CASE 13/98

Members:
BJ McMahon DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 23 July 1998

BJ McMahon (Deputy President)

These are two applications brought to review objection decisions disallowing the applicant's objections to assessments of fringe benefits tax for the years ended 31 March 1992 and 1993.

2. The applicant is a large public company incorporated in Japan. It is registered under the Corporations Law as a foreign company, carries on a construction business in Australia, Japan and elsewhere and is an Australian taxpayer.

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3. It employed a number of people in Japan and seconded them as key executives to work for it in Australia. It was a condition of the employees' employment in Australia that the applicant pay the Australian tax liability assessed in respect of each employee's salary income.

4. A translation of the relevant clause in the employment agreement of each employee is as follows:

``1. The company will bear the total cost of local taxes and public imposts.

2. In the case that any refunds arise from the company bearing the cost of the taxes and public imposts described in the item above, such monies will be returned to the company.

3. When the salary is paid, an amount equivalent to the income tax and resident's tax in the home country will be deducted from the salary.''

5. Each of the employees was located in Australia for a number of years. During that time they were paid salaries and wages. Tax instalments were deducted and were remitted to the Commissioner by the applicant. After the commencement of the two fiscal years in question but prior to the payments referred to later, they ceased their duties in Australia and returned to Japan where they continued to be employed by the applicant, except possibly in the case of one person whose circumstances will later be discussed.

6. The employees lodged income tax returns relating to their salaries and wages and received notices of assessment while they were resident in Australia. I assume that these assessments, in so far as they consisted of debit amounts related to salaries, would have been satisfied by the deductions made by the applicant. No evidence was given as to past procedures. The clauses in the employment agreement quoted above seem to indicate a tax equalisation arrangement under which the employee will be liable, as between the applicant and the employee, only for tax at the lower of the Japanese or Australian rates. However, no evidence was given as to the way in which such arrangements were effected. For present purposes, it is not relevant to enquire further into these arrangements.

7. In the year ended 31 March 1992, five of the executives went back to Japan. A return of income was lodged for salaries and wages earned from their employment in Australia which resulted in the issue of assessments after their departure. It is not clear to me why these assessments were debit assessments and why the amount assessed had not been covered by remitted group tax deductions. Nevertheless it is agreed that the amounts of the assessments were paid separately by the applicant from a local bank account. As it is essential to the applicant's case that the employees in question were not resident in Australia when the assessments were paid, it is necessary to set out certain information in relation to the five employees concerned in the first fiscal year.

+--------------------------------------------------------------------------+
| Employee    | Date transferred to |  Date returned to  | Date of payment |
|             |      Australia      |      Japan         |  after leaving  |
|             |                     |                    |    Australia    |
|--------------------------------------------------------------------------|
| Employee 1  |           June 1983 |   15 February 1991 |   15 April 1991 |
|--------------------------------------------------------------------------|
| Employee 2  |          April 1985 |    31 January 1991 |    9 April 1991 |
|--------------------------------------------------------------------------|
| Employee 3  |        January 1983 |  30 September 1990 |     3 June 1991 |
|--------------------------------------------------------------------------|
| Employee 4  |          April 1987 |      20 March 1990 |   12 April 1991 |
|--------------------------------------------------------------------------|
| Employee 5  |          April 1989 |    12 January 1991 |   12 April 1991 |
+--------------------------------------------------------------------------+

8. In the fiscal year ended 31 March 1993, 17 employees returned to Japan. Their assessments for income tax were paid by the applicant in similar circumstances after they had returned. The same details in relation to these 17 employees are as follows:

+-------------------------------------------------------------+
|   Employee   | Date transferred to | Date returned to Japan |
|              |       Australia     |                        |
|-------------------------------------------------------------|
| Employee 1   |         August 1984 |          16 April 1991 |
|-------------------------------------------------------------|
| Employee 2   |        October 1984 |       20 February 1992 |
|-------------------------------------------------------------|
| Employee 3   |       February 1984 |          10 April 1992 |
|-------------------------------------------------------------|
| Employee 4   |       February 1984 |        7 February 1992 |
|-------------------------------------------------------------|
| Employee 5   |           June 1983 |       15 February 1991 |
|-------------------------------------------------------------|
| Employee 6   |            May 1984 |           5 March 1992 |
|-------------------------------------------------------------|
| Employee 7   |          April 1985 |        31 January 1991 |
|-------------------------------------------------------------|
| Employee 8   |        January 1985 |        25 October 1991 |
|-------------------------------------------------------------|
| Employee 9   |       February 1989 |       9 September 1991 |
|-------------------------------------------------------------|
| Employee 10  |           June 1988 |          15 March 1992 |
|-------------------------------------------------------------|
| Employee 11  |         August 1987 |        10 January 1992 |
|-------------------------------------------------------------|
| Employee 12  |          March 1988 |       21 November 1991 |
|-------------------------------------------------------------|
| Employee 13  |          April 1989 |        21 January 1991 |
|-------------------------------------------------------------|
| Employee 14  |            May 1989 |          17 March 1992 |
|-------------------------------------------------------------|
| Employee 15  |        January 1991 |      20 September 1991 |
|-------------------------------------------------------------|
| Employee 16  |         August 1989 |            1 June 1991 |
|-------------------------------------------------------------|
| Employee 17  |        January 1991 |           25 June 1991 |
+-------------------------------------------------------------+

9. All payments in respect of the second fiscal year were made on 13 May 1992.

10. The applicant lodged fringe benefits tax returns for the two years in question, which did not include as fringe benefits these payments of income tax on behalf of the employees. Following an audit on 1 September 1994, the Commissioner assessed the applicant to tax pursuant to the provisions of the Fringe Benefits Tax Assessment Act 1986 (``the Act''). For the 1992 year it was alleged that there were expense payments (``the payments of income tax'') of $291,476. The fringe benefits tax in relation to that amount was $136,993.72. In addition, a late payment penalty of $12,410.80 was imposed. For the 1993 year, expense payments of $537,834 were alleged. The tax amounted to $259,504.90. There was no relevant penalty for the second year.

11. Documents tendered at the hearing seemed to indicate that the total income tax paid in the second year was not as set out above but was $515,244.39. For present purposes, it will not be necessary to resolve this apparent discrepancy.

Submissions by the applicant

12. The applicant submitted that it was not liable to meet either of the assessments for three reasons. Section 66 of the Act provides that the tax is payable by an employer. The definition of fringe benefit also requires the existence of a relationship of employee/employer. The applicant submitted that it was not an employer for the purposes of the Act. Employer is defined in s 136(1) to mean a current employer, a future employer or a former employer, all of which terms are themselves also defined in that section. It was the applicant's submission that at all material times it was neither a current employer nor was it a former employer.

13. Current employer is defined in s 136(1) as an employer within the meaning of Division 2 of Part VI of the Income Tax Assessment Act 1936 (``the ITAA''). Section 221A(1) of that Act which appears in that Division of that Part, defines employer to mean a person who pays or is liable to pay any salary or wages. Salary or wages is defined in the same section to include ``salary, wages, commission, bonuses or allowances paid... to an eligible person as such'' but does not include ``payments of exempt income'' under paragraph (p). It was the applicant's submission that even if payments of employees' taxation liabilities could be regarded as salaries and wages, it would have been exempt income, pursuant to s 23(r) of the ITAA as the employees were then resident outside Australia and the source of their income (the employment agreement) was outside Australia.

14. The applicant also relied upon the Australia-Japan Tax Treaty and particularly upon Article 11(1) and Schedule 6. Reference was also made to s 4(2) of the International Tax Agreements Act 1953 in order to characterise

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these payments as exempt income. In relation to the proposition that non-residence plus non- source resulted in exempt income, the applicant relied upon Case X78,
90 ATC 571.

15. The applicant also submitted that it could not be regarded as a former employer as defined. It was not sufficient (the applicant said) to satisfy the definition of former employer in section 136(1) merely because, at the relevant time, the applicant had not been a ``current employer'' as defined. Furthermore, a contrary interpretation would give an extra territorial operation to the Act which could not have been intended.

16. The second submission of the applicant was that the payments of income tax assessments did not amount to a fringe benefit as defined. The relevant parts of the definition in s 136(1) are as follows:

```fringe benefit' , in relation to an employee, in relation to the employer of the employee, in relation to the year of tax, means a benefit-

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by-

(c) the employer;

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the `arranger' ) other than the employer or an associate of the employer under an arrangement between-

(i) the employer or an associate of the employer; and

(ii) the arranger or another person;

in respect of the employment of the employee, but does not include-

(f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936;''

17. It was submitted that the tax payments made by the applicant were excluded by the above paragraph (f) because of the same argument that the employees then being non- residents, and the income being sourced out of the country, the payments were exempt income. It was also submitted that as the payments were made directly by the applicant to the Australian Taxation Office without a direction from the employees and on the basis of the relevant term in the contract of employment, the moneys were deemed by the operation of s 21 of the ITAA to have been ``paid'' for the purposes of answering the description of exempt income under paragraph (p) of the definition of salaries and wages in s 221A of the ITAA.

18. The third submission of the applicant was that there was no ``expense payment fringe benefit'' under s 20(a) of the Act. That section is in the following terms:

``20 Where a person (in this section referred to as the `provider' )-

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the `recipient' ) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the `recipient' ), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.''

19. It was submitted that paragraph (a) had no application. This was a reimbursement provision intended to repay a person who had incurred expenditure. The mere receipt of an assessment did not amount to the incurring of expenditure. It was submitted that expenditure was incurred only when it is done in expending, disbursing or laying out money to discharge an antecedent, contemporaneous or future obligation. Black's Law Dictionary defines expenditure as ``spending or payment of money; the act of expending, disbursing, or laying of money; payment''. The Oxford English Dictionary defines expenditure to mean ``the action or practice of laying out, paying away or spending money''. It was submitted that the amounts paid did not fit squarely within the terms of s 20 and that this was a fatal flaw in the assessment.

20. It was also submitted that the catch-all provisions of s 45 dealing with residual benefits were not available to the respondent. Section 50

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deals with the taxable value of such benefits and is in the following terms:

``50 Subject to this Part, the taxable value of an external non-period residual fringe benefit in relation to an employer in relation to a year of tax is-

(a) where the provider was the employer or an associate of the employer and the benefit was purchased by the provider under an arm's length transaction - the amount paid or payable by the provider for the benefit;

(b) where the provider was not the employer or an associate of the employer and the employer, or an associate of the employer, incurred expenditure to the provider under an arm's length transaction in respect of the provision of the benefit - the amount of that expenditure; or

(c) in any other case - the notional value of the benefit at the comparison time,

reduced by the amount of the recipients contribution.''

21. It was submitted that paragraph (a) could not comfortably be applied as it could not be said that the amounts paid by the applicant were ``purchased''.

Submissions by the respondent

22. The respondent submitted that questions of residence and source were irrelevant. It was submitted that it was not necessary to establish the necessary territorial nexus by reference to these concepts, nor was it necessary to resort to s 163 which extends the application of the Act to acts, omissions, matters and things outside Australia whether or not in a foreign country. It was submitted by the respondent that the payments were made ``in respect of employment'' and that this provided the necessary nexus. The liability for income tax arose because the employees earned salaries while resident in Australia. The fact that their consequent taxation liability was met by the applicant was sufficient, it was submitted, to demonstrate that the payments were made ``in respect of the employment'' as understood in the definition of ``fringe benefit'' in s 136(1).

23. The respondent submitted in the alternative that if the applicant was not a current employer, it was a former employer and was a relevant employer while the taxation liabilities were being incurred. Section 23L of the ITAA exempts from a person's taxable income any fringe benefit within the meaning of the Act. The employees' residence and alleged source of their income was therefore irrelevant. The considerations in Case X78 were also consequently irrelevant, in the respondent's submission.

24. In relation to the s 20 submission by the applicant, the respondent agreed that the words did not sit happily with the present facts and that the mere receipt of an assessment did not amount to the incurring of expenditure within the terms of paragraph (a). However, to make sense of the section, it invited the Tribunal to read the section as if the words ``a liability for'' were inserted before the word expenditure.

25. The respondent also contested the applicant's submission that the payments should be treated as salary and wages. The basis for this submission was that the moneys could not be properly so described as they were not paid to the eligible person. They were not made by direction. By the terms of the employment agreement any refunds belonged to the company and not to the employees. To illustrate and support this submission, the respondent relied on
Dean & Anor v FC of T 97 ATC 4762 at 4767-4768,
Bond Brewing NSW Ltd v Chief Commr of Pay-roll Tax (NSW) 89 ATC 4158 at 4160 and 4161 and Case 1/97,
97 ATC 101.

Conclusions

26. The question to be determined is whether the payments made by the applicant on various dates in April 1991 and for the second year on 13 May 1992, in satisfaction of income tax assessments raised against various employees, constituted fringe benefits. As will be seen from the definition quoted above, it is necessary to demonstrate three elements in a payment in order to characterise it as a fringe benefit. They are:

(a) there must be provision of a benefit;
(b) it must have been provided (relevantly) by an employer; and
(c) the benefit must have been provided in respect of the employment.

27. Even when these three elements are present, there are a number of types of payments that are excluded from characterisation as fringe benefits by the terms of the definition itself. The only relevant

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exclusion for present purposes is to be found in paragraph (f) which excludes exempt income. In the present circumstances, the test of whether that exclusion is applicable is the same test that is to be applied in determining whether or not the applicant was an employer. Besides serving to assist in distinguishing which payments are fringe benefits, paragraph (f) also serves as complementary legislation to s 23L of the ITAA. A payment may be either taxable income or a fringe benefit but not both. The purpose of both sections is to avoid taxing the one transaction under two headings. It will not, however, be necessary to consider the application of paragraph (f) as the question of exemption will be otherwise dealt with in these reasons.

``In respect of''

28. There can be no doubt, in my view, that the payments were made ``in respect of'' the employment of each of the various employees. ``In respect of'' is defined in s 136(1) to mean ``in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment''. Aside from the broad statutory definition, the phrase ``in respect of'' has been held to have ``the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer'' (per Mann CJ in
Trustees Executors & Agency Co Ltd v Reilly [1941] VLR 110 at 111). A majority of the High Court thought that perhaps this was ``going somewhat too far'' and added that the phrase ``gathers meaning from the context in which it appears'' (
Workers Compensation Board of Queensland v Technical Products Pty Ltd (1988) 165 CLR 642 at 653). The context in which the words appear in the present definition indicates that they are intended to bring to tax advantages received by an employee at the cost of an employer. Payment of an employee's income tax is, in my view, a payment in respect of his employment.

29. In the particular circumstances of this case the tax was limited to income tax levied on salaries and wages paid to the particular employees in the respective years. A schedule tendered by the applicant showed that where the employee earned private income outside his salary or wages, an apportionment was made by the applicant company. From this it is clear that the payments were directly related to the employment linked components of the employees' income. Such payments, in my view, are clearly payments ``in respect of'' the employment.

Was there provision of a benefit?

30. Whether a benefit has been provided depends upon the application of the statutory definition. In the light of that definition it is not necessary that any assessable benefit be paid directly to the employee.

31. Provision of benefits is widely defined in subsection 148(1) in the following terms:

``148(1) A reference in this Act to the provision of a benefit to a person in respect of the employment of an employee is a reference to the provision of such a benefit-

(a) whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing;

(b) whether the employment will occur, is occurring, or has occurred;

(c) whether or not the benefit is surplus to the needs or wants of the recipient;

(d) whether or not the benefit is also provided to another person;

(e) whether or not the benefit is, to any extent, offset by any inconvenience or disadvantage;

(f) whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment;

(g) whether or not the provision of the benefit is, or is in the nature of, income; and

(h) whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.''

32. Having regard to the scope of this definition, and notwithstanding the fact that payment was made directly by the applicant to the Australian Taxation Office, there can be little doubt that there was a provision moving from the employer for the benefit of the employee. The question then arises - what was the benefit which the employer provided.

Was it an expense payment benefit?

33. The respondent has alleged the provision of an expense payment benefit pursuant to s 20.

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As can be seen from the above quoted provisions of this section, paragraph (b) can have no application in the present circumstances. The applicant did not reimburse any of the employees for any tax paid by them. If these payments by the applicant are to be regarded as expense payment benefits, they must be covered by the terms of paragraph (a). Clearly, this is not the case. The employees did not incur expenditure simply because they received assessments. The respondent invited me to read paragraph (a) as if the words ``liability for'' were inserted before the word ``expenditure''. There have been a number of cases in which courts have taken it upon themselves to construe legislation by modifying its text so as to arrive at a result which the court believes better reflects the intention of Parliament. These cases are usefully collected and discussed in Pearce and Geddes ``Statutory Interpretation in Australia'' (4th edition) at paragraph 2.16. In my view, it would be inappropriate for this Tribunal to follow such a course for two reasons.

34. Firstly, a construction of an Act of Parliament which involves adding words to the text is more appropriate in a judicial context. It would clearly be wrong for an assessor to construe an Act of Parliament by assuming that an error had been made and by re-writing the text to reflect what the assessor thought Parliament had intended to achieve. This Tribunal does no more than re-exercise the same administrative power that was vested in the Commissioner. It would be no more appropriate for this Tribunal to follow such a radical course than it would have been for a delegate of the Commissioner.

35. Secondly, however, this would not, in my view, be a case in which even a court would interpret the Act in the way in which the respondent seeks to have it read. Paragraph (a) does not, in my view, indicate a drafting oversight. It is not a gap calling out to be filled. The whole section relates to a factual situation different from the facts presently under consideration. Section 20 is intended to deal with payments related, for example, to credit cards. It is intended to bring to tax payments made by an employer in an employment context, whether the payments are made directly to the credit provider or by reimbursement to the employee. In my view, it could not be said that the payments presently under consideration are within the words or the spirit of s 20. The payments, however, do represent an advantage and a benefit.

Was is a residual benefit?

36. The definition of benefit in s 136(1) need not be consulted to support this statement, particularly as it is cast in inclusive terms. Section 6 dealing with fringe benefits provides that the provisions of Part III do not limit the generality of the expression ``benefit''. In fact, however, this cannot be correct as the Part considers benefits described with reference to particular situations. All other benefits which do not fall within specific categories are caught by s 45. This provides that a benefit is a residual benefit for the purposes of the Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2-11 inclusive. Because of the universality of the application of s 45, Part III must, therefore, be regarded as comprehensive, notwithstanding the provisions of s 6. If a payment is a benefit, and is not caught by any of the individual categories, it will be included as a benefit under Division 12. In my view, payment by the applicant of the assessments in question amounted to the provision of residual benefits.

37. The applicant submitted that this was inappropriate because the section dealing with the valuation of residual benefits in the particular factual situation under consideration did not fit. In the terminology of the Act, these payments were external, non-period, residual fringe benefits. If one needed to value such benefits, then the provisions of s 50 are available to assist in the determination of the relevant amount of fringe benefit. In the present case, however, it is not necessary to resort to this section in order to value the benefits. It is not even necessary to rely upon paragraph (c) of s 50.

38. As was pointed out by Gibbs CJ in
State of Queensland v Commonwealth of Australia 87 ATC 4029 at 4032:

``... The subject of the tax is the value of the benefits provided by the employer, and not the value of the benefits received by the employee; a benefit to the employee within the meaning of the Assessment Act will have been provided notwithstanding that the benefit was surplus to the needs or wants of that employee, and notwithstanding that the benefit is offset by some inconvenience or disadvantage...''

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39. His Honour was quoting from s 148. In doing so, he drew attention to the fact that in its application to the present situation, the measure to be applied in determining the value of any benefit is the cost to the employer. Even if it could be said that the employees were not subject to tax, or that certain claimed deductions had not been allowed, or that the assessments were excessive, the fact that the employer paid the amounts is sufficient to quantify the value of the benefit provided.

40. Accordingly, it is not necessary to rely upon s 50 to reach this conclusion. The fact that the words of paragraph (a) of s 50 sit awkwardly with the present facts is not to the point. A benefit was provided by the applicant. That benefit does not fall within the terms of any of the specific descriptions in Subdivision A of Divisions 2-11 and, accordingly, is properly described as a residual benefit under s 45. The fact that a formula applicable to the valuation of similarly designated benefits paid in different circumstances cannot be applied to the facts of this case is irrelevant. That fact has no bearing upon the application of s 45.

Was it provided by an employer?

41. The remaining question to be answered, therefore, is whether the fringe benefit was provided by an employer. In my view, it was. At the time the assessments were paid, the employees (with one exception) had returned to Japan and continued to be employed by the applicant company. In a factual sense, therefore, the applicant was the current employer of those employees. It claims not to be a current employer, as defined, on the basis that the advantages which the employees received amounted to salary and wages but that the exclusion of exempt income from the definition of employer in the incorporated definition disqualified the applicant from being regarded as a current employer and, consequently, as a former employer. It is this exemption from the terms of the definition of employer which is the whole basis upon which the applicant claims not to be an employer for relevant purposes. In my view, it cannot succeed.

42. The legislation has chosen as the standard by which the status of an employer is to be judged, the standard required of an employer under what is sometimes referred to as the PAYE provisions of the ITAA. Thus, it is necessary to determine whether the applicant paid salary or wages. It is not necessary to determine whether the employee earned taxable income. Section 221A(2) provides that salary or wages include payments made under a contract that is wholly or principally for the labour of the person ``to whom the payment is made'', where the person making the payments under the contract is not a natural person or where the payments under the contract are not wholly or principally of a private or domestic nature. In this case, there were contracts for the labour of certain named employees. The amount of their income tax assessments, however, were not paid to them. If the relevant facts stopped there, I would agree with the respondent that the cases cited earlier would exclude the payments from being categorised as salary or wages.

43. For example in
Bond Brewing NSW Ltd v Chief Commr of Pay-roll Tax (NSW) 89 ATC 4158 at 4160 Hunter J observed that:

``Money is paid to an employee only where that employee, after receiving it, becomes the owner of the money in the sense of having the complete disposition and the control of it...''

In
Dean & Anor v FC of T 97 ATC 4762 at 4767, Merkel J observed that the definition of salary or wages was in terms of the identity of the recipient, rather than by reference to the identity of the person making, or liable to make, the payment. These cases dealt with different factual situations from that presently under consideration. In this case, the deeming effect of s 21 of the ITAA supports a conclusion that the payments should be regarded as falling within s 221A(2). However, it is not necessary to rely upon s 21 in order to come to a comfortable conclusion that the payments were comprehended within the extended definition of employer.

44. It was submitted by the respondent that these payments were not at the direction of the employees and that they could not have, therefore, constructively received them. It is true that there is no evidence of any separate request or direction by the employees in this case. However, the employment agreement itself is sufficient for this purpose. The agreement is constituted by an employees' handbook acceded to by each of the employees in question. The clauses quoted above concerning the obligation of the applicant to pay the employees' income tax is, in my view, a sufficient direction by the employees to bring

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the applicant within the terms of the definition of an employer because it pays salaries and wages. Case 1/97 affirmed that a constructive receipt is sufficient in appropriate circumstances. Had the payments not been fringe benefits, they would clearly have been assessable to the various employees as part of their salary or wages. It seems to me, therefore, that the applicant falls within the extended definition of employer.

Were the payments exempt income?

45. The only remaining question to be answered is whether these payments made on behalf of employees, being notional payments of salary or wages, can be regarded as payments of exempt income. This, in turn, depends upon whether the employees were residents of Australia at the time of the payments, and whether one can regard the employment agreement adhered to by the employees in Japan as the source of the income.

46. I am not prepared to accept that the agreement was the real source. In
FC of T v Robert Mitchum (1965) 13 ATD 497 at 501; (1965) 113 CLR 401 at 407, Barwick CJ observed:

``... The conclusion as to the source of income for the purposes of the Act is a conclusion of fact. There is no statutory definition of `source' to be applied, the matter being judged as one of practical reality. In each case, the relative weight to be given to the various factors which can be taken into consideration is to be determined by the tribunal entitled to draw the ultimate conclusion as to source. In my opinion, there are no presumptions and no rules of law which require that the question be resolved in any particular sense.''

The words of Isaacs J in
Nathan v FC of T (1918) 25 CLR 183 at 190, are often quoted:

``... the ascertainment of the actual source of a given income is a practical, hard matter of fact.''

47. All the factors relating to the payment of income tax of the various employees are, with one or two exceptions, located in Australia. The income was earned in this country. The tax liability arose in this country. The payment of tax was made in this country. The payment was made as a condition of the employee agreeing to work in this country. The immediate source of the payments was an Australian bank account in the name of the applicant company. The applicant carried on (and still carries on) business in Australia and the payments were made in the course of, or incidentally to, the carrying on of that business. In my view, the primacy of these factors far outweighs the fact that the agreement may have been entered into in Japan, even though on some occasions it was entered into many years before the employee came to this country. These facts underline the essentially Australian characteristics of the whole series of transactions.

48. The second factor relied upon by the applicant to have the payments characterised as exempt income was the fact that at the time when the payments were made, the employees were not resident in Australia.

49. Even on the applicant's own evidence, this statement would not be true in respect of employee number 12 in the 1993 year. The evidence tendered by the applicant in schedule form shows that this employee was no longer an employee of the applicant at the relevant time, but had established his own business in Australia. It is not clear whether he ever returned to Japan, although a Japanese address is given in the schedule said to be occupied by this employee after leaving Australia on 30 September 1990 and before payment of his assessment on 3 June 1991. The evidentiary position in relation to the other employees is also unsatisfactory.

50. Resident is defined in s 6(1) of the ITAA to include a person whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia and includes a person who has actually been in Australia continuously or intermittently during more than one half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia. In the absence of any satisfactory evidence, I am not prepared to assume that the permanent place of abode of each of the employees was outside Australia. Some of the employees in the schedule are said to have come to this country as early as 1983. There were only 22 employees concerned in these two assessments. Happily, there were nothing like the 2,000 individual cases referred to by Hill J in
Roads and Traffic Authority of NSW v FC of T 93 ATC 4508 at 4516. However, no attempt was made to adduce any

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evidence concerning the personal circumstances of any of the employees.

51. The only evidence I have is contained in schedules prepared for the applicant which shows the dates upon which the employees came to Australia, the dates they returned to Japan, their residential address at the time their tax assessments were paid (all of which were in Japan) and the dates of payment of the assessments. In the first fiscal year it will be seen that all of the employees were in Australia during the whole of 1990, the year to which their income tax assessments related. They also appear to have been resident for more than six months during the 1991 year. Their assessments were paid in each fiscal year only a few months after they had left Australia.

52. If the dates provided in the schedule are to be accepted as the only available evidence, then many questions have been left unanswered. There is no indication whether any of the employees were absent from Australia intermittently during the fiscal year in which the tax assessment was paid. There is no evidence of any nature, indeed, as to whether they were resident at all, whether continuously or intermittently. The schedule shows the dates on which they arrived in Australia (in some cases many years prior to the making of the payments in question) and shows that they continued to work for the applicant after their arrival. However, other evidence tendered by the applicant showed the extent of its activities in many countries of the world including Thailand, Indonesia, the United Kingdom, Malaysia, Singapore and various countries in Europe and Asia. I cannot speculate as to whether any of the employees was seconded for any extended period to take up duties in any of these other locations in such a way as to affect residence calculations in any particular year. The evidence is simply silent on that point.

53. There was no evidence one way or the other as to where the employees were resident except the statistical evidence dealing with the period before they lived at the addresses shown at the dates of payment. It is an important element of the applicant's case that the payments represented exempt income because they represented income derived by non- residents from non-Australian sources. It is the applicant who must prove that the assessments of fringe benefits tax are excessive. On this point alone I do not consider that the applicant has discharged its onus.

54. Although the Tribunal does not proceed upon a basis of the rules of evidence and is entitled to inform itself in any way it considers suitable, it is nevertheless bound to act only on the basis of some probative evidence. In my view, it is not unreasonable to require an applicant, in the present circumstances, to adduce individual evidence to support a basic proposition in its claim for exemption. The circumstances may well turn out to be quite different from those considered in Case X78. There, the Tribunal was not concerned with the narrow definition of salary and wages, but with whether certain perquisites constituted assessable income. It was, however, concerned to determine the source of the payment of the applicant's taxation liability. In coming to its conclusion, it had evidence, which it accepted, that the payment of the taxation assessment was made after the applicant ceased to perform his employment services in Australia and after suitable evidence as to residence and source. It is not the respondent who has raised doubts as to the factual basis for the applicant's submissions as occurred in Roads and Traffic Authority of NSW. It is the applicant that seeks to rely upon certain facts and it has not, in my view, established those facts.

Decision

55. In summary, therefore, I hold that the applicant, at the relevant times, was either a current or former employer, that it provided benefits as defined to employees and that such benefits were provided in respect of their employment. Accordingly, the payments were fringe benefits and were properly assessable to tax as such.

56. The difference between the amount forming the basis of the assessments and the amount now alleged by the applicant to have been paid is said to have arisen through a confusion between two expatriates with the same surname. Apart from an allegation made to this effect in a note to a schedule, no other evidence was put before me which could enable me to determine the correct amount to be considered. The proper order in this case, therefore, would be to affirm the objection decision under review. If the Commissioner is satisfied after being furnished with evidence

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supporting the lower amount, then an amended assessment may be issued.

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