Case U155

Members:
RK Todd DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 20 July 1987.

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R.K. Todd (Deputy President)

The question in this reference involves an analysis of the dependent spouse rebate provisions contained in sec. 159J of the Income Tax Assessment Act 1936 ("the ITAA"). An ancillary problem arises in relation to the imposition of additional tax under sec. 227 of the ITAA.

2. For the year of income ended 30 June 1985, the applicant claimed a rebate in respect of his wife pursuant to sec. 159J for the period 12 December 1984 to 30 June 1985, and declared his wife's "separate net income" to be "Nil". In the same year, his wife claimed a sec. 159J rebate in respect of him for the period from 1 July 1984 to 12 December 1984, and declared his "separate net income" to be "Nil". The facts were that the applicant was a full-time student until 12 December 1984, and then commenced work, whereas his wife was in full-time employment until she, on 1 August 1984, gave birth to the couple's first child. The applicant claimed that the amounts shown as "separate net income" on both returns were, respectively, the amount that his wife earned while dependent upon him, and the amount that he earned while dependent on his wife. His submission was, basically, that as he earned nothing while he remained dependent upon his wife, and his wife earned nothing while dependent upon him, that they were effectively a one-income family and entitled to the rebate for the whole of the year.

3. The facts are somewhat confused by the admission by the applicant at the hearing that he had in fact earned $242 while "dependent" on his wife and that she had earned $1,682 while "dependent" on him.

4. Ignoring this complication for the moment, the primary question for the Tribunal is whether under sec. 159J the "separate net income" is to be regarded as the relevant income for the whole of the year of income, or for that period only during which the person is dependent.

5. Section 159J, as far as is relevant, states:

"159J(1) Where, during the year of income, a taxpayer contributes to the maintenance of a person (in this section referred to as a `dependant') specified in column 2 of the table set out in sub-section (2) and that person is a resident, the taxpayer is entitled, in his assessment in respect of income of that year of income, to a rebate of tax ascertained in accordance with this section.

(1A) A taxpayer is not entitled in his assessment in respect of income of a year of income after the year of income that ends on 30 June 1976 to a rebate under this section in respect of a person by reason that the person is included in class 3 or class 4 in the table set out in sub-section (2).

(1B) Where, but for sub-section (1A), a taxpayer would be entitled in his assessment in respect of income of a year of income to a rebate under this section in respect of a dependant included in class 3 or 4 in the table in sub-section (2), the entitlement of the taxpayer to a rebate under this section in that assessment in respect of any dependant included in class 1 or 2 of that table shall be calculated as if the references in that table to $830 were references to $1,030.

(2) Subject to this section, the amount of the rebate allowable in the assessment of the taxpayer in respect of a dependant under this section is the relevant amount specified in column 3 of the following table:

    Column 1       Column 2                          Column 3
     Class         Dependant                    Amounts of Rebate
       1       Spouse of the taxpayer             $830
       2       Daughter-housekeeper               $830
       3       Child less than 16 years of age    In respect of 1 such child -
               (not being a student)              $362
                                                  In respect of each other such
                                                  child - $282
       4       Student                            $376
       5       Invalid relative                   $376
       6       Parent of the taxpayer or of
               his spouse                         $749
          

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ATC 906

(3) Where -

• (a) the taxpayer contributes to the maintenance of a dependant during part only of the year of income;
• ...

the rebate allowable to the taxpayer in respect of that dependant shall be such part of the relevant amount specified in column 3 of that table as, in the opinion of the Commissioner, is reasonable in the circumstances.

(3A)...

(4) The amount of the rebate otherwise allowable under this section in respect of a dependant shall be reduced by $1 for every $4 by which the separate net income derived by the dependant in the year of income exceeds $282.

(5) Where, during the whole or a part of the year of income, the taxpayer and a person of a kind specified in column 2 of the table in sub-section (2) resided together and that person has a separate net income in that year, then, for the purposes of this section, the taxpayer shall be regarded, unless the contrary is established to the satisfaction of the Commissioner, as having contributed to the maintenance of that person during the whole or that part of the year of income, as the case may be.

(5A)..."

6. Much of the hearing was spent in discussion of the provisions of sec. 159J(5), with the applicant arguing, correctly in my opinion, that the provision was not a "deeming provision" but rather one which merely created a rebuttable presumption.

7. The essential difficulty is that the provisions of sec. 159J are mutually incompatable. Section 159J(3) operates to reduce the rebate where the dependant is maintained for only part of the year. A presumption is raised by the provisions of sec. 159J(5) which the applicant, ignoring the complications in para. (3) above, has rebutted. Section 159J(4) however reduces the rebate by $1 for every $4 derived in the year of income above $282. In doing so, any benefit potentially offered by rebuttal of the presumption in sec. 159J(5) is effectively negated. While the result is unsatisfactory, the Tribunal is bound to give effect to the statute.

8. This problem also faced Board of Review No. 1 in Case S31,
85 ATC 284 and I agree with the view of Mr P.M. Roach, now a Senior Member of this Tribunal, who stated, at p. 290:

"9. In my view the question ultimately facing the Board is whether there is some circumstance touching the interpretation of the Act which would suggest that the Parliament in enacting subsec. (4) of sec. 159J intended the phrase `year of income' to be construed otherwise than as primarily defined in sec. 6. Such an alternative might be to construe the reference to `year of income' in subsec. (4) as if it were a reference to `that part of the year of income during which the dependant was a dependant of the taxpayer and during which the taxpayer contributed to the maintenance of the dependant.' I find no basis for such an interpretation."

9. As the income of the applicant's wife in the year of income ended 30 June 1985 was $11,527 and the full year must be taken into consideration pursuant to sec. 159J(4), the applicant is not entitled to any rebate under sec. 159J.

10. This leads to the question of the imposition of additional tax for the incorrect return. The additional tax has been partially remitted by the Commissioner and consequently the amount in dispute is $249.52, being 40 per cent of the $565 of tax avoided. Of this the Tribunal has power to remit further amounts but cannot reduce it below 10 per cent of the tax avoided.

11. A relevant matter that was raised in the applicant's favour was that the S Tax Guide produced by the Commissioner was ambiguous to say the least. The relevant parts stated:

"If the dependant derived a separate net income of more than $285 during the period you contributed to his or her maintenance, the rebate you could otherwise get must be reduced by $1 for every $4 that the dependant's separate net income was more than $282 (see notes on `SEPARATE NET INCOME' below).

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ATC 907

SEPARATE NET INCOME means gross income which a dependant derived from all sources during the period you maintained the dependant less any expenses incurred in the production of such income."

[underlining supplied]

12. The Tribunal is concerned at the apparent readiness of the Commissioner to rely on the statement of Kitto J. in
F.C. of T. v. Wade (1951) 84 C.L.R. 105 at p. 117 that "No conduct on the part of the Commissioner could operate as an estoppel against the operation of the Act" when the taxpayers have relied, in good faith, on guides produced by the Australian Taxation Office. In this case, for example, when the Commissioner's representative was asked what the situation would be if a couple got married in December he stated:

"Well, under that situation, Mr Todd, it would revert straight back to section 159J(4), which then encompasses what the separate net income of that dependant was over the whole year of income."

13. Despite this apparently being the interpretation placed on sec. 159J(4) by the Australian Taxation Office, it is noteworthy that the following example is included in the 1987 Form S Tax Guide:

"If, in this example, the wife got separate net income before the marriage, this would not reduce the husband's rebate. However any separate net income that the wife got after the marriage is taken into account.

For example, a taxpayer married on 9 March 1987 and maintained her husband for the rest of the year. From 1 July 1986 to the date of marriage her husband got $6400 from a job. From the date of marriage to 30 June 1987 he got $985 from a job. There were no dependent children or students.

The taxpayer's rebate is worked out like this:

      (1)    Maximum rebate for 114 days                               $
             from 9 March 1987 to 30 June
             1987 (that is, 114 days/365 days  X $830)              259.23
      (2)    Her husband's separate net                     $
             income from the date of
             marriage to 30 June 1987                      985
      (3)    Separate net income threshold                 282
                                                          ----
      (4)    Take (3) from (2)                            $703
                                                          ----
      (5)    Divide (4) by 4                                     =  175.75
                                                                    ------
      (6)    Take (5) from (1)                                   =  $83.48.
                                                                    ------"
          

As this example appears to rely on the interpretation of sec. 159J proposed by the applicant in this case, which was rejected by the Commissioner, it would seem that a taxpayer who followed exactly the example given could find himself subject to additional tax as well as having the rebate rejected.

14. Had this been the only factor to consider, I believe that there would have been grounds for holding that the additional tax should have been reduced. There are, however, other relevant factors including the fact that the applicant is, and was at the time of the return, a lawyer admitted to practise as a solicitor. More importantly, he prepared both his and his wife's taxation returns and therefore had complete access to all necessary records, yet he omitted from both returns amounts earned by the other during the period that they were "dependent". On his return the amount omitted (assuming his interpretation of the Act had been correct) was $1,682 and on her return it was $242.

15. The applicant explained the omission of the amount received by his wife as being due to confusion arising from her receiving leave and other payments after she had stopped attending

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ATC 908

work. Whilst some confusion may be understandable, and I do not for a moment suggest that the omissions were anything other than carelessness, the errors made do indeed point to a lack of care in completing the returns and consequently the Tribunal will not exercise the discretion to remit further the amount of additional tax to be paid.

16. For the above reasons the Tribunal affirms the objection decisions under review.