Caelli Constructions (Vic) Pty Ltd v Commissioner of Taxation

Federal Court of Australia|1993-12-13|Before: O'Bryan JJ, Kenny J

REASONS FOR JUDGMENT 1 The applicant, Caelli Constructions (Vic) Pty Ltd ("Caelli"), appeals against the objection decision of the Commissioner of Taxation ("the Commissioner") made on 7 February 2003, which disallowed Caelli's objection to the Commissioner's Notice of Private Ruling dated 25 September 2002 ("the ruling") in relation to the years ended 31 March 2003, 2004 and 2005 and determined that the objection against the ruling for the year ended 31 March 2002 was invalid. By the ruling, the Commissioner determined that contributions made by Caelli to Redundancy Payment Central Fund Limited ("Incolink"), as trustee of the Redundancy Payment Central Fund ("the Fund"), were subject to fringe benefits tax pursuant to the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the FBTA Act") calculated by reference to the taxable value of each fringe benefit provided, namely the amount of each of Caelli's contributions to Incolink. Caelli contends the ruling, which the Commissioner continues to support, is wrong. There were four tax years in question, being the years ended 31 March 2002, 2003, 2004 and 2005.

THE background FACTS 2 Caelli is a company that operates in the building industry. Caelli is also a member of the Fund. The Fund was established in 1988 by an agreement ("the original agreement") between the Master Builders' Association of Victoria and various building unions and others in order to provide redundancy payments to those working in the building industry. 3 On 10 April 1989, a deed of trust ("the trust deed") designated Incolink the trustee of the Fund. Amongst other things, the trust deed fixed the entitlements of Victorian building industry workers, including Caelli's employees in respect of whom contributions were made to the Fund. Clause 3A.1 of the trust deed provided: "Subject to Clause 3.4, each member will make the following contributions to the Fund in respect of each worker: (1) from 1st October 1991 to 30th September 1992, an amount per week which equals $40.00 adjusted for any increase in the Consumer Price Index …; and (2) thereafter for each subsequent year commencing 1st October an amount per week calculated in accordance with sub-clause 3A.1(1) as adjusted each 1st October for any increase in the Consumer Price Index …". 4 Clause 3B.1 of the trust deed provided: "The contributions to the Fund shall be applied as follows: (1) 50 cents of each contribution shall be used as an industrial levy to provide benefits to apprentices and shall be credited to the Apprentice and Former Apprentice Payments Account; and (2) … (3) In the case of contributions made or required to be made on or after [1 July 1994], the balance of each contribution shall be credited to each worker's respective Worker's Account." Thus, when Caelli pays an amount to Incolink in respect of an employee, that amount (less $0.50) is credited to the employee's Worker's Account (see further clause 6AAA.2) and is available for distribution to the employee in accordance with the terms of the trust deed (see part 3DD). 5 Part 3C of the trust deed concerned the obligations of Fund members. It relevantly stated: "3C.1 Subject to Clauses 3C.3 and 3C.4 a weekly contribution shall be paid for any week of Monday to Friday in which a worker is entitled to be paid wages by the member in respect of the work performed on a construction site. 3C.2 Each member shall pay contributions monthly in arrears for a contribution period consisting either of 4 or 5 weeks, Monday to Friday and pro-rated if a worker's employment terminates during the contribution period. …" Nothing in this case turns on clauses 3C.3 and 3C.4. 6 Part 3DD of the trust deed provided for the entitlements of workers, other than apprentices, to monies in the Fund. It relevantly provided: "3DD.1 Where the employment of a worker is terminated for any reason on or after [1 July 1994] then, upon the Trustee receiving a written request from the worker at the time of termination of employment on a form prescribed by the Trustee, the Trustee shall pay to the worker the lesser of: (1) a redundancy benefit not exceeding the maximum initial payment benefit as prescribed from time to time in the Redundancy Pay Agreement; and (2) a redundancy benefit equal to the amount standing to the credit of that worker in his or her Worker's Account. 3DD.2 If a worker has remained out of work for four (4) consecutive weeks commencing the date after the termination of his or her employment on or after [1 July 1994], the worker shall be entitled to withdraw the balance (if any) of his or her Worker's Account after providing the Trustee with evidence that the worker is registered with the Commonwealth Employment Service. 3DD.3 Where a worker ceases to be employed in the industry and the employment of that worker has terminated for any reason on or after [1 July 1994] the worker may withdraw the balance (if any) of his or her Worker's Account in a lump sum, thirty nine (39) weeks after the last contribution was paid on behalf of that worker. 3DD.4 Where a worker retires from the workforce and the employment of the worker has terminated for any reason on or after [1 July 1994], the worker may withdraw the balance (if any) of his or her Worker's Account in a lump sum provided he or she is over fifty-five years of age. …" 7 Part 6AAA dealt with the application of monies in the Fund. It provided: "6AAA.1 On and after [1 July 1994] the Trust Fund shall be maintained exclusively for making redundancy payments to workers and apprentices pursuant to Parts 3DD and 3E respectively. 6AAA.2 On and after [1 July 1994] the Trustee shall establish a Worker's Account in its books of account in respect of each worker to be credited in accordance with sub-clauses 3B.1(3) and Clause 3B.2. 6AAA.3 Where a worker becomes entitled to a redundancy payment on or after [1 July 1994] then the Trustee shall deal with such an entitlement in accordance with the provisions of Part 3DD." 8 The original agreement was subsequently replaced by other agreements, the most recent of which is the Victorian Building Industry Agreement 2000-2005 ("the VBIA"). With some exceptions, the VBIA applied to all building projects on which a participating employer was a head contractor. Under the VBIA, participating employers contributed a fixed sum in respect of each employee other than apprentices, payable monthly in arrears. Each sum, less $0.50, was credited to an account, known as the Worker's Account, for each employee and was required to be used to fund the payment of redundancy benefits to the employee. 9 Clause 35 of the VBIA relevantly provides: "35.2 The provisions of the Redundancy Payment Central Fund as prescribed in the Trust Deed made on 10 April 1989 and including any amendments thereto shall apply to employers and employees, including Apprentices unless otherwise stated, covered by the terms of this Agreement. 35.3 The Redundancy Payment Central Fund Scheme will apply on all building projects on which a participating employer is the head contractor. …. … 35.7.1 Redundancy Pay contributions by each employer in respect of each employee shall be calculated by the Victorian Building Industry Agreement Consultative Committee (VBIACC) each 1 October for any increase in the CPI during the 12 months ending 30 June, immediately preceding that 1 October and rounded to the nearest 10 cents. Incolink Management will be notified of this calculation and will be asked to notify employers of the CPI adjusted contribution as soon as practicable and make the necessary arrangements for the adjustment to the contribution rate, with effect from 1 October each year. 35.7.2 Contributions will be based on Clause 29.3 in the VBIA 1992 - 1995 Agreement or as allowed by deliberations of this Agreement. 35.7.3 Benefits will be based on Clause 29.4 in the VBIA 1992 - 1995 Agreement or as allowed by deliberations of this Agreement. 35.7.4 Entitlements of apprentices will be as set out in Clause 29.5 of the VBIA 1992 - 1995 Agreement or as allowed by deliberations of this Agreement." 10 In relation to employees other than apprentices, clause 29.3.1 of the VBIA 1992 - 1995 relevantly provided: "Each employer will pay contributions monthly in arrears, the contribution period being either four or five weeks Monday to Friday. If an employee's employment terminates during a contribution period, the employer will make the appropriate pro-rata contribution to the employee at the same time as he/she pays accrued Award entitlements." 11 Clause 29.4A replaced clause 29.4 of the VBIA 1992 - 1995 with effect from 1 July 1994. Clause 29.4A provided: "29.4A.1 On termination of employment for whatever reason on or after [1 July 1994], the manager of the Scheme shall, upon receiving a written notice request from the employee at the time of termination of employment on the Scheme's prescribed from, pay to the employee the lesser of: (a) a redundancy benefit not exceeding $3,100; and (b) a redundancy benefit equal to the amount standing to the credit of that employee in his or her Worker's Account. 29.4A.2 If an employee is still out of work after four consecutive weeks, the employee shall be entitled to withdraw the balance (if any) of his/her Worker's Account after providing the Manager of the Scheme with evidence that the employee is registered with the Commonwealth Employment Service. 29.4A.3 An employee who leaves the industry may withdraw the balance (if any) of his/her Worker's Account in a lump sum, 39 weeks after the last contribution was paid on his or her behalf. 29.4A.4 An employee who retires may withdraw the balance (if any) of his/her Worker's Account in a lump sum provided the employee is over 55 years of age. 29.4A.5 The Redundancy Payment Central Fund Ltd (RPCF Ltd) trading as Incolink may dispose of any unclaimed amount standing to the credit of an employee in his/her Worker's Account, where no contributions have been received for at least two years, RPCF Ltd shall ensure that all reasonable steps have been taken to pay that amount to the employee on whose behalf the contributions were made. Should it not be practicable to do this, the RPCF Ltd trading as Incolink may dispose of such amounts in ways beneficial to the Industry." 12 In the year ended 31 March 2002, Caelli made monthly payments totalling $987,384.81 to Incolink as its contributions to the Fund. This amount represented the aggregate of contributions of $51.90 per week in respect of each of Caelli's employees falling within the VBIA 2000-2005 for that year. 13 In August 2002, Caelli applied to the Commissioner for a private ruling on the question of whether the fringe benefits taxable amount, as defined in the FBTA Act, for it for the year ended 31 March 2002 was increased in that year as a consequence of contributions made by it to Incolink during that year and, if so, by what amount. Caelli also asked the same question in respect of other years in which it made contributions to the Fund. 14 On 25 September 2002, the Commissioner made the following private ruling: "Yes, the fringe benefits taxable amount is increased in each of the FBT years. The amount of the increase being calculated under Part 11A of the FBTAA by reference to the taxable value of each fringe benefit provided. The taxable value of each fringe benefit being the amount of each contribution by [Caelli] to Incolink." 15 In October 2002, Caelli gave notice of objection against the ruling. The Commissioner made an objection decision on 7 February 2003 disallowing the objection against the years ended 31 March 2003, 2004 and 2005 and determining that the objection for the years ended 31 March 2002 was invalid.

THE statutory framework 16 The "fringe benefits taxable amount" of an employer is calculated by reference to the taxable value of each "fringe benefit" provided: see ss 5B and 5C of the FBTA Act. Pursuant to s 136(1) of the FBTA Act, "fringe benefit": "in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: a) provided at any time during a 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; … in respect of the employment of the employee …". 17 "Benefit" is defined in s 136(1) to include "any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility". 18 By virtue of s 136(1), "associate" has the same meaning in relation to a person as that expression has in relation to a person in s 26AAB of the Income Tax Assessment Act 1936 (Cth). Section 26AAB(14)(a)(iv) provides that a trustee will be an associate of a person if that person, or an associate of that person, "… is capable (whether by the exercise of a power of appointment or otherwise) of benefiting under the trust …". 19 By virtue of s 136(1), a "property fringe benefit" is a fringe benefit that is a "property benefit"; and a "property benefit" is, relevantly, a benefit referred to in s 40. Section 40 provides for one category of benefit, "property fringe benefits", in the following terms: "Where, at a particular time, a person (in this section referred to as the provider) provides property to another person (in this section referred to as the recipient), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time." "Property" is defined in s 136(1) to mean "intangible property" and "tangible property". "Tangible property" is, in turn, defined to mean "goods" and includes "animals, including fish" and "gas and electricity", while "intangible property" is relevantly defined to mean "real property", "a chose in action" and "any other kind of property other than tangible property". 20 The taxable value of such a benefit depends upon whether it is an "in-house" or "external" benefit. An "in-house property fringe benefit" is, in essence, one where the property is of a kind similar or identical to that being provided to outsiders in the course of the business of the person providing the benefit, and an "external property fringe benefit" is any other kind of property benefit: see s 136(1). This case is concerned with an external property fringe benefit. Section 43(c) relevantly provides that the taxable value of an external property fringe benefit is "the notional value of the recipient's property at the provision time" reduced by the amount of the recipient's contribution. "Notional value" is defined in s 136(1) as follows: "… in relation to the provision of property or another benefit to a person, means the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction". 21 Section 44 reduces the taxable value of a property fringe benefit to the extent that its purchase would have been an allowable deduction to the relevant employee. Under s 44, relief depends on whether the employee would be entitled to an allowable deduction pursuant to s 8-1 of the Income Tax Assessment Act 1997(Cth), if the recipient had purchased the benefit. Section 8-1(1) provides that deductions are allowable "to the extent that (a) it is incurred in gaining or producing … assessable income; or (b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing … assessable income." Section 8-1(2)(a) provides that it is not allowable "to the extent that it is a loss or outgoing of capital, or of a capital nature".

the Commissioner's objection decision 22 In providing reasons for the ruling, the Commissioner stated that, in the Commissioner's view, the payments to Incolink were the provision of an external property fringe benefit, as defined in s 136(1) of the FBTA Act; and that, pursuant to s 43, the taxable value was the face value of the money provided. In so concluding, the Commissioner considered various matters, which also fall for consideration in this proceeding. 23 First, the Commissioner held that payments made by Caelli to Incolink were payments by Caelli to "an associate of the employee" within the meaning of s 136(1). This is not presently disputed. Secondly, the Commissioner treated money as property, for the purposes of s 40 of the FBTA Act. Thirdly, because Caelli made the payments to Incolink pursuant to an industry agreement and the payments represented contributions of fixed weekly amounts in respect of each worker covered by the agreement, the payments were provided "in respect of the employment of the employee". Fourthly, pursuant to s 43(c), the taxable value of that amount was the face value of the money; and s 44 did not apply to allow the employee to claim a deduction, as Incolink was the recipient and not the employee. 24 The Commissioner accepted that, when Caelli made a payment to Incolink, an employee acquired no more than "an expectancy contingent on becoming redundant". Until the contingency was satisfied, an employee was not provided with any property. Nonetheless, according to the Commissioner, an employee acquired a beneficial interest in the property of the trust at the same time that the legal title was conferred on the trustee. Referring to the definition of "provide" in s 136(1), the Commissioner reasoned that it was possible that Caelli's act of payment to Incolink resulted in the provision of two benefits - one to Incolink in respect of the legal title and another to the employee in respect of the beneficial interest. The Commissioner added, however, that "it [was] hard to see the point of the definition if it is not intended to restrict the definition of provision … to the person who gets legal title" because, if this were not so, "the employer may be exposed to double taxation in respect of multiple benefits, subject to the inadequate relief provided by section 138" of the FBTA Act. The Commissioner was of the view that s 138(3) applied only "[w]here the same single benefit is provided jointly to an employee and an associate of the employee", and that it did not provide relief where two different benefits arose out of the same act. Nor was there a general principle that in such a case only the direct benefit was taxable. 25 Finally, the Commissioner considered that, if there were a fringe benefit, then s 44 did not apply because "[i]f the employee … were to make the contribution to Incolink … the contribution would be of corpus to a trust, and as a saving or provision against future redundancy" and therefore a loss or outgoing of a capital nature.

the taxpayer's submissions 26 At the hearing, Caelli laid some store on the general purpose of the FBTA Act, as described by Hill J in a number of cases. For example, in Tubemakers of Australia Ltd v Federal Commissioner of Taxation (1993) 25 ATR 183 at 185, Hill J noted that the FBTA Act was intended to overcome "the failure of the Income Tax Assessment Act 1936 (Cth) to detail with some specificity the value of benefits given by employers, or those related to them, to employees and perhaps the failure of that Act to include those values in the assessable income of the employee". See also The Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 at 225 per Hill J; and Walstern v Federal Commissioner of Taxation (2003) 138 FCR 1 ("Walstern") at 22 [88] per Hill J. Counsel for Caelli particularly relied on a passage at p 21 of the Explanatory Memorandum to the Fringe Benefits Tax Assessment Bill 1986, which states: "Consistent with the intended application of the Act - which is to apply, broadly, to non-cash fringe benefits provided to employees - the definition of fringe benefit excludes from the scope of the Act salary and wages (whether assessable or exempt for income tax purposes). It also excludes contributions to superannuation funds (and any payments out of such funds), benefits arising from employee share acquisitions and payments made in consequence of termination of employment, each of which fall for specific treatment under express terms of the income tax law." 27 Counsel for Caelli submitted that the Commissioner's ruling resulted in a double taxation that was inconsistent with the intended operation of the FBTA Act, because the Commissioner assessed Caelli as an employer as liable to fringe benefits tax on its payments to Incolink and its employees as liable to income tax on payments out of the Fund to them, either as income within the ordinary concept of income or as eligible termination payments. This was, so counsel submitted, a case about double tax. He added: "What we seek … is a principled resolution to this conundrum, and the conundrum arises because this is a case where the Commissioner wishes to use the FBT Act [sic] to do something which is done under the Income Tax Act [sic], namely, assessing cash." 28 In substance, Caelli contended that the ruling was incorrect in four respects. 29 First, relying on Essenbourne Pty Ltd v Federal Commissioner of Taxation (2002) 51 ATR 629 ("Essenbourne") at [51], [52], [54] and [56] per Kiefel J, Walstern at 22 [87] - [88] per Hill J and Spotlight Stores Pty Ltd v Federal Commissioner of Taxation (2004) 55 ATR 745 ("Spotlight") at [121] per Merkel J, Caelli submitted that, in order to constitute a "fringe benefit" in a case of this kind, the benefit must be provided in respect of a particular employee. In this case, the VBIA and the trust deed imposed an obligation on participating employers to make a single monthly contribution calculated by reference to the number of an employer's employees. That is, according to Caelli, the contribution was an entirely general contribution, representing "no more than the provision of funds into a pool of fungible money held on trust by Incolink, which only subsequently emerges as a specific benefit to an employee upon the employee becoming entitled to access the Fund". Further, Incolink received an employer's contributions as the associate of all employees and not as an associate of any particular employee. On this analysis, each individual Worker's Account was "no more than an internal accounting mechanism which informs the trustee of an employee's entitlement". Caelli's contributions were properly characterised as the provision of a single benefit to multiple recipients. At the hearing, counsel said: "[W]hat disassociates … the payment from that individual relationship is the interposition of the trustee to whom it is paid in the first instance. Then what follows … is that workers will then get paid out at different times, in different circumstances and in different amounts." Counsel added that there would be no sufficient connection between the payment and a particular employee for the purposes of the FBTA Act until the contingency is satisfied and the employee is entitled to payment out of the Fund. 30 To the extent that the contributions were made with respect to apprentices and former apprentices (being $0.50 of each monthly contribution for each contributing worker) it was not a fringe benefit because there was no correlation between this payment and Caelli's employees. 31 Secondly, referring to s 40 and the definition of "property" in s 136(1), as well as McCaughey v The Commissioner of Stamp Duties (1945) 46 SR (NSW) 192 at 201 per Jordan CJ and Blackstone's Commentaries on The Laws of England,21st edn, vol 1, ed JF Hargrave, London, 1844 at p 276, Caelli contended that the payment of money did not represent the provision of "property"for the purposes of Div 11 of Pt III of the FBTA Act and within the meaning of the term "property fringe benefit". For present purposes, money was not property but merely a medium of exchange. Observing that at common law, property in money is lost when it is mixed with other money (see Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548, at 572 ("Lipkin Gorman"')), Caelli reasoned that any property in the money was lost when the contributions were intermingled with the other funds of Incolink. 32 Caelli submitted that the general statutory context supported the conclusion that money was not "property" for these purposes. Referring to Walstern at 23 [92] and 23-24 [96], counsel for Caelli submitted that, in that case, Hill J did not decide to the contrary that the provision of money was a property fringe benefit. In particular, the definition of "provide" in s 136(1) was inapt to cover the present circumstance because the word "dispose of" within that definition does not cover the situation in which any property in money is lost because the money is mixed up with other money: compare Commissioner of Taxation v Cooling (1990) 22 FCR 42 at 59 per Hill J. Whilst some sections of the FBTA Act (e.g., Divs 5 and 7) employed express language when the payment of money was to be treated as a fringe benefit, Div 11 used no such language. Moreover, the language employed in Div 11 for the purposes of ascertaining the taxable value of a "property fringe benefit" was inapt to cover money. For example, s 42(1)(a) referred to property as having been "manufactured, produced, processed or treated" by the employer; s 42(1)(b)(i), to a valuation including the payment of sales tax on property acquired by the employer; and s 43(a), to the "cost price" of the purchase by an employer of property "under an arm's length transaction". Section 43(c), which referred to the "notional value" of the property, was defined by s 136(1) to mean the amount that a person "could reasonably be expected to have been required to pay to obtain the property … under an arm's length transaction". Caelli submitted that the language of this and the other provisions just mentioned excluded money. It was, so Caelli submitted, "nonsensical to refer to an amount of money that one could reasonably be expected to pay under an arm's length transaction in order to obtain the same amount of money". 33 As counsel for Caelli put it, referring to Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (1981) 147 CLR 297 at 320 per Mason and Wilson JJ, even if a literal reading of the definition of "benefit" in s 136(1) embraced the payment of money, the Court should reject such an approach in favour of an approach that avoids double taxation. 34 In reply to the Commissioner's argument that Caelli's submission about money should be rejected as inconsistent with the exclusions to the definition of "fringe benefit" in s 136(1) of the FBTA Act, Caelli noted that the exclusions were exclusions from the FBTA Act as a whole, not merely Div 11. It also contended that it would be wrong to assume that the exclusions were inserted because they would otherwise be included in the FBTA Act (referring to Jeffrey James Prebble Pty Ltd v Commissioner of Taxation (2003) 131 FCR 130 ("Prebble") at 143 [54] per Hill and Hely JJ) and that since many of the exclusions were introduced by way of subsequent amendment to the FBTA Act, they could not affect the interpretation of the unamended operative provisions (also referring to Prebble at 142 [52] per Hill and Hely JJ). 35 Thirdly, Caelli argued that the ruling was incorrect in treating the "notional value" as the face value of the payment made by it to Incolink. Referring to Walstern at 24 [99] per Hill J, Caelli submitted that, if the Commissioner was correct in treating the payments to Incolink as the provision of a "property fringe benefit", then the notional value was nil. The definition of "notional value", as noted above, required consideration of what Incolink could reasonably be expected to have been required to pay to obtain the property. As a trustee, Incolink could not reasonably be expected to have paid anything in order to receive a contribution to which it has no beneficial entitlement. 36 Caelli accepted the Commissioner's analysis that, upon Caelli making a payment to Incolink, each employee acquired no more than an expectancy, contingent on becoming redundant. Alternatively, Caelli argued that, "if the creation of each employee's entitlement under the Trust Deed does amount to the provision of a property fringe benefit … the taxable value of this benefit should be reduced to nil", having regard to the operation of s 44 of the FBTA Act. In written submissions, Caelli said: "Section 44 …creates a hypothetical or a statutory fiction. It commences with the actual provision of a property fringe benefit by a provider who is not the employee and contemplates a transaction which is the 'purchase' of the 'recipient's property', viz the entitlement of each employee under the Trust Deed. Section 44 operates upon that 'purchase' by notionally substituting the employee as the purchaser for 'unreimbursed expenditure' of an amount equal to what would be the taxable value of the property fringe benefit. The expenditure is assumed to be real. Whether or not it would be likely that a person in the position of an employee would enter into such a transaction is irrelevant. Section 44 proceeds on the assumption that he or she did so. Hence, the critical question, is whether a given employee of the applicant would be entitled to an allowable deduction pursuant to section 8-1 of the Income Tax Assessment Act 1997, for amounts paid to secure the right under the Trust Deed to be paid amounts under cl. 3DD." 37 In this regard, Caelli submitted that it was material that the payments were compulsory, monthly payments applicable on all building projects to which Caelli was a participating employer; and that they were made for the purpose of providing assistance to the employee between jobs. If an employee made the payments, then the payments would be incurred in gaining or producing the assessable income of that employee. In substance, the payments were made to secure redundancy benefits, which, when received, would form part of the assessable income of each employee as eligible termination payments: see s 27B of the Income Tax Assessment Act 1936(Cth). Alternatively, the redundancy benefits would be income according to ordinary concepts, as payments made to compensate an employee for the loss of income between jobs: see Commissioner of Taxation v Smith (1981) 147 CLR 578 at 584 and Reseck v Commissioner of Taxation (1975) 133 CLR 45 at 54 and 56. As well, the payments were a compulsory exaction imposed as a condition of participation in the building industry and were thus incurred in gaining assessable income generally from that industry. 38 Caelli further submitted that the payments, if made by an employee, would not be characterised as an outgoing of capital, because the character of the advantage sought was income. The employee did not acquire a profit making structure or any means of production from which might be earned detachable profit. According to Caelli, its revenue character was also evident from the manner in which the entitlement was to be used, namely, "to fill the hole in income created between jobs" and from the means employed, namely, the making of monthly payments with the effect that each employee was required to make regular outlays to earn future income: see Sun Newspapers Ltd and Associated Newspapers Ltd v Commissioner of Taxation (1938) 61 CLR 337 at 363 per Dixon J. 39 Fourthly, Caelli contended that the Commissioner was wrong in deciding that the same act or event could give rise to two taxable property fringe benefits without any relief for double taxation. It contended that, in this case, the "benefit" under s 183(3) was the making of the contribution and was "provided jointly" to the employee and Incolink. Alternatively, on its proper construction, the FBTA Act does not permit double taxation of two fringe benefits said to arise from the same act or event. Once there is fringe benefit to an employee, the application of s 40 is exhausted. The position of associates does not fall for consideration. 40 Finally, Caelli contended that: "[I]f the respondent's ruling is correct, the result will be that fringe benefits tax will be paid by the applicant on the making of contributions to Incolink at the top marginal rate of tax, and employees will include such contributions in their assessable income when paid to them by Incolink as eligible termination payments. This result was described by Hill J in Tubemakers of Australia Ltd v FCT 93 ATC 4207, 4210 as 'bizarre', precisely because it involves double taxation."

41 In submissions filed after the hearing, with leave, Caelli submitted that the decision of Pudney v Mann GHH Logistics GMBH (unreported decision of the Appeal Division of the Supreme Court of Victoria, Southwell, Nathan and O'Bryan JJ, 13 December 1993) to which counsel for the Commissioner may have referred, did not assist the Commissioner's case on the "money" question.

THE commissioner's SUBMISSIONS 42 Referring to clause 3B.1 of the trust deed, the Commissioner's argument commenced with the proposition that Incolink, as trustee of the Fund, was an associate of each employee of Caelli in respect of whom contributions were made in the relevant year within the meaning of s 26AAB of the Income Tax Assessment Act 1936 (Cth) and therefore s 136(1) of the FBTA Act. Caelli's employees were capable of benefiting under the Fund and, as such, Incolink was an associate of each employee in respect of whom Caelli made contributions to the Fund in the relevant year. 43 In reply to Caelli's first argument that its payments to the Fund were not made in respect of the employment of a particular employee, the Commissioner submitted that 1) these payments were made in respect of the employment of individual employees; and 2) in any event, the definition of "fringe benefit" comprehended a situation where a benefit is provided in respect of the employment of multiple employees. 44 With regard to the first point, the Commissioner submitted that the payment made each month by Caelli to Incolink was not a general contribution, but "an aggregate of the fixed sums calculated as the monthly contribution payable in respect of each employee employed by it". This, said the Commissioner, was also evidenced by the tax invoices issued by Incolink, setting out the individual amounts paid in respect of each employee. 45 In support of this submission, the Commissioner relied on clause 35.7.1 of the VBIA, which contemplates that an employer shall make contributions "in respect of each employee", and on clause 3A.1 of the trust deed, which required that each member make contributions to the Fund "in respect of each worker". The Commissioner also noted that clause 3C.1 of the trust deed provided for a weekly contribution for any week "in which a worker is entitled to be paid wages" and clause 3C.2, for pro rata contributions if a worker's employment terminated during the contribution period. The Commissioner referred to clause 3B.1, contemplating that the amount of the contribution, less $0.50, would be credited to each employee's Worker's Account, and to part 3DD, pursuant to which the entitlement to a benefit is defined by reference to the credit of each employee's Worker's Account. 46 The Commissioner contended that Essenbourne was distinguishable from the present case. Alternatively, the Commissioner submitted that Essenbourne was wrongly decided to the extent that it required the identification of a particular employee in relation to a fringe benefit. Relying on State of Queensland v Commonwealth (1986) 162 CLR 74 ("Queensland v Commonwealth") at 83 per Gibbs CJ and 99 per Mason, Brennan and Deane JJ, the Commissioner argued that such an interpretation would defeat the intention of the legislation and focused wrongly on the receipt of the benefit rather than the provision of the benefit. Further, there was nothing in the definition of "fringe benefit" which precluded there being a fringe benefit when there was a sufficient or material connection between the benefit and employment, even if the benefit was made without regard to the number of or individual identity of each employee so benefiting. In this regard, the Commissioner relied upon J&G Knowles and Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 at 410 [26] where the Full Court posited the need for "a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment" (emphasis original). Here, so the Commissioner submitted, there was no doubt that the benefit was a product or incident of the employment. 47 The Commissioner acknowledged that to the extent that the contribution was appropriated for the benefit of apprentices and former apprentices it was not a fringe benefit. 48 In reply to the contention that money could not constitute a property fringe benefit, the Commissioner cited numerous authorities, including Lipkin Gorman at 566, 572-574 and 576, in support of the proposition that, even when regarded as a medium of exchange, money could be a form of property. According to the Commissioner, the later intermingling of moneys in the Fund did not deny the payment the character of property at the time the benefit was provided, that being the relevant point in time for the purposes of s 40. 49 Further, the Commissioner argued that the provisions of the FBTA Act made it clear that money could constitute a property fringe benefit. Section 136(1) excluded from the definition of fringe benefit, amongst other things, the payment of salary or wages, a "benefit constituted by the acquisition by a trust of money or other property …" (emphasis added), and a benefit constituted by the "making of a payment of money" to superannuation funds. The Commissioner submitted that it would have been unnecessary to exclude these items if money could not constitute a property fringe benefit; and there was no difficulty in assigning a notional value to the property, that being the dollar amount of the money provided. Lastly, it would, so the Commissioner submitted, be capricious if the provision of a watch worth $1,000 to the trustee would be subject to fringe benefits tax, but the provision of $1,000 in the same circumstances would not. 50 Addressing Caelli's argument that, pursuant to s 43(c), the notional value of the benefit must be nil and relying on Queensland v Commonwealth, the Commissioner submitted that this argument was misconceived because the focus of the FBTA Act was on the value of the benefit provided by the employer, not received by the employee or an associate. Referring to Banco de Portugal v Waterlow & Sons Limited [1932] AC 452 at 508 per Lord Macmillan, the Commissioner said that the value of money was that which it bore on its face. This was the amount which a person "could reasonably be expected" to pay in the hypothetical arms-length transaction contemplated by the definition of "notional value", a transaction which is not absurd, as the example of paying cash to purchase a bank cheque showed. 51 Further, according to the Commissioner, in the definition of fringe benefit in s 136(1), the exclusion of a "benefit constituted by the acquisition by a trust of money or other property", as noted above, told against Caelli's submission, because its acceptance would render the exclusion redundant since the taxable value of any payment of money to a trustee would always be nil. Also, the Commissioner submitted, Caelli's position was contrary to the exclusion (in the same definition) for payments to superannuation funds. 52 The Commissioner did not seek to support the ruling on the basis that Caell's contributions to Incolink gave rise to a property fringe benefit provided to an employee. 53 At the hearing the Commissioner drew my attention to the fact that the FBTA Act had been relevantly amended after the ruling and with effect from 30 June 2003 by the introduction of ss 58PA, 58PB and 58PC. As counsel for the Commissioner said, these provisions showed that the legislature had specifically sought to deal with the very result that Caelli asserted did not flow from the FBTA Act, when applied to Caelli's payments to Incolink under the trust deed. This was reflected in the Explanatory Memorandum to the Taxation Laws Amendment Bill (No 4) 2003 ("EM"), which recognized that, absent the amendments, an employer's payments to a worker entitlement fund could attract fringe benefit tax even though the payments made by the fund to an employee also attracted tax. The amendments were apparently designed to prevent the taxation of such funds twice: see pars 7.3-7.6 of the EM. There was some discussion about the application of s 58PC (a transitional provision) in the present case. The parties agreed that the amendments did not assist Caelli in respect of the tax years ended 31 March 2004 and 31 March 2005.

CONSIDERATION 54 Pursuant to s 136(1) of the FBTA Act, a "fringe benefit" is, relevantly, a "benefit" which is "provided to the employee or to an associate of the employee" by the employer "in respect of the employment of the employee". "Benefit", as defined in s 136(1), would cover a monetary payment of the kind made by Caelli to Incolink: see further below. 55 The effect of the trust deed is that: (1) the Fund is maintained exclusively for making redundancy payments to workers and apprentices (clause 6AAA.1); (2) Incolink, as trustee, must establish a Worker's Account in respect of each worker to be credited in accordance with clauses 3B.1(3) and 3B.2 (clause 6AAA.2); (3) members of the Fund, including Caelli, must pay a weekly contribution to Incolink for any week in which an employee is entitled to be paid wages by the member in respect of work performed on a construction site (clause 3C.1); (4) members' contributions to the Fund will be applied: (i) as to $0.50, as an industrial levy to provide benefits to apprentices; (ii) as to the balance, by crediting that amount "to each worker's respective Worker's Account" (clause 3B.1); (5) the amount standing to the credit of a particular worker's Worker's Account is available for distribution to the worker in accordance with the terms of the trust deed if his or her employment ceases (clause 3DD.1). 56 It follows that each employee in respect of whom of Caelli made contributions to Incolink as trustee was capable of benefiting under the trust constituted by the Fund and that therefore Incolink is an associate of each such employee, within the meaning of s 26AAB(14)(a)(iv) of the Income Tax Assessment Act 1936 (Cth) and s 136(1) of the FBTA Act.

In respect of the employment of the employee 57 For the reasons that follow, I accept that the payments made by Caelli to Incolink were made "in respect of the employment of the employee", for the purpose of the definition of "fringe benefit" in s 136(1). Essenbourne is distinguishable from the present case. In Essenbourne, the taxpayer company paid funds to the trustee of an employee incentive trust. The trust deed provided that, as the employer, it was to make contributions for the benefit of "its employees generally": see Essenbourne at [10]. Upon the taxpayer making payments to the trust fund, pursuant to the trust deed, the employees were invited to subscribe for units in the trust. For this purpose, the trustee advanced to them the funds that they required to purchase the units. The funds advanced by the trustee came from the money paid by the taxpayer to the trustee: see Essenbourne at [11]. Upon becoming unitholders, the employees had no immediate entitlement, beneficial or otherwise, to any money standing to the credit of the fund. They were entitled only to distributions of income, if made, by the trustee: see Essenbourne at [11]. The trustee was also empowered, at its discretion, to issue bonus units in the trust to unitholders, but only if such unitholders had remained full-time employees of the taxpayer for a period of five years since their allocation of units in the trust: see Essenbourne at [14]. 58 Keifel J found at [54] that the contributions were not made in respect of particular employees. This finding necessarily flowed from the terms of the trust deed, pursuant to which the contributions were for the benefit of the employees generally. Her Honour said at [54]-[56]: "In my view, Essenbourne is correct in its contention that the definition of 'fringe benefit' requires reference to a particular employee in connexion with the benefit said to have been provided. This is reflected in the references to a benefit being 'provided to the employeeor to an associate of the employee' and to the benefit being provided 'in respect of the employment of the employee' (emphasis added). The latter reference, in particular, can only be to a particular person's employment. The Commissionersubmitted that the reference to 'an employee' in the definition should be read as 'employees', in the case of certain benefits, as s 23 of the Acts Interpretation Act 1901 (Cth) would permit. In my view the FBTAA requires that the particular employee be identified in connexion with the benefit. It is their employment which, after all, provides the necessary 'link' to the benefit: see J & G Knowles & Associates Pty Ltd v Commissioner of Taxation (2000) 96 FCR 402 … . The definition does not admit of a reference to a number of employees in connexion with the benefit, the subject of the assessment. … The link between the benefit and the employment of the employee is required to be sufficient or material: J & G Knowles, 409, 410…It arises because of the words 'in respect of the employment'. A mere causal link with the employment of the employee will not be sufficient. …[T]he payment by Essenbourne to the trustee does not qualify as a fringe benefit as it is defined." (emphasis original) 59 In this regard, Essenbourne has been followed in Walstern at 22 [87]-[88] per Hill J and in Spotlight at [121] per Merkel J. In Essenbourne, however, it was clear from the trust deed that, at the time the taxpayer made its payments to the fund, they were not made in respect of any particular employee. Similarly, it was plain enough in Spotlight that, at the time the taxpayer made its contribution to the relevant fund, the contribution was not made in respect of the employment of any particular employee because none of the taxpayer's employees were beneficiaries of the fund at that time: see [121] per Merkel J. 60 In Walstern, at the time the taxpayer employer made a contribution to a superannuation fund, there was also no designation of any particular employee on whose behalf the contribution was made. Under the trust deed, an employee would become a member of the fund only when the employer recommended membership and the trustee, at its discretion, invited the employee to become a member. As a precondition of membership the employee was required to make a contribution, in an amount fixed by the trustee, to the fund. This amount was to stand to its own account. Allocation among employees was a matter of discretion for the trustee. The Commissioner argued, and Hill J accepted, that there was a fringe benefit to particular employees at the time allocation was made by the trustee of Walstern's contribution in each fringe benefits tax year. His Honour held at 23 [91] that: "[A]t the time of allocation there was the provision of property, namely the benefit in the trust find constituted by the money which was tangible property, so that there was a property benefit as defined in the Act." As the Commissioner observed, in the present regard, this is an even stronger case for the Commissioner than Walstern. 61 Assuming as I do that Essenbourne correctly states the law on this point, the question remains, whether on the facts of this case, the benefit was "in respect of the employment of an employee". In this case, the trust deed required that, save for the $0.50 apprentice levy, the payments made by Caelli and other members of the Fund to Incolink were made in respect of identified employees. The trust deed (clauses 3A.1 and 3C.4) provided for the employer to make contributions "in respect of each worker": compare also clause 35.7.1 of the VBIA. The quantum of the payment to be made by Caelli was fixed by reference to the actual employment of each employee: that is, Caelli made a weekly contribution for any week in which an employee was entitled to be paid wages in respect of his or her work (clause 3C.1). If the employee ceased work during a relevant period, the amount of Caelli's payment was correspondingly reduced. By the terms of the trust deed, payments in respect of a particular worker were credited towards the individual worker's Worker's Account maintained by Incolink and invoiced as such. When an employee became entitled to a benefit, the amount of benefit was calculated directly by reference to the contribution made to the worker's own Worker's Account at the relevant time (part 3DD of the trust deed and clause 29.4A of the VBIA). Leaving aside the apprentice levy (which the Commissioner agrees was not a fringe benefit) it is difficult to resist the conclusion that the payments made by Caelli to Incolink was a benefit provided in relation to a particular employee in respect of the employment of the employee. 62 Accordingly, each contribution made by Caelli to the Fund, which is credited to a particular employee's Worker's Account, is made by Caelli "in respect of the employment of the employee" within the meaning of s 136(1) of the FBTA Act.

Property Fringe Benefits 63 At the outset, it might be noted that in Essenbourne, Walstern and Spotlight there was no argument that the payment of money could not constitute a property fringe benefit. As noted above, in Walstern at 23 [91], Hill J said that, on allocation amongst employees, payments to a non-complying superannuation fund constituted a property benefit, the money being tangible property, although his Honour also noted that it was "not of any significance" whether the benefit was a property benefit or a residual benefit, because the valuation formula was the same. 64 The concept of "fringe benefits" generally may include the payment of money, as the exclusions from the definition of fringe benefit in s 136(1) make clear. It is possible, as noted in Walstern, that monetary payments could be "residual benefits"', and here, as in that case, there would apparently be no particular difference in the result if this were so. 65 I accept the Commissioner's submission that money can constitute property, and that the question of whether the money does constitutes property for present purposes must be determined at the time the alleged benefit is provided, and not after any intermingling in the Fund. 66 Having considered Caelli's submissions, I reject the argument that the FBTA Act does not contemplate that the payment of money can constitute a property fringe benefit. The fact that some sections of the FBTA Act expressly provide for the payment of money to constitute a benefit in some situations can only assist Caelli if the absence of such provision in Div 11 indicates a contrary intent. I discern no such indication of contrary intent in Div 11. "Property" is widely defined in the FBTA Act. It is clear that the provisions of Div 11 (in particular, ss 42, 43 and 44) are designed to embrace a wide variety of types of property, and express reference is not made to any particular kind of property in Div 11. 67 Caelli referred to language in Div 11 that was, so it submitted, inapt to cover money, but these uses of language need to be read in the light of their context. That is, these references occur in attempting to place a taxable value on a relevant property fringe benefit and must, therefore, encompass a variety of types of property. The reference in s 42(1)(a) to property having been "manufactured, produced, processed or treated", for example, covers one category of "in-house property fringe benefit", but it cannot be treated as determinative of the breadth of the categories of property in Div 11, as reference to paragraphs (b) and (c) of the same section demonstrate. Section 43 is directed towards valuing property fringe benefits, which of their nature may be of various kinds, and the description of the valuation in terms of an "arm's length transaction" needs to be read in that context. Although its application to the payment of money is perhaps awkward, this is merely because the method of valuation must also be capable of application to a variety of forms of property, including those that are far less readily valued than money. I accept the Commissioner's contention that s 43 hardly renders it "nonsensical" to treat money as property for the purposes of the definition of property fringe benefit. 68 Finally, given the number of direct references in the FBTA Act to the payment of money as a fringe benefit, it seems unlikely that this important category was intended merely to be addressed as a "residual benefit"', particularly when one considers the types of residual benefits that are exempted under s 47 such as transport and childcare facilities. On a fair reading of the FBTA Act, the appropriate category is that of property fringe benefits. There is no contrary indication in the FBTA Act.

Notional value 69 Section 43(c) relevantly provides that the taxable value of an external property fringe benefit is "the notional value of the recipient's property at the provision time" reduced by the amount of the recipient's contribution. Section 136(1) defines "notional value" "in relation to the provision of property or another benefit to a person" as "the amount that the person could reasonably be expected to have been required to pay to obtain the property or other benefit from the provider under an arm's length transaction". 70 Caelli's argument was, in effect, that, if its payments to Incolink amounted to a fringe benefit, then the notional value of these payments was nil, as the trustee could not reasonably have been expected to pay for the benefit. 71 The definition of "notional value" is not, however, concerned with whether the person would in fact have purchased the benefit in an arm's length transaction. It is concerned with valuing the amount of the benefit by reference to an objective value of the benefit. It is misreading s 43(c) to say that Incolink would not be expected to pay anything in order to receive a contribution to the Fund and therefore the notional value is nil. The question is how much Incolink could reasonably have been expected to pay to obtain the benefit in an arm's length transaction. The question is based on the hypothesis that Incolink and Caelli are in a market transaction for the benefit. The fact that Incolink gains no beneficial entitlement is irrelevant. 72 This conclusion is reinforced by the Commissioner's submissions concerning the exclusions in s 136(1) in relation to trusts and superannuation funds, and by reference to the purpose of the FBTA Act itself. It is hardly likely that Parliament intended that the provision of benefits were to be free from fringe benefits tax when payments of money were made to a trustee and not directly to an employee, and it is particularly unlikely that it would evince such an intention in a section dealing merely with the valuation of the benefit. Other matters arising from Caelli's submissions 73 Caelli relied on s 44 of the FBTA Act but this provision is not applicable in the present case because Incolink, and not the employee, was the recipient of the benefit. 74 Further, I do not consider Caelli's submissions with respect to double taxation call for a different result. Prior to the amendment of the FBTA Act by the introduction of ss 58PA, 58PB and 58PC, an employer's payments to a worker entitlement fund could, it seems, attract fringe benefit tax notwithstanding the payments made by the fund to the employee also attracted tax. This result is indicated by the foregoing reasons; and s 138 would apparently afford only limited relief against any double taxation. With these amendments, however, the legislature has addressed these so-called "double taxation" aspects of the operation of the FBTA Act. Moreover, the objection decision itself stated: "[T]he Commissioner has decided that he will not seek to collect FBT from contributions by Caelli Constructions (Vic) Pty Ltd to Incolink made prior to the 1 April 2003, nor will the Commissioner treat such contributions as forming part of any employee's reportable fringe amount." In these circumstances, it would serve no useful purpose in discussing this point further. 75 For the foregoing reasons, I would dismiss this taxation appeal, with costs. I certify that the preceding seventy-five (75) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Counsel for the Respondent: Mr G T Pagone and Ms W Harris

Solicitor for the Respondent: Australian Government Solicitor

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