Dibb v Commissioner of Taxation

Relevant facts 2 The appellant, Mr Dibb, was for many years employed by AVCO Financial Services Ltd ("AVCO") as a District Manager. On 12 August 1996 his employment was terminated. By a letter of that day AVCO advised the applicant he would receive a 'termination payment' totalling $118,860.21. This amount included salary, annual leave and accrued long service leave and also $88,296.00 described as 'Compensation Payment (10 months)'. It was said that his 1996 bonus would be paid in March of the following year on a pro-rata basis. Mr Dibb protested at the termination on the basis that it was unlawful, harsh, unjust and unreasonable. He brought proceedings in the Queensland Industrial Relations Commission seeking reinstatement under the relevant Queensland legislation. In June 1997, Commissioner Bechly refused that application, notwithstanding that, at the beginning of the hearing, AVCO had admitted that the process of termination was harsh, unjust or unreasonable, and that Mr Dibb did not have a reasonable opportunity to defend, contrary to relevant provisions of the Queensland Act. The Commissioner found that compensation was the appropriate remedy. He referred that matter back to the parties for negotiation, but they were unable to agree. 3 In finding that reinstatement was not appropriate Commissioner Bechly observed: ' The parties were referred to a further conciliation process in the charge of another member of the Commission to explore whether a mutually acceptable outcome could be reached between the parties. Although several hours were spent on this process a settlement could not be reached and the applicant determined to proceed with the formal hearing with the full knowledge of the remedies available viz reinstatement or in the event that I find that reinstatement would be impracticable, compensation as limited by the terms of the legislation, that is, that the amount must not be greater than the remuneration the employer would have been liable to pay the employee for the six months immediately following the dismissal. The evidence before me is that the respondent, for some time, has been reviewing its present operations and future direction and having determined a strategy to meet the future nature of the business, has decided that Mr Dibb did not fit the role determined as being necessary for a District Manager. This decision was made at a senior executive level in group discussions which included the Vice President Operations and Human Resources. The evidence also is that his senior group of executives cast about for an alternative position suited to the applicant's talents but, short of creating an unnecessary role, were unable to find such a position. It appears, from the evidence, that the respondent, through acquisition of other business activities, has a variety of staff in excess of its business requirements and, like many other enterprises today, is reducing its workforce. Mr Dibb was called to Sydney to what he thought was a District Manager's [sic] meeting. He was interviewed by the Vice President Operations Mr Colin McAllister and the Vice President Human Resources and informed of the respondent's decision.' 4 On 26 February 1999 Commissioner Bechly ordered AVCO to pay Mr Dibb the sum of $44,837. On 16 March 1999 AVCO sent Mr Dibb two cheques, one for $44,837 and another for $8,972.84. The amounts were explained in a covering letter in the following terms: 'As required by Commissioner Bechly of the Queensland Industrial Relations Commission we are required to forward the sum of $44,837 to you, this sum being the amount that the Commissioner ordered paid to you within thirty days of the February 26 1999 decision. I have also enclosed a cheque for $8,972.84 being the net proceeds of your annual leave and long service leave entitlements less monies owing from your travel advance and personal loan. A termination calculation advice is also enclosed which shows the break up of these sums. You will note that we have applied the most advantageous tax treatment with the gross amounts.' 5 The enclosed "termination calculation advice" showed the following: GROSS TAX NETT ORDINARY DAYS 6.00 Days $1,222.56 $287.00 $ 935.56 LESS DEDUCTIONS: ($300.00) Travel Advance repayment ($15,822.06) Personal Loan repayment ANNUAL LEAVE 225.4000 HRS $9,064.68 $2,855.37 $6,209.31 LONG SERVICE LVE 633.4000 HRS $25,472.87 $7,522.84 $17,950.03 ELIGIBLE TERMINATION $44,837.00 $0.00 $44,837.00 PAYMENTS (ETP) (INCLUDES SEVERANCE & NOTICE) TOTAL $80,597.11 $10,665.22 $53,809.84

6 Mr Dibb returned these cheques under cover of letter 22 March 1999. Lawyers acting for AVCO again forwarded the cheques to Mr Dibb. He again returned them. 7 On 12 July 1999 Mr Dibb commenced proceedings against AVCO in the Federal Court (the "Federal Court proceedings"). The allegations in the statement of claim were wide-ranging and serious. The primary Judge described the pleadings in [7] to [13] of his reasons, as follows: '[7] The applicant was employed by AVCO between 10 May 1977 and 12 August 1996, having been a District Manager since 19 May 1987. On 10 May 1977 the applicant and AVCO entered into a "service agreement". The agreement included AVCO's Operations Manual which contained detailed descriptions of termination, discipline, grievance, promotion and benefit policies, all of which were terms of the agreement. Further it was a "custom of the finance and banking industry" that such agreements could not be brought to an end by an employer without cause and/or in a harsh, unjust or unconscionable manner. On 12 August 1996 AVCO acted in repudiatory breach of the terms of the service agreement in purporting to terminate the applicant's employment. From about 22 July 1996 officers of AVCO and lawyers employed by them conspired with the purpose of injuring the applicant by unlawful means by having planned to terminate the applicant without proper cause or warning. AVCO set out and put into effect a plan designed to damage, devalue or destroy the applicant's employment reputation and to deny him his legal and equitable rights with manifest disregard to his physical, emotional and social welfare. AVCO knew or should reasonably have known that by planning and putting into effect the promotion of the applicant's termination he would suffer humiliation, ridicule and loss of self-esteem and diminution of the respect and confidence held in him by his fellow employees and be held to a lower opinion in the estimation of his fellow employees by making them think the less of him and be shunned and avoided by his fellow employees. AVCO knew or should reasonably have known that in implementing its covert plan in the manner that it did represented a reckless disregard to the physical and mental consequences the applicant was forced to deal with. [8] Also AVCO breached a fiduciary duty of trust and confidence. This duty arose because a named officer on behalf of AVCO undertook at a certain meeting to represent the interests of the applicant and also because AVCO transferred the applicant to Newcastle and subsequently Brisbane and placed him in a position where he and his family could not relocate to Sydney without its financial and/or employment support. Further, if the policies referred to were not terms of the agreement then AVCO, in trade or commerce, misled or deceived the applicant into believing that they were. [9] Further, if AVCO did not act in breach of terms of the service agreement or in breach of the Trade Practices Act 1974 (Cth) then it could still only terminate the service agreement upon the giving of reasonable notice. [10] By reason of AVCO's conduct the applicant was deprived of the opportunity to continue his employment which he potentially would have enjoyed until the year 2020. Because of AVCO's knowledge of the applicant and his personal and financial circumstances it should have foreseen that it would have caused him detriment by summarily terminating his employment, "showcasing the termination to his peers", and depriving him of his status and interfering with his right to work. The detriment to the applicant that was foreseeable comprised of negative, emotional and mental impact, embarrassment, a lowering of self esteem, vexation, distress, disappointment and frustration, negative effect to his family, social, recreational and business interests, serious injury and handicap to his future prospects for suitable alternative employment, aggravated damage to his employment reputation by being forced to pursue and persist with legal remedies to vindicate his rights and severe financial hardship and embarrassment. [11] As a "direct and natural flow" of the conduct of AVCO the applicant has suffered personal injury, loss and damage. Since termination the applicant has continually suffered from anxiety and depression, periods of mood swings, irritability, shortness of temper, insomnia, increased dosage of anti-depressant medication for which he has now formed a dependency, extreme physical pain, discomfort, fatigue, abdominal disorders and fluctuations of body weight, a progressive decline in his self-esteem amongst his family, relatives and friends, destruction of his employment reputation, withdrawn from participating in taking an interest in activities that he previously enjoyed and severe financial hardship and embarrassment. [12] The applicant claimed amounts due under the service agreement to the date of termination but unpaid at the date of judgment and also "future economic damage for being deprived from continuing his career for the prospective period from the date of judgment to 11 March 2020 (his 65th birthday), with reasonable consideration of promotions during that period". The applicant also claimed damages for physical and mental injury and diminution of amenities, damages for the injury to his employment reputation, exemplary damages for AVCO's deliberate and contemptuous behaviour, interest and costs. [13] Neither the statement of claim, nor any other document submitted to the Commissioner of Taxation by the applicant or AVCO, put any dollar figure on the applicant's various claims.' 8 As can be seen from this summary there were allegations of malicious conspiracy, designed to destroy Mr Dibb's employment reputation, to harm him without regard to his welfare, knowing that he would be humiliated, ridiculed and shamed and that he had been caused personal and psychiatric injury. The particulars of personal injury were: 'Since his de facto termination the applicant has: (a). continually suffered from anxiety and depression; (b). periods of mood swings, irritability, shortness of temper, and insomnia; (c). increased his dosage of anti-depressive medication for which he has now formed a dependency; (d). continually suffered from extreme physical pain, discomfort, fatigue, abdominal disorders, and fluctuations in body weight; (e). experienced a progressive decline in his self-esteem amongst his family, relatives and friends; (f). suffered the destruction of his employment reputation; (g). with his family, endured a critical decline in amenities resulting from the cessation of employment income; (h). withdrawn from participating and taking an interest in activities that he previously enjoyed; (i). with his wife, endured social isolation arising from the tacit adversarial tag placed upon him by the first respondent; and (j). with his family, suffered the effects of severe financial hardship and embarrassment.' 9 Mr Dibb claimed amounts said to be owing under his contract, damages for physical and mental injury, damage to his employment reputation and exemplary damages. Medical records were provided to the respondent in connection with the application for a private ruling. They substantiated Mr Dibb's claim that he had been taking prescription drugs for conditions which conformed to the particulars of his psychiatric damage as described in the Federal Court pleading. The Federal Court proceedings were settled at mediation. AVCO's stated position at the mediation was that Mr Dibb was entitled to ten months total remuneration in lieu of notice. The parties, however, settled the claim for $788,544 'less tax calculated on the said sum as an eligible termination payment' (the "lump sum settlement"). The expression "eligible termination payment" ("ETP") is defined in s 27A of the Income Tax Assessment Act 1936 (Cth) (the "Assessment Act"). We will return to that matter at a later stage. A deed of release dated 9 March 2001 was executed, containing the following recitals and provisions: 'WHEREAS … D. In proceedings brought in the Federal Court of Australia New South Wales District Registry ("the Court") numbered N 673 of 1999, between the Employee as Applicant and the Employer as First Respondent ("the Proceedings"), the Employee has alleged, inter alia, that the Employer breached the contract under which he was employed; repudiated the said contract; breached section 52 of the Trade Practices Act; and was involved in a conspiracy to injure him in the Employment by terminating the Employment ("the Allegations"). E. In the Proceedings the Employee has claimed damages under a variety of heads of damage and interest ("the Claims"). F. The Employer has denied the Allegations, has resisted all of the Claims and has defended the Proceedings. G. The Parties hereto have agreed to resolve their disputes and differences and compromise the Proceedings in the terms set out hereunder. … 1. The Employer will, within twenty one (21) days of the receipt by it of this Deed duly executed by the Employee, pay to the Employee the sum of seven hundred and eighty eight thousand five hundred and forty four dollars ($788,544.00) less tax calculated on the said sum as an eligible termination payment ("the Settlement Sum"). 2. The parties hereto agree that: (a) other than the tax referred to in 1 above, no sum will be deducted from the Settlement Sum; (b) no sum will be owing from the Employee to the Employer; and (c) the Settlement Sum includes all payments due to the Employee howsoever arising from the Employment including all statutory and other entitlements, and the Termination, including the compensation ordered to be paid by the Employer in the Queensland Proceedings. … 4. The Employee hereby releases, remises, quits and discharges the Employer, its servants or agents or subsidiaries or related companies and any of them from and against all complaints, actions, suits, causes of actions, claims and demands which the Employee has, or but for this Deed could or might have had, against the Employer, its servants or agents, subsidiaries or related companies or any of them, whether at law or in equity or arising out to the provisions of any statute, award, order, ruling or determination or in any way related thereto, in respect of or in connection with any of: (a) the Queensland Proceedings; (b) the Proceedings; (c) the Employment; (d) the Termination; (e) the Allegations; (f) the Claims; and (g) any of the matters referred to in the Recitals hereto, other than any claim arising under the applicable workers compensation legislation. 5. The Employee acknowledges that the Employer's agreement recorded herein is not an admission of any liability whatsoever by the Employer. … 7. None of the parties to this Deed will, at any time after the signing of this Deed, disparage any other party hereto or make any statement or publication, whether oral or in writing which does, or is likely to, bring any other party into disrepute or ridicule or adversely affect his, or its reputation.' 10 We make the following comments concerning the settlement. First, the very large sum far exceeded any remuneration due. Second, it may or may not have reflected a recognition by AVCO that Mr Dibb had suffered psychiatric injury. Third, its size was possibly referable to a wide variety of factors including resolution of litigation in which very serious allegations were made which, if proven (and perhaps even if not proven) were capable of affecting AVCO's commercial reputation. 11 Mr Dibb sought and obtained a private ruling (the "private ruling") concerning his tax liability arising out of the lump sum settlement. He objected to the private ruling. It was amended slightly in response to that objection but otherwise affirmed (the "objection decision"). He then appealed to a single Judge of this Court. The private ruling and objection decision were summarised by the primary Judge at [18] and [19] of his reasons as follows: '[18] The Commissioner in his Private Ruling dated 27 November 2001 gave the following rulings: "1. Is the payment received pursuant to a Deed of Release subsequent to dismissal from employment an eligible termination payment (ETP)? Yes. 2. Does s 27F of the Income Tax Assessment Act 1936 (ITAA 36) apply to any part of this payment? No. 3. Is any part of the payment excluded from being an ETP under paragraph (n) of the definition as consideration for personal injury? No." Objection Decision [19] On 17 January 2002 the applicant lodged an objection to the Private Ruling. In the Commissioner's objection decision dated 18 March 2003 the same answer was given to the first three questions as in the initial Ruling. However the Commissioner varied the Ruling by deciding that the following amounts were excluded from being an ETP: $1,222.00 salary and wages $9,064.00 unused annual leave $25,472.00 unused long service leave'

Grounds of appeal 12 Mr Dibb now appeals from that decision. Three propositions, all rejected by the primary Judge, were advanced on appeal. All three concern the proper construction and application of Subdivision AA of Division 2 of Part III of the Assessment Act ("Subdivision AA"). The phrase "eligible termination payment" is relevantly defined in s 27A(1) as follows: ' "eligible termination payment" in relation to a taxpayer, means: (a) any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment: … (iv) of an amount to which section 26AC or 26AD applies; ... but does not include: … (ja) the tax-free amount of a bona fide redundancy payment, or of an approved early retirement scheme payment, made on or after 1 July 1994; … (n) consideration of a capital nature for, or in respect of, personal injury to the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature of the personal injury and its likely effect on the capacity of the taxpayer to derive income from personal exertion ...' 13 Subsection 27F(1) in effect defines a "bona fide redundancy payment". It relevantly provides: 'Where: (a) an eligible termination payment is made in relation to a taxpayer in consequence of the dismissal of the taxpayer from any employment at any time (in this section referred to as the "termination time") by reason of the bona fide redundancy of the taxpayer; (aa) if the eligible termination payment is made on or after 1 July 1994 - the payment was not made to the taxpayer from an eligible superannuation fund; (b) the termination time was before: (i) if there was a date before the sixty-fifth anniversary of the birth of the taxpayer on which the termination of the employment of the taxpayer would necessarily have occurred by reason of the taxpayer attaining a particular age or completing a particular period of service - that date; or (ii) in any other case - the sixty-fifth anniversary of the birth of the taxpayer; (c) if the Commissioner, having regard to any connection between the employer and the taxpayer and to any other relevant circumstances, is satisfied that the employer and the taxpayer were not dealing with each other at arm's length in relation to the termination of the employment of the taxpayer - the amount of the eligible termination payment does not exceed the amount of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer if the employer and the taxpayer had been dealing with each other at arm's length in relation to the termination of the employment of the taxpayer; and (d) there was, at the termination time, no agreement between the taxpayer and the employer, or the employer and another person, to employ the taxpayer after the termination time; so much of the eligible termination payment as exceeds the amount (in this section referred to as the "termination amount") of an eligible termination payment that could reasonably be expected to have been made in relation to the taxpayer had he voluntarily retired from that employment at the termination time is a bona fide redundancy payment in relation to the taxpayer.' 14 The three propositions advanced on appeal were that:

· The respondent erred in treating the payment as having been made 'in consequence of the termination of [Mr Dibb's] employment': see ground 5 of the notice of appeal.

· The respondent erred in failing to treat the sum of $53,810 as a bona fide redundancy payment pursuant to subs 27F(1) of the Assessment Act, such sum being the total of the two cheques which he had earlier refused: see ground 6 of the notice of appeal.

· The respondent erred in failing to undertake an apportionment pursuant to the definition of "eligible termination payment" in par 27A(1)(n) of the Assessment Act: see grounds 2 to 4 of the notice of appeal.

Eligible termination payment 15 The amount of the lump sum settlement was an ETP if it was paid in consequence of the termination of Mr Dibb's employment. The primary Judge observed as follows: '[22] The concept of a payment "in consequence of the termination of any employment" was expounded by the High Court in Reseck v Federal Commissioner of Taxation (1975) 133 CLR 45 and by the Full Court of the Federal Court in McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557. These authorities are analysed by Goldberg J in Le Grand v Commissioner of Taxation (2002) 195 ALR 194 at [25] to [30] and [33] to [34]. I adopt his Honour's analysis. [23] In my opinion the Commissioner was correct in ruling that the payment under the Deed was made "in consequence of the termination" of the applicant's employment with AVCO. True it is there was a substantial lapse in time between the termination and the commencement of Federal Court proceeding and a further period of time until settlement. However the reason for that delay was the time taken up with the litigation first in the Commission and then in the Federal Court itself. The subject matter of the litigation in the Federal Court was clearly the termination, the allegedly wrongful way AVCO effected it and its financial and other consequences for the applicant. The various causes of action, whether breach of contract, conspiracy, breach of fiduciary duty or contravention of the Trade Practices Act were, as Goldberg J would say (Le Grand at [36]), "interwoven and intertwined" with the termination. The payment was a consequence of the settlement, which was a consequence of the Federal Court proceeding, which in turn was a consequence of the termination.' 16 We agree with the learned primary Judge's reasons. Although much happened between Mr Dibb's dismissal and the settlement of the Federal Court proceedings, those events and the passage of time all arose out of his complaints concerning his dismissal. Neither those events nor the passage of time altered the fact that payment of the lump sum settlement was "in consequence of the termination". 17 One argument raised by the Court, which was adopted by counsel for Mr Dibb at the end of oral argument, was that the lump sum settlement was of such size that it could be inferred that the payment, or at least some part of it, was for reasons entirely unrelated to the termination of employment. If so, it might be argued that the decision in McLaurin v Federal Commissioner of Taxation (1961) 104 CLR 391 would lead to the conclusion that the payment should not be characterized as having been made in consequence of termination. We do not think that there is any ground to infer that the payment made by AVCO was activated by any desire other than a wish to settle a potentially damaging piece of litigation arising out of the termination of Mr Dibb's employment.

Redundancy 18 Subdivision AA brings to tax certain (usually "lump sum") payments made on termination of employment. Section 27A is a definition section. An ETP as defined in subs 27A(1) is, at least provisionally, liable to taxation pursuant to later sections of Subdivision AA. The effect of par 27A(1)(ja) is to exclude from the definition of "ETP", and therefore from such liability, the tax-free amount of a bona fide redundancy payment. The expression "tax-free amount": 'in relation to a bona fide redundancy payment ..., has the meaning given by subsection (19).' (See subs 27A(1).) 19 Subsection 27A(19) prescribes the method of calculating the tax-free amount of a bona fide redundancy payment. Subsection 27A(20) is also relevant to that process. Subsection 27F(1), in effect, defines the expression "bona fide redundancy payment" and also prescribes the method of calculation of the amount thereof. That subsection is set out above. Its effect is that if:

· in consequence of the dismissal of the taxpayer from any employment at any time,

· by reason of the bona fide redundancy of the taxpayer,

then the amount by which the ETP exceeds the amount which might reasonably be expected to have been paid to him or her in the event of voluntary retirement is a bona fide redundancy payment. 20 The respondent submitted that the words 'by reason of the bona fide redundancy of the taxpayer' refer to the making of an ETP. However, as a matter of construction, we consider that those words relate to 'the dismissal of the taxpayer from any employment'. If there were any doubt about the correctness of this view, it is dispelled by reference to the Explanatory Memorandum accompanying the Income Tax Assessment Amendment Bill (No 3) (1984) (Cth) at p 91 where it is said, concerning s 27F: 'This section relates to the second of the "concessional components" in the definition of that term in section 27A(1), for which the taxation treatment is to include only 5 per cent thereof in assessable income. In some respects, where a taxpayer's employment has been prematurely terminated it may seem that, except for the absence of an appropriate scheme, some of the matters referred to in paragraph 27E(1)(b) were in existence in relation to the taxpayer's former employer. However, in section 27F the only test to be satisfied as to the reason for the cessation of the taxpayer's employment is that he or she was dismissed by reason of his or her "bona fide redundancy".' 21 Clearly the words 'by reason of the bona fide redundancy of the taxpayer' refer to 'the dismissal of the taxpayer'. The significance of this matter will appear at a later stage. 22 The primary Judge understood Mr Dibb to claim that some part of the amount awarded to him by Commissioner Bechly was awarded as a redundancy payment and, for that reason, should be excluded from the amount of his ETP by virtue of par 27A(1)(ja) and s 27F. In oral argument on appeal Mr Dibb advanced his argument in this limited way, and we assume that he also did so at first instance. His Honour rejected that assertion on two bases: first, that Mr Dibb had not been dismissed for redundancy, and secondly, that the award was by way of statutory compensation for harsh, unjust or unreasonable termination, not redundancy. At a later stage we will deal with his Honour's finding that Mr Dibb was not dismissed for redundancy. As to the second basis of the decision, the nature of Commissioner Bechly's award, we consider that the question was irrelevant to the operation of s 27F. In our judgment it is the dismissal, not the payment which must be attributable to redundancy. If such relationship is established then, subject to express exceptions, any amount of the ETP in excess of that payable upon voluntary termination will be a bona fide redundancy payment. Mr Dibb's written submissions on appeal reflected this broader approach to s 27F. See Part 3.2 of those submissions. The respondent replied to that argument in pars 26-30 of its written submissions, and Mr Dibb again addressed the matter in his reply at pars 7 and 8. 23 Lest it be thought that we are creating a new argument for Mr Dibb's benefit, we point out that he has always purported to invoke s 27F. In his dealings with the respondent concerning the private ruling and the objection proceedings, Mr Dibb consistently asserted that part of the lump sum settlement should be treated as a bona fide redundancy payment. For example, at AB 4, in his application for a private ruling, he identified the figure of $50,620 as being the concessional component of his eligible termination payment, alleging that it represented a 'bona fide redundancy payment'. He appears to have been trying to demonstrate that of the total lump-sum settlement, the sum of $114,785 was attributable to lost income. He calculated that sum using the approach taken by the employer before Commissioner Bechly, although the amounts were increased a little. The figure of $114,785 was the equivalent of his salary for three weeks per year of service at a salary level which Mr Dibb claimed to be appropriate. The sum of $114,785 was said to be 'consideration for loss of income', of which the sum of $50,620 (calculated in accordance with subs 27A(19) and (20)) represented the tax-free element of a redundancy payment. This was the claim rejected in the private ruling upon the basis that Mr Dibb had not been dismissed for redundancy. In his objection to that ruling he again submitted that the sum of $50,620 represented a "tax exempt" amount pursuant to s 27F and s 27CB(1)(b)(ii). The Commissioner disposed of this matter on much the same basis, namely that he had not been redundant. 24 In the notice of appeal against the objection decision (AB 96-98), the issue became somewhat unclear, largely because Mr Dibb pleaded his claim in a number of different ways. Nonetheless he again asserted that the sum of $53,810 had been 'processed as a redundancy payment'. Finally, in par 6 of his notice of appeal from the decision of the primary Judge (AB 115) he asserted that: 'His Honour erred in holding that no part of the amount in question was a bona fide redundancy payment, in terms of s 27F Income Tax Assessment Act 1936. His Honour ought to have held that, in circumstances where the role of a designated position is to be changed so fundamentally that the present holder of the position can no longer be considered suitable for that position, and that present position holder cannot be redeployed, that the present position holder is redundant. Otherwise to hold is to allow a mere position title to govern substance.' 25 We are confident that Mr Dibb always meant to assert that part of the lump-sum settlement of the Federal Court proceedings should be treated as a bona fideredundancy payment for the purposes of s 27F and that the respondent so understood his case. However he complicated the matter unnecessarily by trying to quantify the amount received for his redundancy. The respondent considered that Mr Dibb had not been dismissed for redundancy and so did not address the issues raised by s 27F. Because of his view of the redundancy question and his understanding of Mr Dibb's argument, the primary Judge also did not address s 27F. In our view, if Mr Dibb was dismissed for redundancy, then the respondent had to consider the effect of s 27F upon his tax liability. We turn to the question of whether he was dismissed for that reason. 26 As we understand it, the case has been conducted upon the following factual basis:

· Mr Dibb was for many years employed as a District Manager.

· The employer, through acquisition of other business activities, acquired staff in excess of its business requirements.

· After reviewing its operations, the employer decided to change the duties associated with the position of District Manager.

· The employer considered that Mr Dibb was not fit to fulfil the new role of District Manager.

· The employer was unable to find any other position for which he was suitable.

27 The reasons for the private ruling refer to Taxation Ruling TR 94/12 which reads as follows: '12. Redundancy can be described as the situation where an employer no longer requires employees to carry out work of a particular kind or to carry out work of a particular kind at the same location. Redundancy refers to a job becoming redundant and not an employee becoming redundant. An employee's job is considered to be redundant if: · an employer has made a definite decision that the employer no longer wishes the job the employee has been done to be done by any one; · that decision is not due to the ordinary and customary turnover of labour; · that decision led to the termination of the employee's employment; and · that termination of employment is not on account of any personal act or default of the employee.' 28 The reasons then continue (AB 55): 'An indication that the position of District Manager was not bona fide redundant, is the taxpayer's attempts to be reinstated to the position. Clearly, it is impossible to be reinstated to a position if it no longer exists. This is supported by the comments in the QIRC decision that the employer has decided the taxpayer did not fit the role determined as necessary for a District Manager. It is also noted reinstatement was not ordered by the QIRC as it was not open to the QIRC to determine the capability of the taxpayer to perform the role of a District Manager. Accordingly, as the position of District Manager still existed and the duties of the position were still required to be performed, the dismissal of the taxpayer was not by reason of bona fide redundancy.' 29 We do not understand the first sentence of the above extract to imply that any aspect of the dealings between Mr Dibb and his employer was other than bona fide. 30 In the reasons for the objection decision, reference is made to par 42 of Tax Ruling TR 94/12 which seems to have been a later version of par 12. Paragraph 42 provides relevantly as follows: '42. Redundancy refers to a job becoming redundant and not to an employee becoming redundant (Short v F W Hercus Pty Ltd (1993) 40 FCR 511; (1993) 46 IR 128; (1993) 35 AILR 151). An employee's job is considered to be redundant if: · an employer has made a definite decision that the employer no longer wishes the job the employee has been doing to be done by any one; · that decision is not due to the ordinary and customary turnover of labour; · that decision led to the termination of the employee's employment; and · that termination of employment is not on account of any personal act or default of the employee.' 31 The reasons then continue (AB 91-92): 'The position of District Manager (DM) continued to exist following the termination of your employment. You have provided a copy of the duties and responsibilities of the DM Role following the termination of your employment. You have also stated that you did not feel that the District Manager position had changed, however you state that the QIRC made a factual findings that the position had changed and that the compensation originally offered was "processed as a redundancy". You have also stated that although you have no personal knowledge of the duties of the position of DM following the termination of your employment, based on the "DM Role Business Plan" provided by your former employer, you assume that the only difference between the new role and your previous role was essentially the "purported removal" of the audit function, which you stated was a major function of the DM position that you held. The "DM Role Business Plan" confirms that the audit function was to be removed from the position of DM. It is considered that the position of DM was not made redundant. You sought reinstatement to the position in the proceedings in the QIRC. One cannot be reinstated to a position that no longer exists. The QIRC found that the position of DM still existed. The QIRC found that the former employer, in reviewing its present and future direction, decided that you did not fit the role determined as being necessary for a DM. Reinstatement was not ordered by the QIRC and it was not open to the QIRC to make a finding as to your capability of filling the "new role developed for District Managers". Although the audit function of the position has been removed from the position of DM, it cannot be said that the employer no longer requires the position to be carried out by anyone, since the job remains and has substantial duties and responsibilities attached to it. The changes to the position are not so significant that it can be said that the role no longer exists. Therefore, since the position is not considered redundant, the payment does not fit the requirements of section 27F of the ITAA 1936.' 32 At [29] in the reasons of the primary Judge, his Honour concluded that: '... the reason for the applicant's termination was not that his position as District Manager became redundant but that its role changed and he was not considered suitable for that new role.' 33 Although par 27A(1)(ja) speaks of 'a bona fide redundancy payment' and par 27F(1)(a) speaks of 'an eligible termination payment ... made in relation to a taxpayer in consequence of the dismissal of the taxpayer from any employment ... by reason of the bona fide redundancy of the taxpayer', there is no definition of the term "redundancy". The word is often used in the context of industrial relations to describe benefits payable in certain circumstances pursuant to industrial legislation and/or awards. However we do not understand Mr Dibb to claim any such entitlement. Paragraph 42 of TR 94/12 (cited above) refers to the decision of this Court in Short v F W Hercus Pty Ltd (1993) 40 FCR 511. That decision relied heavily upon an earlier South Australian decision, R v Industrial Commission (SA); Ex parte Adelaide Milk Supply Co-operative Ltd (1977) 16 SASR 6. In Short, at 520-521, Burchett J said: 'The starting point may be taken to be the decision of the Full Court of the Supreme Court of South Australia in R v Industrial Commission (SA); Ex parte Adelaide Milk Supply Co-operative Ltd (1977) 16 SASR 6, although it would certainly be possible to go back much further. The Supreme Court of South Australia was concerned with the question of the jurisdiction of the State's Industrial Commission to make provision by award for redundancy. There was no issue about the substance of the proposed provision, but members of the court made clear their understanding of what was involved. It is convenient to look first at the judgment of Mitchell J, who cited (at 34) the following statement from a decision in the previous year of the New South Wales Industrial Commission: "It can fairly be said that in industrial circles the term redundancy payment has come to mean compensation for losses of various kinds suffered by employees who have given substantial services to an employer and whose services are terminated because, for one reason or another, the employer no longer needs them." Mitchell J accepted this statement. Bright J, who dissented on the jurisdictional issue, said (at 26-27): "The word 'redundant' does not occur in the Act. In its industrial sense it is not defined in the Oxford Dictionary. The application which I have already set out attempts the definition for the purpose of the proposed award. A consideration of the cases leads me to think that the question of the redundancy of any employee is linked to the question of the continued utility of the job which he is performing. In other words it does not relate to the personal competence of the employee in the job which he is performing. If I am right in this, then in its widest form the concept of redundancy connotes that an employee becomes redundant whenever (and for whatever reason) his employer no longer desires to have performed the job which that employee was doing. A wide variety of instances are contained in the definition clause in the application but they all seem to fit into this connotation, even the reference to retrenchment of employees for any reason whatsoever." The definition clause to which Bright J referred embraced (as appears at 16) dismissal by reason of diminishment of the requirements of a business for work of particular kind through: "technological automation, mechanisation change, reorganisation, rationalisation or centralisation in the processing industry; fall in demand of products for whatever reason; or retrenchment of employees or an employee for any reason whatsoever." It was in connection with this statement of Bright J and the passage quoted by Mitchell J (to each of which he referred at 8-9) that Bray CJ made (at 8) a statement that has since become in part embedded in a number of awards, including the subject award: "I should begin by saying that I agree with Bright J that the concept of redundancy in the context we are discussing seems to be simply this, that a job becomes redundant when the employer no longer desires to have it performed by anyone. A dismissal for redundancy seems to be dismissal, not on account of any personal act or default of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone." Here the expression containing the words "no longer wishes" was first composed. In its original setting, it is plain that it was not meant to convey the limitation for which the respondent contends. On the contrary, it was meant to capture the full breadth of the concept elaborated by Bright J and referred to in the passage quoted by Mitchell J.' 34 We note also the observations of Ryan J in Jones v Department of Energy and Minerals (1995) 60 IR 304 at 308 as follows: 'However, it is within the employer's prerogative to rearrange the organisational structure by breaking up the collection of functions, duties and responsibilities attached to a single position and distributing them among the holders of other positions, including newly-created positions. It is inappropriate now to attempt an exhaustive description of the methods by which a reorganization of that kind may be achieved. One illustration of it occurs where the duties of a single, full-time, employee are redistributed to several part-time employees. What is critical for the purpose of identifying a redundancy is whether the holder of the former position has, after the re-organisation, any duties left to discharge. If there is no longer any function or duty to be performed by that person, his or her position becomes redundant in the sense in which the word was used in the Adelaide Milk Co-operative case.' 35 Similarly in Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327, Beazley J said at 332-333: 'There was no dispute that "the operational requirements" of a business may include redundancy. A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed; or where the employer wishes to amalgamate jobs ... . As was said in Bunnetts' case (Bunnett v Henderson's Federal Spring Works Pty Ltd) (1989) AILR 356: "Organisational restructuring may result in a position being abolished and the functions or some of them being given to another or split amongst others." ' 36 The Macquarie Dictionary (3rd Ed) now relevantly defines "redundant" as meaning: '... denoting or relating to an employee who is or becomes superfluous to the needs of the employer ... .' 37 In the Oxford English Dictionary (2nd Ed) the word is defined relevantly as: 'The condition of having more staff in an organization than is necessary. Hence, the state or fact of losing a job because there is no further work to be done; a case of unemployment due to reorganization, mechanization, loss of orders, etc.' 38 The term must be construed in the context in which it appears. Relevantly, par 27F(1)(a) speaks of '... the dismissal of the taxpayer from any employment ... by reason of the bona fide redundancy of the taxpayer'. Dismissal is the unilateral act of the employer. The "reason" for a dismissal must be the employer's reason for such dismissal. Paragraph 27F(1)(a) does not contemplate an enquiry by the Commissioner as to the correctness or appropriateness of the employer's decision or the reasons therefor. Only the bona fides of a relevant transaction may be questioned. The question is not whether the employer used the word "redundant" in such reasons. It is rather whether those reasons indicate that the employee was dismissed by reason of his or her redundancy. 39 The case has proceeded upon the basis that the employer's reason for terminating Mr Dibb's employment was that it considered that he was not competent to perform the changed duties of a District Manager. It seems to have been common ground that the so-called 'audit function' had been removed from the District Manager's duties and that new duties were assigned to that position. Presumably those duties were, in the employer's view, beyond Mr Dibb's capacity. 40 The position adopted by the Commissioner, both in the private ruling and in the objection decision, focussed upon the title "District Manager" rather than upon the functions performed by Mr Dibb whilst he was employed in that position. The primary Judge took a similar view. Great weight was given to the fact that a position called "District Manager" existed after his dismissal and that he had unsuccessfully applied for it. The reasons in Ex parte Adelaide Milk Supply Co-operative offer little support for such an approach. The passage adopted by Mitchell J spoke of the employer no longer needing the employee in question. Bright J considered that redundancy was concerned with the 'continued utility of the job' and that an employee became redundant when the employer '... no longer desires to have performed the job which that employee was doing.' Bray CJ considered that '... a job becomes redundant when the employer no longer desires to have it performed by anyone.' Such an approach necessitates identification of the "job" in question. 41 In Jones Ryan J observed that a job involves 'a collection of functions, duties and responsibilities entrusted, as part of the scheme of the employer's organisation, to a particular employee.' We accept that view. Ryan J then observed that where such duties are re-assigned, the question is whether any function or duty remains to be performed by the employee. We do not understand his Honour to have meant that if any aspect of the employee's duties is still to be performed by somebody, he or she cannot be redundant. His Honour's meaning appears clearly from the following paragraphs at 308-9: 'In this case, the respondent led evidence of the major changes which were made to the Department between September 1993 and late 1994. According to Mr Downie, the applicant's former position as Director, Mining Inspectorate, was abolished and the duties attached to it were combined with those of the previous Director, Environmental Management. In addition to a number of other, newly-created functions, those pre-existing duties were to be performed by a newly created General Manager, Mineral Operations. Thus, it is clear that although some of the tasks previously assigned to Mr Jones still had to be carried out, the employer's rearrangement of its operational structure had the consequence that they be combined with other functions and performed by the holder of a new, more generally-oriented position. On this basis, it appears that Mr Jones' former position was rendered "generally redundant". When it became apparent that he could not be redeployed, Mr Jones was found to be surplus to the respondent's personnel needs. This amounted to a reason for dismissal which was clearly based on his employer's operational requirements.' 42 As Beazley J observed in Quality Bakers: 'A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed; or where the employer wishes to amalgamate jobs ... .' 43 The difficulty in this case has been caused by the aphorism which appears in both pars 12 and 42 of TD 94/12 to the effect that the job, not the employee, becomes redundant. However s 27F speaks of the 'bona fide redundancy of the taxpayer'. We consider that it is more accurate to say that an employee becomes redundant when his or her job (described by reference to the duties attached to it) is no longer to be performed by any employee of the employer, though this may not be the only circumstance where it could be said that the employee becomes redundant. Re-allocation of duties within an organization will often lead the employer to consider whether an employee, previously employed to perform specific functions assigned to a particular "job", will be able to perform any available "job" existing after such re-allocation. Even if the employee's job, defined by reference to its duties, has disappeared, he or she may be able to perform some other available job to the satisfaction of the employer. In that case, no question of redundancy arises. It is only if the employer considers that there is no available job for which the employee is suited, and that he or she must therefore be dismissed, that the question of redundancy arises. If, in good faith, the employer:

· considers that the employee is not suitable to perform any available job, defined by reference to those re-allocated duties, existing after the re-allocation; and

then, for the purposes of s 27F, the employee is dismissed by reason of his or her bona fide redundancy. In the above discussion we have used the word "available" as meaning "vacant", and the word "suitable" as meaning "within the employee's capacity".

44 In the present case, the employer re-distributed the duties previously performed by its District Managers and at the same time, added further duties. The job, described by reference to its duties as previously performed by Mr Dibb, ceased to exist. The employer no longer wished to have that job performed by anybody. The work was to be differently distributed. The result was that there was no job for which his skills qualified him. He was 'surplus to [AVCO's] personnel needs'. We consider that the respondent was in error in concluding that Mr Dibb's dismissal was not by reason of his bona fide redundancy. As a result, the respondent also erred in failing to address the matters prescribed by s 27F. These errors have inevitably deprived Mr Dibb of the benefit conferred by Subdivision AA upon a person receiving a bona fide redundancy payment as part of an ETP.

Personal injuries 45 As to this matter, the reasons of the primary Judge were as follows: '[32] Before the Commissioner on the objection hearing were two medical certificates dated respectively 21 July 1997 and 19 December 2002 from Dr Jim Ryan of Wishart, Queensland. In the first of these reports Dr Ryan stated: "This is to certify that I have been treating Mr Dibb for Anxiety/Depression since September 1996. This I believe has come about I believe as a result of losing his job. Currently he takes anti depressant medication with a gradually increasing dosage. He received a medical certificate excusing him from Jury Duty partly because of his serious condition." [33] In the second certificate Dr Ryan stated: "This is to certify that I am treating this (patient/man) for dermatitis, hypertension, gastrointestinal disorder and depression." [34] Counsel for the Commissioner accepted that, in an appropriate case, a single payment made in consequence of the termination of employment of a taxpayer may be apportioned amongst several heads to which it relates. One of those heads could be consideration in respect to personal injury within the meaning of s 27A(1)(n). To that extent the payment may be treated as not being an ETP. [35] "Personal injury" encompasses injury or disease of a physical or psychological nature. However it would not extend to anguish, distress or embarrassment of the kind traditionally taken into account in assessing damages for defamation: Federal Commissioner of Taxation v Scully (2000) 201 CLR 148 at [28], Graham v Robinson [1992] VR 279. However, even accepting that some of the complaints of damage the applicant raised in the Federal Court proceeding consisted of anxiety and depression and thus "personal injury", the Commissioner was correct in concluding there was no way of dissecting the total settlement sum to include an amount for such a payment: McLaurin v Federal Commissioner of Taxation (1960-1961) 184 CLR 391.' 46 The last sentence of [35] of the primary Judge's reasons contains a premise with which we agree. The occasion for apportionment pursuant to par 27A(1)(n) only arises if there can be said to be 'consideration of a capital nature for, or in respect of, personal injury to the taxpayer ...'. Here, it is impossible to say whether there was or was not personal injury. AVCO denied it. The section does not provide for 'consideration … of, or in respect of, allegations of personal injury.' As can be seen from the description of the allegations in the Federal Court proceedings and the terms of the deed, there was no agreement between the parties that Mr Dibb had suffered personal injury. It was submitted on his behalf (as it had to be) that the respondent was obliged to sit, in effect, as a tribunal to decide whether he suffered personal injury and if so, the amount of a reasonable payment therefor. We disagree. The respondent was correct, as was his Honour, in concluding that it was impossible to identify any part of the total sum of $788,544 as consideration for, or in respect of personal injury.

۰ the matter be remitted to the respondent for re-consideration, having regard to these reasons.

Costs 48 We are inclined to order that there be no order as to the costs of the proceedings at first instance or on appeal. If either party wishes to seek another order, written submissions should be delivered to the other party and lodged with the District Registrar within fourteen days of the date of publication of these reasons. I certify that the preceding forty-eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of The Court.

Solicitor for the Respondent: Australian Government Solicitor