Case V67

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 12 April 1988.

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Dr P. Gerber (Deputy President)

The applicant worked on the North Rankin ``A'' Platform from 25 January 1983 until he was dismissed on 1 May 1984 during a ``down manning'' period. He received a redundancy payment in the sum of $4,788, calculated according to the terms of a redundancy pay agreement negotiated between the applicant's trade union and the employer. The agreement was reduced to writing on 25 November 1983. For present purposes, the relevant terms are set out below:

``This letter confirms the offer made by S.H.R.M. (Australia) Pty. Limited on 23 November 1983, in full settlement of the claim by the Australian Workers' Union for a redundancy payment for employees whose services are terminated from the North Rankin `A' Platform.

The offer is made on a without prejudice basis, on the following terms:

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• (a) Where an employee is down manned from the platform as a result of an overall reduction in numbers of employees accommodated on the platform, the following payments shall apply:
  • (i) a payment of one cycle normal earnings
  • (ii) plus an additional payment of one half of one cycle normal earnings, pro-rated for proportional periods of a year worked.
• ...
• (e) The payment shall not apply in the case of an employee who resigns from the company. The payment shall apply in circumstances where the employee offers to voluntarily terminate his services during a period of down manning of platform campstaff personnel.''

The applicant returned as assessable income $239, being 5% of the $4,788, the lump sum payment received on termination. The respondent, on the other hand, treated the lump sum, not as a bona fide redundancy payment, but as an ``eligible termination payment'' as that term is used in sec. 27F(1) of the Income Tax Assessment Act (No.3) of 1984. In the result, the respondent adopted a pro rata approach to the total payment, arriving at an apportionment between pre- and post-1 July 1983, that is, he taxed at 5% that part of the work component undertaken before 1 July 1983 and at 30% the post-1 July 1983 period of service. The Commissioner thus arrived at the following calculations:

Eligible termination payment received $4,788

      Taxpayer commenced:                 25 January 1983
      Taxpayer ceased:                    1 May 1984
      Total days in service period:       462
      Total days after 30 June 1983:      304
      Total days before 30 June 1983:     158

      Post-30 June 1983 amount
      4,788 x 304/462 =                         $3,150.00

      Pre-30 June 1983 amount
      4,788 x 158/462 x 5% =                       $82.00
                                                ----------
                                                $3,232.00

      Less amount returned by taxpayer           $(239.00)
                                                ----------

      Amount included in the taxpayer's
      assessable income by the
      Commissioner                              $2,993.00
                                                ---------
    

2. To comprehend the Commissioner's attitude, it is necessary to set out the relevant statutory provisions introduced by the amending legislation previously referred to.

3. Section 27A defines ``eligible termination payment'' to mean, inter alia,

``any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer....''

``concessional component'. in relation to an eligible termination payment, means so much of the eligible termination payment as consists of or is attributable to a bona fide redundancy payment....''

Section 27B(1) provides that:

``... where in a year of income an eligible termination payment is made in relation to a taxpayer, the assessable income of the taxpayer of the year of income shall include the amount (if any) ascertained by deducting from the amount (in this sub-section referred to as the `relevant amount') ascertained in accordance with the formula

A - AB/C - D,

where -

• A is the amount or value of the eligible termination payment -
  • (a)reduced by the amount of the concessional component in relation to the eligible termination payment; and
  • (b) if the eligible termination payment is an immediate annuity eligible termination payment, reduced also by the non-qualifying component in relation to the eligible termination payment;
• B is the number of whole days (if any) in the eligible service period that occurred before 1 July 1983;
• C is the number of whole days in the eligible service period; and
• D is the amount of undeducted contributions in relation to the eligible termination payment,

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so much of the relevant amount as is deemed to have been applied in accordance with section 27D.''

Section 27C(1) provides:

``Where -

• (a) in a year of income an eligible termination payment is made in relation to a taxpayer; and
• (b) the eligible service period in relation to the eligible termination payment commenced before 1 July 1983,

the assessable income of the taxpayer of the year of income shall include -

• (c) 5% of the amount (if any) ascertained in accordance with the formula X-Y, where X is the amount represented by the component AB/C in the formula in sub-section 27B(1)...''

Section 27F(1).

``Where -

• (a) an eligible termination payment is made in relation to a taxpayer in consequence of the dismissal of the taxpayer from any employment at any time (in this section referred to as the `termination time') by reason of the bona fide redundancy of the taxpayer;
• (b)the termination time was before -
  • ... the sixty-fifth anniversary of the birth of the taxpayer;...

  so much of the eligible termination payment as exceeds the amount (in this section referred to as the `termination amount') of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer had he voluntarily retired from that employment at the termination time is a bona fide redundancy payment in relation to the taxpayer.''

4. It will be seen from the above (albeit through a glass darkly) that a bona fide redundancy payment is not subject to the additional impost introduced by the 1984 Act, but retains its characteristic as a lump sum paid on termination of employment and taxed at 5%.

5. In the instant case (and in several others) the Commissioner did not accept the payment as a bona fide redundancy payment as a bona fide redundancy payment because, he maintains, each worker had the option of resigning without compromising his entitlement to the lump sum which he, in fact, received. This argument is founded solely on cl. (e) of the redundancy pay agreement referred to in para. 1 above.

6. That clause is not without its ambiguities. It seems clear, however, that what was intended was that the negotiated redundancy payment would not be available in cases of ``ordinary'' resignations, but would apply to any workman who, ``during a period of down manning of platform campstaff personnel'', voluntarily terminates his services.

7. The respondent, adopting the view that because the applicant had the option between resignation and dismissal, sec. 27F(1) applied and proceeded to apply the guidelines for calculating the ``termination amount'' as set out in that section (``so much of the eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer had he voluntarily retired from the employment at the termination time is a bona fide redundancy payment in relation to the taxpayer''). From there, it was only a short hop, skip and jump to sec. 27B(1) and 27C(1). Hence this application.

8. Both parties sought to use their final addresses to give the major part of their evidence from the bar table. Thus the applicant's representative tried to explain to me the ``purpose'' behind cl. (e), whilst the respondent attempted to enlighten me on the meaning of ``down manning''. I refused to hear both of them on these points. If matters such as these are critical to the parties' case, they should be properly proved, even before a Tribunal not strictly bound by rules of evidence. In groping my own way unaided through this thicket, I have concluded that cl. (e) is able to speak for itself, and when if refers to a period of ``down manning'', it alludes to a time when the employer carries staff in excess of requirements. So much became clear from the evidence of the applicant himself, and when the clause is parsed and analysed, and after brushing past a split infinitive, a euphemism, a gerund and poor sentence structure, it becomes clear that the clause provides for two situations: (i) where workmen resign in the ordinary

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course of events, in which case they have no right to a redundancy payment; (ii) during a period of ``down manning'' (that is, when there is a surplus of labour), when the employer may dismiss staff, but they shall be afforded the prior option of terminating their services without prejudice to their entitlement to the agreed redundancy payments.

9. Applying the ``mischief rule'' (that is, trying to ascertain the mischief Parliament tried to create with the enactment of the 1984 Tax Act), it is clear that bona fide redundancy payments were not intended to be included in the mischief. I am satisfied that a provision which, put crudely, means ``resign or else'' has all the hallmarks of leaving a loaded pistol in the hands of an officer and gentleman and telling him that his is about to be court-martialled for hocking the regimental silver. Applied to the instant case, I have concluded that the ``option'' of a voluntary retirement is a Faustian bargain equivalent to a constructive dismissal; it is not the ``voluntary'' retirement referred to in sec. 27F(1).

10. It follows that the entire payment of $4,788 must be treated as a concessional component as defined, taxable only at 5%.

11. The decision under review is set aside.