Federal Court of Australia|1989-02-28

The applicant, the Commissioner of Taxation for the Commonwealth of Australia, appeals to this Court against a decision of the Administrative Appeals Tribunal ("the Tribunal") made on 1 June, 1988 in which the Tribunal allowed the objection of the respondent taxpayer.

2. The appeal raises a question of law pursuant to s.44 of the Administrative Appeals Tribunal Act, 1975. Put shortly the question that is raised by this appeal is the meaning to be given to the expression "circumstances existed by reason of which it was reasonable to expect" as it appears in s.82AAS(2)(a) of the Income Tax Assessment Act, 1936 ("the Act").

"The existence of a question of law is not merely a

qualifying condition to ground an appeal from a

decision of the (Repatriation Review) Tribunal,

rather it, and it alone is the subject matter of

the appeal, and the ambit of the appeal is confined

to it."

4. This approach was affirmed with reference to the Administrative Appeals Tribunal by another Full Court of this Court in Federal Commissioner of Taxation v. Brixius (1987) 16 FCR 359. The question of the construction of s.82AAS(2)(a) of the Act is a question of law.

5. During the 1982 year of income the respondent had paid $120 to a superannuation fund (then known as the Wales Retirement Fund). In his income tax return for that year the respondent claimed a deduction under s.82AAT of the Act for that amount. It was not disputed in the Tribunal nor at the hearing of the appeal that the Wales Retirement Fund was a qualifying fund within s.82AAT. The Commissioner rejected the respondent's claim for the deduction when assessing the respondent to tax for the 1982 tax year.

6. Entitlement to such a deduction is dependent upon the taxpayer qualifying as an "eligible person" as that term is defined in s.82AAS of the Act. The Commissioner had formed the opinion that the respondent was not an "eligible person" as that term is defined. As a consequence the Commissioner determined that the respondent was not entitled to the deduction under s.82AAT. For the purposes of the definition in s.82AAS the Commissioner had decided that during 1982 it was reasonable to expect that superannuation benefits would be provided to the respondent upon his retirement other than from contributions made wholly by him.

7. The Tribunal in its reasons for decision made observations that set out the factual background of the case:

"6. During the 1982 year of income, the applicant

was employed as a temporary porter with the

Queensland railways. He had commenced this

employment with the Railways on 9 June 1981, having

previously worked with a bank for 12 years.

Apparently, the applicant had suffered health

problems and had some difficulty in coping with his

position at the bank. He had therefore taken a less

demanding position with the Railways.

7. The applicant gave evidence that, while he

intends to work until he is 60 or 65, he has no

particular intention of remaining with the Railways

until he reaches that age; he did not rule out the

possibility that he would in fact continue with the

Railways. He said in evidence, having referred to

medical problems from which he was still

suffering:-

'I am still having a few troubles with

nervous dyspepsia of the stomach, and I

will just, sort of, see what comes up. It

does not mean to say I will stay with the

railway until I retire. I could leave in

two years; five years; 10 years. I am

just undecided at the moment'.

8. In March 1983, that is to say, after the tax

year with which the present question is concerned,

the applicant was appointed to the permanent staff

of the Railways, but has not yet been invited to

join the State superannuation scheme. A letter

dated 25 January 1983 from the Office of the Chief

Accountant, Queensland Railways, recited:-

'This is to advise that Peter Ross Arklay

is employed as a Temporary Porter with

the Railway Department at the Mayne

Carriage Shed.

As a temporary employee he is not

eligible (sic) to contribute, to the

"State Service Superannuation Scheme"

however, once placed on the permanent

staff, he can elect to join the Fund.

Temporary employees however, are entitled

to be paid a Retiring Allowance, if

applicable upon Retirement from the

Railway Department'".

8. To the extent that they are presently relevant s.82AAS and s.82AAT of the Act provide as follows:

"82AAS (1) ...

(2) Subject to sub-section (3), a person (in this

sub-section referred to as the 'relevant person')

is an eligible person in relation to a year of

income for the purposes of this Subdivision unless-

(a) during the whole or a part of the year of

income circumstances existed by reason of which it

was reasonable to expect that superannuation

benefits would be provided for the relevant person

upon retirement or for dependants of the relevant

person in the event of death of the relevant person

(whether or not any condition other than the

retirement or death of the relevant person would be

required to be satisfied in order that those

benefits be provided); and

(b) .......".

"82AAT

(1) Subject to sub-section (2), there shall be

allowed as a deduction from the assessable income

of an eligible person of a year of income the

amount of of any contribution, or the sum of the

amounts of any contributions, made by the eligible

person during the year of income and after 19

August 1980 to a qualifying superannuation fund,

being contributions made to obtain superannuation

benefits for the eligible person or, in the event

of death of the eligible person, for the dependants

of the eligible person.

(2) The deduction allowable to a taxpayer under

this section from the assessable income of a year

of income shall not exceed $1,200".

9. Section 6(1) of the Act defines "superannuation benefits" as follows:

"6(1)'superannuation benefits' means individual

personal benefits, pensions or retiring allowances".

10. The case concerns the effect of a scheme for the payment of retiring allowances to certain railway employees under railway by-laws. Paragraph 26 of by-law 690 made by the Queensland Commissioner of Railways, so far as relevant, provided as follows:

"(a) .........

(b) Should it become necessary for any employee to

be retired from the service for any of the

foregoing causes, or because he has attained the

age fixed by the Government as the age at which

employees of the Commissioner shall be retired,

there shall be paid to him as a retiring allowance

a sum equal to salary or wages at the rate he was

receiving at the date of his retirement for a

period according to the following scale, but in no

case, excepting with the special approval of the

Commissioner, shall such rate be more than the rate

applicable to his permanent classification:-

To any such employee who has for a period

of at least fifteen years continuously

been in the service, three months; to any

such employee who has for a period of at

least twenty years continuously been in

the service, four and a-half months; to

any such employee who has for a period of

at least twenty-five years continuously

been in the service, six months; a

proportionate time and pay being allowed

for intermediate service between the

periods: Provided that the Commissioner

may grant to any such employee who has for

a period of at least ten years but not

more than fifteen years continuously been

in the service a retiring allowance for a

period equal to that proportion of three

months that the periods such employee has

continuously been in the service bears to

fifteen years: Provided further that an

employee who at 31st March, 1965, was an

employee who had attained the age of 30

years shall be paid a Retiring Allowance

for a period, extending beyond 25 years of

continous service as prescribed, according

to the following scale- after 30 years of

continuous service, 7 1/2 months on full

pay; after 35 years of continuous service,

9 months on full pay; after 40 years of

continuous service, 10 1/2 months on full

pay; after 45 years of continuous service,

12 months on full pay; with proportionate

time being allowed for intermediate

service between the periods, including

intermediate service between 25 years and

30 years: Provided, also, that for any

such period herein referred to no employee

shall be entitled to receive any

emoluments other than salary.

Under no circumstances shall an employee

who has had more than one period of

service with the Commissioner, be paid

retiring allowance (inclusive of any

retiring allowance which may have been

paid to him in respect of any previous

period or periods of service) for a

greater period than that to which he would

have been entitled had his periods of

service with the Commissioner been

aggregated and had such aggregated period

been regarded as continuous service."

11. The question of who is an eligible person for the purposes of s. 82AAS of the Act has been considered by Taxation Boards of Review and the Tribunal in a number of cases; see Case R44 84 ATC 365; Case R77 84 ATC 532; Case R78 84 ATC 538; and Case V42 88 ATC 359. We have considered the views expressed in those cases.

12. Some assistance can be gained as to the meaning of the expression "by reason of which it is reasonable to expect" as it appears in s. 82AAS of the Act from the judgments of the Full Court of this Court in Attorney-General's Department & Anor v. Cockcroft (1986) 64 ALR 97. In that case the Full Court considered the meaning to be given to the expression "could reasonably be expected to prejudice the future supply of information" as it appears in s.43 of the Freedom of Information Act 1982. In the joint judgment of Bowen C.J. and Beaumont J. it was said (at p 106) that:

"(I)n our opinion, in the present context, the

words 'could reasonably be expected to prejudice

the future supply of information' were intended to

receive their ordinary meaning. That is to say,

they require a judgment to be made by the

decision-maker as to whether it is reasonable, as

distinct from something that is irrational, absurd

or ridiculous, to expect that those who would

otherwise supply information of the prescribed kind

to the Commonwealth or any agency would decline to

do so if the document in question were disclosed

under the Act. It is undesirable to attempt any

paraphrase of these words. In particular, it is

undesirable to consider the operation of the

provision in terms of probabilities or

possibilities or the like. To construe

s.43(1)(c)(ii) as depending in its application upon

the occurrence of certain events in terms of any

specific degree of likelihood or probability is, in

our view, to place an unwarranted gloss upon the

relatively plain words of the Act. It is preferable

to confine the inquiry to whether the expectation

claimed was reasonably based (see Kioa v Minister

for Immigration & Ethnic Affairs [1985] HCA 81; (1985) 62 ALR 321

per Gibbs CJ and Mason J)".

"I do not myself feel able to derive from the

presence of the word 'reasonably' in the relevant

expression a great deal of assistance. The

difficulty is to give full weight to the meaning of

the word 'expected'. It is only then that one can

turn one's mind to the question of the significance

of the qualification of it by the word

'reasonably'. The words are expressed in the

passive voice- 'could reasonably be expected'. What

is required is that the decision-maker act

reasonably. For the document to be exempt his

conduct must be taken to be that of the reasonable

man. But then comes the difficulty. So acting, the

decision-maker must expect that disclosure of the

document could prejudice the future supply of

information. In my opinion he will not be justified

in claiming exemption unless, at the time the

decision is made, he has real and substantial

grounds for thinking that the production of the

document could prejudice that supply. But,

stringent though that test may be, it does not go

so far as to require the decision-maker to be

satisfied upon a balance of probabilities that the

production of the document will in fact prejudice

the future supply of information."

13. We are of the opinion that the phrase with which we are concerned in the context of s. 82AAS of the Act requires a determination whether or not circumstances exist by reason of which the decision maker is able to expect on reasonable grounds that superannuation benefits would be provided as stipulated in the section. That test is an objective one. However, in applying the test the decision maker,in considering the circumstances, should have regard to any relevant matters concerning the taxpayer personally. Put another way our understanding of the meaning of the expression is one which involves the application of an objective test, but, as one of the concomitant elements of that test, the subjective intentions of the taxpayer may be relevant.

14. An example of an objective test which nevertheless accommodates the subjective intentions of a particular person is to be found under the Social Security Act, 1947; cf. the decision of the Full Court of this Court in Secretary, Department of Social Security v. Copping (1987) 73 ALR 343 at 348 and see Dineen v. Secretary, Department of Social Security (Federal Court of Australia, Woodward J. 6 December 1988, unreported).

15. We also mention the decision of the High Court in Shapowloff v. Dunn [1981] HCA 21; (1981) 148 CLR 72. In that case one question which arose was whether a person had at the time of contracting a debt "no reasonable or probable expectation", after considering his other liabilities, of being able to pay the debt. Although the language of the statute there under consideration was phrased in somewhat different words from that here in question, the approach of the High Court to the construction of the phrase there being considered is instructive. Thus Wilson J. said (at p 85):

"The prosecution must prove beyond a reasonable

doubt that at the time of contracting the debt the

defendant himself had no expectation, reasonably

grounded in the whole of the circumstances then

existent as he knew them, of being able to pay the

debt. It will be seen that the test involves a

blending of subjective and objective

considerations. The test of reason imports an

objective standard, but it is to be applied to the

facts as known to the defendant."

16. When applying s.82AAS the Commissioner should consider all the relevant facts and circumstances, including the taxpayer's subjective intentions, if they shed light on the matter, that pertain to the particular year of income which is in question. The existence of a potential superannuation benefit and the expressed relevant intentions of the taxpayer will usually be the most important facts and circumstances to be considered in a given case. In a case where the taxpayer remains in employment for a considerable period of time, but expressing always an intention to leave that employment, less weight may well be given by a decision maker to those expressed intentions when applying the section. Conversely, the mere fact that a superannuation benefit is available on the occurrence of some contingency, however remote, although relevant, will not have the significance it would have in a case where there is a real prospect of the taxpayer receiving a benefit under a provision such as the by-law here in question.

17. With these matters in mind, we are quite unable to perceive how it could be said that the Tribunal fell into error in the way it applied s. 82AAS to the facts before it. The Tribunal in its reasons for decision stated:

" ...... the question of whether there is "reason

to believe" that superannuation benefits will be

payable on retirement to a person is whether there

are grounds, presently existing, on which one can

predict with confidence that the event will happen.

In the present context " to expect " means "to

regard as likely to happen". In other words, there

is "reason to believe", when there are grounds

presently existing on which one can regard the

payment of a retiring allowance to the applicant as

likely to happen.

18. In the opinion of the tribunal, this test of

who is "an eligible person" accords with the

statements of intention in the explanatory

memorandum. In our view, it gives effect to the

perceived purpose of subdivision AB of Division 3

of the Act.

19. The circumstances against which the question is

to be answered, are those existing in the relevant

year of income.

20. So understood, the question becomes one of

whether a person is an "eligible person" is one of

fact and degree."

18. The Tribunal's reasons make it plain that the Tribunal considered objectively whether the circumstances of the case, including relevant matters personal to the respondent, should lead it to conclude that it was reasonable to expect that superannuation benefits would be provided for the applicant. That appears from the following passage from the Tribunal's reasons for decision:

"that the applicant was, in the 1982 year, an

'eligible person'. At that time, he was a temporary

porter in the Railways. He had started in the

Railways only on 9 June 1981. Whether he would

remain with the Railways until retirement, i.e. at

least 31 years, was one very serious aspect of

whether there was reason to believe he would be

paid a retiring allowance. That question also

involved whether he would be appointed to the

permanent staff; and, if so, whether he would elect

to join the State superannuation scheme. Such

joining would disentitle him to any entitlement to

the retiring allowance. Given the background of the

applicant, his status during the relevant tax year,

his expressed uncertainty as to his future

employment by the Railways, the uncertainty at that

time as to his attaining permanent status, the

prospect in reality of his continuing in the

service of the Railways until at least age

60 years, and whether, during that service, he would

have chosen to join the State superannuation

scheme, the tribunal is of the opinion that the

applicant was not a person of whom there was reason

to believe that a retiring allowance would be

provided for him on his retirement."

19. We consider that the Tribunal correctly construed and applied ss.82AAS and 82AAT to the facts of the case before it. The Tribunal did not fall into error on any question of law and we dismiss the appeal with costs.

Tax Assessment Act 1936

Information Act 1982

Tax Assessment Act 1936

Information Act 1982

Tax Assessment Act 1936

Information Act 1982

Tax Assessment Act 1936

Information Act 1982

Re Commissioner of Taxation of the Commonwealth of Australia v PR Arklay [1989] FCA 34; 22 FCR 157 (28 February 1989)

Re Commissioner of Taxation of the Commonwealth of Australia v PR Arklay [1989] FCA 34; 22 FCR 157

At a glance

Court

Decision date

Source

Judgment (29 paragraphs)

Parties

Legislation Cited (8)

Cases Cited (7)

Re Commissioner of Taxation of the Commonwealth of Australia v PR Arklay [1989] FCA 34; 22 FCR 157 (28 February 1989)