Commissioner of Taxation (Cth) v Dixon

Judgment (10 paragraphs)

[1]

For the reasons given, the receipts in question may be assessable income from personal exertion although not comprehended within the terms of the definition in s. 6 or within the terms of s. 26 (e). And the conclusion seems to me to be unavoidable that those receipts do constitute assessable income. Before stating reasons for this conclusion, however, it is desirable to refer to two decisions of the Supreme Court of New Zealand, on the latter of which the respondent strongly relied, and to which great weight was naturally given by the Board of Review. One of them has already been incidentally referred to. The circumstances attending the payments in question in those cases seem to have been the same as those attending the payments in question in the case before us. But in one of the New Zealand cases the money was paid (or was treated as having been paid) in a single lump sum, whereas in the other there had been a series of periodical payments. In the present case there is no express statement as to how the moneys were paid, but it seems safe to infer from certain evidence given by the respondent before the Board of Review that payments were made periodically at regular intervals.

[2]

The first case is Louisson v. Commissioner of Taxes [4] . The relevant statutory provisions were contained in s. 79 (1) (b) and (h) of the Land and Income Tax Act 1923-1939 N.Z.. The section provided that the assessable income of any person should be deemed to include all sums received or receivable by way of emolument of any kind in respect of or in relation to the employment or service of the taxpayer: (h) income derived from any other source whatsoever. Paragraph (b) may be regarded as corresponding to s. 26 (e) of the Australian Act, and par. (h) to s. 25. The New Zealand taxation year ended on 31st March. On 1st October 1939 the appellant taxpayer enlisted in the armed forces of New Zealand, and on the same date the directors of the company which employed him passed a resolution that, in the case of members of the staff enlisting, the difference between their pay as employees and their military pay would be paid by the company up to 31st March 1940, the position to be further reviewed after that date. In pursuance of that resolution a sum of £453 was paid to the appellant. Fair J. held, in the first place, that the money was not received in respect of or in relation to the employment of the appellant by the company, and the passage quoted above occurs in that part of his judgment which deals with this question. His Honour then proceeds to consider whether the receipt constituted "income" within the meaning of par. (h) of s. 79 (1). This question also he answers in the negative. He treats the sum of £453 as having been received in a lump sum, and it is clear, I think, that this forms the whole basis of his decision. He says: "Income has a meaning that is well established by the cases as something which usually involves periodical payments" [1] . He concedes that a payment of a single sum may constitute income, but thinks that the payment in this case, despite the method of its computation, does not. "It may", he says, "be regarded as a grant to cover the transition period from civil to military life" [2] .

It is clear that the decision of Fair J. is distinguishable from the present case. But on 23rd July 1940 the directors of the same company passed another resolution to the effect that, in the case of members of the staff enlisting, the company would, from 31st March 1940 to 30th September 1940, pay to them the difference between their pay as employees and their military pay. On 2nd October 1940 it was resolved that the same thing be done for the period from 30th September 1940 to 31st March 1941. During the income year ended 31st March 1941 Mr. Louisson received from the company in pursuance of the resolutions a total sum of £612, which was paid to him by equal monthly payments. The commissioner again treated this sum as income, and Mr. Louisson again appealed. The matter came, on case stated, before the Court of Appeal consisting of Myers C.J., Blair J., Kennedy J. and Northcroft J. - Louisson v. Commissioner of Taxes [3] . The decision of the Court in favour of the appellant was unanimous. They rejected a contention (which had not been developed in the earlier case before Fair J.) that the sums in question had been paid by the company "in respect of or in relation to" an employment of the appellant by the Crown in the armed forces. I would respectfully agree with this. The payments were not in any real sense rewards for services rendered to the Crown. For the rest, the learned Judges accept the decision of Fair J. as correct and express the opinion that periodicity of payment affords no ground for distinguishing between the two cases. Myers C.J. and Northcroft J. in a joint judgment say: - "Nor do we think that what is referred to in some of the cases as the "periodicity" of the payments makes any difference" [1] .

It seems to me that the appellant's receipts from Macdonald, Hamilton & Co. must be regarded as having the character of income. They were regular periodical payments - a matter which has been regarded in the cases as having some importance in determining whether particular receipts possess the character of income or capital in the hands of the recipient, see e.g. Seymour v. Reed [1] and Atkinson v. Federal Commissioner of Taxation [2] . This consideration, while not unimportant, is not decisive. What is, to my mind, decisive is that the expressed object and the actual effect of the payments made was to make an addition to the earnings, the undoubted income, of the respondent. What the employing firm decided to do, and what it really did, in relation to the respondent and others in the same position, was "to make up the difference between their present rate of wages and the amount they will receive". What is paid is not salary or remuneration, and it is not paid in respect of or in relation to any employment of the recipient. But it is intended to be, and is in fact, a substitute for - the equivalent pro tanto of - the salary or wages which would have been earned and paid if the enlistment had not taken place. As such, it must be income, even though it is paid voluntarily and there is not even a moral obligation to continue making the payments. It acquires the character of that for which it is substituted and that to which it is added. Perhaps the nearest parallel among the many cases cited to us is to be found in Commissioner of Taxes (Vict.) v. Phillips [3] . Phillips was managing director of a company under a contract for a term of years. That company entered into an agreement with another company which necessitated the retirement of Phillips from his position. By way of "compensation" the company agreed to pay Phillips the same amounts at the same times as it would have been obliged to pay him if he had continued in his position until the expiration of his term of employment. The payments made by way of "compensation" were held to partake of the same nature as the payments which would have been made if the employment of Phillips had continued. The payments in that case were made in pursuance of a binding contract, whereas the payments in the present case were voluntary. But the nature of the payments was the same in both cases, and what was said in Phillips's Case [3] applies mutatis mutandis to this case. In a joint judgment Dixon and Evatt JJ. said: - "No prima facie reason exists for regarding as instalments of capital annual payments which are taken in place of the contractual rights" [4] given by the original contract. And again: - "In these circumstances they" (i.e. the payments under the substituted contract) "must be regarded as of the same nature as the payments they replace" [1] .

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Judgment (10 paragraphs)

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