and certain deferred pay paid to the members of the Defence Forces)

``(e) the value to the taxpayer of all allowances, gratuities, compensations, benefits, bonuses and premiums allowed, given or granted to him in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by him, whether so allowed, given or granted in money, goods, land, meals, sustenance, the use of premises or quarters or otherwise.

Provided that this paragraph shall not apply to any allowance, gratuity or compensation which is included in the last preceding paragraph or which under any provision of this Act is deemed to be a dividend paid to the recipient.''

Looking back for a moment at the agreement of 1st September, 1969, I notice that the provision for the severance payment is in the clause headed ``Additional Payment''. Employees are to receive $2.50 per day attendance severance bonus for each normal shift worked. The clause contains the provision for a weekly site allowance and for an extra weekly payment for tested welders.

Neither the Award nor the agreement define what is a severance payment, a severance bonus, or - the phrase used in the first agreement - attendance severance bonus. The use of the word ``attendance'' may have some reference to regular attendance at work, to not taking ``sickies''; and severance may relate to the severing of employment; but the design of the severance payment remains obscure. Counsel were not able to assist on the matter.

As to the words in the Act, in
Mutual Acceptance Co. Ltd. v. F.C. of T. (1944) 69 C.L.R. 389, at p. 402, Dixon J. (as he then was) made some general remarks on the word ``allowance''. ```Allowance' is one of the many words which take their meaning from a context rather than affecting or controlling the meaning of other words of the context in which they occur. For, considered alone and at rest rather than at work with other words, it means the allowing of a thing or a thing allowed. It is only by its application that you discover the kind of thing in mind.''

The context is that the provision is dealing with an amount paid to the holder of an office or an employee on his retirement or the termination of employment. It is, then, not being paid for services being rendered. If it is a gratuity, it is paid probably in recognition of past service. If it is compensation, it might be paid to compensate for loss of office which had not been contemplated when the office was first accepted.

I think it important to make a comparison of sec. 26(d) and sec. 26(e). Section 26(d) includes in income five percentum of any allowance, gratuity or compensation paid in consequence of retirement from or the termination of any office or employment. Section 26(e) includes in income the value to the taxpayer of allowances, gratuities, compensations, (and other matters) allowed, given or granted to him ``in respect of, or for or in relation directly or indirectly to any employment or service rendered by him;'' but

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excludes any allowance, gratuity or compensation included in sec. 26(d). So that if the allowance etc. is made in respect of or for or in relation to any employment it is assessable income provided that if it is made in consequence of retirement from or the termination of any office or employment, only five per centum is assessable income.

Obviously, the legislation contemplates that an allowance etc. which came under sec. 26(d) might be or might be thought to be an allowance etc. which came under sec. 26(e); it therefore contains the proviso to sec. 26(e). The phrase ``in respect of'' has a wide meaning.

It is apparent that the money to be paid is to be paid per day for each normal shift worked. It is the number of normal shifts worked that determines the ultimate payment plus the fact of satisfactory termination of employment. I need not determine what ``satisfactory termination of employment'' means; I note that employment might be determined by dismissal for misconduct, by a week's notice by the employer, by notice by the employee, by injury to or the death of the employee. I assume for the present that it means termination of employment after service satisfactory to the employer.

From my understanding of the Award and the agreement with the various modifications, the employee could terminate his employment at any time by two days notice to his employer; and he would then be entitled to the severance payment; he would receive the severance payment along with the week's wages; he could, if his employer would take him back, resume work again immediately and again give notice of termination and again receive the severance pay. The period of employment, unless the phrase ``satisfactory termination of employment'' has some bearing on the matter, is immaterial to the question whether the employee gets the severance payment or not. Is a termination of employment brought about by notice by an employee, the termination of employment envisaged by sec. 26(d), when it is quite open for the employee to resume the same employment with the same employer provided only that the employer will have him back? I doubt it.

I think the meaning of the word ``allowance'' must be to some extent controlled by its companions; noscitur a sociis. I do not think that a payment which an employee is entitled to receive after one week's work is an allowance gratuity or compensation within sec. 26(d); to add a number of these payments for a number of weeks together does not alter them in kind.

The words ``in consequence of'' call to mind ``result'' and ``cause'' and the many cases on the cause of damage. In my opinion, it cannot be said that the termination of employment was in a real sense the cause of the payment of the severance money; or that the payment of the severance money was made in consequence of the termination of the employment of the taxpayer. The time at which it was to be paid was fixed by that date; that was the occasion for the payment; I would have thought that the satisfactory nature of the service of the employee would have a stronger claim to be regarded as the cause of the payment than its termination. But the dominant cause - in consequence of which the payments were made - was the work done by the taxpayer in the relevant periods.

The questions should be answered.

• (a) The whole of the sums of $932.66 and $302.00 is assessable income of the taxpayer within sec. 25(1)(a) and sec. 26(e) of the Income Tax Assessment Act
• (b) The sums of $932.66 and $302.00 are not lump sums paid by the employer of the taxpayer in consequence of termination of employment within the meaning of sec. 26(d) of the Income Tax Assessment Act.