Weeks v Commissioner of Taxation

JUDGE: REEVES J DATE OF ORDER: 4 April 2012 WHERE MADE: BRISBANE

1. The appeal be dismissed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 210 of 2011

APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: CHERYL WEEKS

JUDGE: REEVES J DATE: 4 April 2012 PLACE: BRISBANE

INTRODUCTION 1 Ms Weeks was, until relatively recently, an Executive Level 2.1 (EL2.1) employee working in the Australian Taxation Office (ATO). In March 2010, following negotiations between Ms Weeks and a senior officer of the ATO, she was offered a redundancy. That offer was made under cl 97 of the ATO (Executive Level 2) Agency Agreement 2009 (Agency Agreement) on the ground that she could no longer be effectively utilised in the ATO. 2 Ms Weeks accepted that offer and her employment was terminated on the grounds that she was "excess to the requirements of" the ATO under s 29(3)(a) of the Public Service Act 1999 (Cth). 3 Following the termination of her employment, Ms Weeks received a termination payment. Upon receiving that payment, she discovered that the ATO, as her employer, had deducted taxation from the payment at the rate of 16.5% on the basis that it was an Employment Termination Payment. The monetary amount of the deduction was $7,825. This deduction was later reflected in an income tax assessment the Commissioner of Taxation, the respondent, issued to Ms Weeks for the 2009/2010 financial year. 4 Ms Weeks considered that her termination payment was a "genuine redundancy payment" under s 83-175 of the Income Tax Assessment Act 1997 (Cth) (ITA Act) and, as such, was tax free. Based on that view, Ms Weeks sought a private ruling to that effect from the Commissioner. When that ruling was not to her satisfaction, she lodged an objection against it with the Commissioner. Since that objection had not been determined by the time her income tax assessment was issued for the 2009/2010 financial year, it was agreed that her objection would stand as an objection against both the private ruling and the 2009/2010 assessment. Ms Weeks' objection was subsequently unsuccessful. She then sought a merits review of that decision in the Administrative Appeals Tribunal. That was also unsuccessful. Now Ms Weeks has brought this appeal against the decision of the Administrative Appeals Tribunal.

MS WEEKS' EMPLOYMENT HISTORY 5 In his decision, the Tribunal Member recounted the history of Ms Weeks' employment with the ATO in some detail. A brief summary of that history will suffice for the purposes of this appeal. 6 Ms Weeks began her employment with the ATO in 1999. She has legal qualifications and experience and she was well-equipped to carry out a number of important roles including the implementation of the GST. She was initially employed in Canberra, but in 2005 she transferred her employment to the Brisbane office. There she took charge of litigation services because of her strong legal background. The Tribunal Member recorded (at [5]) that: The taxpayer was obviously good at her job. She received a positive performance appraisal from her national manager in the mid-year review in March 2009 and in the annual review on 29 August 2009. She had also been asked to act as national director - an EL2.2 position - from late April 2009 while the national director undertook other duties. 7 Her difficulties began while she was acting as a national director in an EL2.2 position. It is unnecessary to essay those difficulties for the purposes of this appeal. It will suffice to say that they arose out of her relationship with other employees of the ATO in Adelaide and Brisbane. In his reasons for decision, the Tribunal Member recorded that those difficulties led to a situation where: "By mid-2009, the taxpayer said she felt under pressure to resign. She said she thought her superiors wanted her to leave." In early July 2009, Ms Weeks took recreation leave followed by a period of long service leave. She then took a period of leave without pay which eventually extended until March 2010. During this period, she came to the conclusion that she had become redundant at work. As a result, she consulted the terms of the Agency Agreement and took particular note of cl 97 thereof, which relates to EL2 officers "whose services can no longer be effectively used in their current job because of changes in technology or work methods or changes in the nature, extent or organisation of the ATO". 8 As a result, in October 2009 she sent an email to one of the national directors of the ATO in which she raised the possibility of her obtaining a voluntary redundancy. The national director subsequently responded to the effect that the ATO did not agree that hers was a voluntary redundancy situation. Ms Weeks then filed a Notice of Dispute in relation to that decision. Eventually, the responsible Assistant Commissioner decided to revisit the question of a voluntary redundancy and agreed to put forward a business case "seeking to justify a voluntary redundancy under clause 97 of the Agency Agreement". That led to the Assistant Commissioner forwarding a letter, dated 11 March 2010, to Ms Weeks containing a formal offer of redundancy. As the Tribunal Member recorded (at [21]): The letter reiterated that "your services cannot effectively be utilised by the ATO in your current position and that alternative employment for you within the ATO is not available" and proceeded to make an offer of redundancy in accordance with the provisions of Clause 97 of the agency agreement. 9 Then the Tribunal Member recorded the final step in the process as follows (at [22]): The final step in the process can be found in exhibit one at p 18. It is another letter from the assistant commissioner to the taxpayer. It says: I,...delegate of the Commissioner of Taxation: (1) being satisfied that you are, within the meaning of Clause 97 of the ATO (Executive Level 2) Agreement 2009, an employee whose services can no longer be effectively utilised; (2) having fully considered all possible options for redeployment or retraining that could allow you to be retained in gainful employment and whether it is in the interests of the efficient administration of the Office to assign new duties to you under s 25 of the Public Service Act 1999; and (3) having received your acceptance of an offer of voluntary redundancy; Given notice to you, ... EL2.1, that your employment as an APS employee in the ATO is terminated on the grounds that you are excess to the requirements of the ATO (s 29(3)(a) of the Public Service Act 1999). (Emphasis in original)

THE TRIBUNAL DECISION 10 In the first paragraph of the Tribunal's reasons for decision, the Tribunal Member set out the question he was asked to consider as follows: I have been asked to decide whether [Ms Weeks' termination] payment was a genuine redundancy payment for the purposes of s 83-175 of the Income Tax Assessment Act 1997 … The question is important because genuine redundancy payments within the meaning of that section are taxed more favourably than other payments that might be made to a person when they terminate their employment. (Emphasis in original) 11 The Tribunal Member then recounted Ms Weeks' employment history with the ATO (summarised above). Having done that, he turned to consider "the law", under that heading. To begin that exercise, the Tribunal Member referred to the provisions of s 83-175(1) of the ITA Act and noted that a "genuine redundancy payment" within the meaning of that provision was "tax-free in the hands of the (former) employee". The Tribunal Member then stated that he was "satisfied the taxpayer was dismissed from employment", but identified the critical question as: "whether she was genuinely redundant". The Tribunal Member noted that the letter from the Assistant Commissioner (see at [9] above) appeared to put the question beyond doubt because: "The correspondence expressly referred to a 'voluntary redundancy' on the basis that the taxpayer's services could no longer be utilised." However, the Tribunal Member then turned to consider a submission made by the Commissioner about the effect of cl 97 of the Agency Agreement. The Tribunal Member noted a distinction contained in cl 97 (particularly cl 97.2) that was reflected in various authorities on the issue, including The Queen v The Industrial Commission of South Australia; Ex parte Adelaide Milk Supply Co-operative Limited (1977) 16 SASR 6 and Dibb v Commissioner of Taxation (2004) 136 FCR 388; [2004] FCAFC 126 at [33]-[44]. The Tribunal Member observed (at [29]) that those authorities: … make it clear that a redundancy occurs where an employer no longer requires that a job be done by anyone. That situation - where a job effectively disappears - must be distinguished from the situation in which the employer no longer wants a job done by the (former) employee in question. 12 The Tribunal Member then came to his ultimate dispositive conclusion on Ms Weeks' application as follows (at [30]): The job in this case has not disappeared, even if the position number had changed. A range of functions in the area still had to be performed by someone at the EL2.1 level. It follows the employee's position is not redundant, even if the particular employee is no longer able to be utilised in that role. Given my findings of fact, it seems to me that is the end of the matter. The objection decision must be affirmed. (Emphasis in original)

RELEVANT LEGISLATIVE PROVISIONS 13 It can be seen from the Tribunal's decision that the critical legislative provision in this appeal is contained in s 83-175 of the ITA Act. That section follows s 83-170, which sets out the tax-free treatment of genuine redundancy payments and early retirement scheme payments under the ITA Act. While it is unnecessary for present purposes to set out that section, it is appropriate to set out s 83-175(1). It is as follows: A genuine redundancy payment is so much of a payment received by an employee who is dismissed from employment because the employee's position is genuinely redundant as exceeds the amount that could reasonably be expected to be received by the employee in consequence of the voluntary termination of his or her employment at the time of the dismissal. (Emphasis in original) 14 It is also helpful to set out the provisions of s 29(3)(a) of the Public Service Act 1999 (Cth) and, while it is not strictly legislation, the relevant parts of cl 97 of the Agency Agreement. They are as follows: (3) For an ongoing APS employee, the following are the only grounds for termination: (a) the employee is excess to the requirements of the Agency; And: 97.1 This clause only applies to ongoing EL2 employees who are no longer on probation. An EL2 employee whose services can no longer be effectively used in their current job because of changes in technology or work methods or changes in the nature, extent or organisation of the ATO will be given support in considering career alternatives or will be able to leave the ATO with dignity and respect for the contribution they have made in the past. 97.2 These procedures are only to be used where an individual EL2 employee's job is still required and the EL2 employee will be replaced subsequent to action under this clause. Where the actual job is no longer required, the arrangements under clause 98 must be used.

A QUESTION OF LAW IS THE SUBJECT MATTER OF THE APPEAL 15 Under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act), an appeal lies "to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding". Rule 33.12(2)(b) of the Federal Court Rules 2011 requires the notice of appeal to state: "the precise question or questions of law to be raised on the appeal". The addition of the word "precise" to this new Rule is obviously intended to reflect a point that has been emphasised in the authorities, that is, that the question of law is of critical importance in appeals under s 44(1) of the AAT Act. Indeed, the existence of a question of law is the subject matter of the appeal itself: TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178 per Gummow J, Birdseye v Australian Securities and Investments Commission (2003) 76 ALD 321; [2003] FCAFC 232 (Birdseye) at [13] and Comcare v Etheridge (2006) 149 FCR 522; [2006] FCAFC 27 at [13]-[14].

MS WEEKS' QUESTIONS OF LAW 16 The history of Ms Weeks' matter set out above records that she has legal qualifications and experience. This may explain why she acted for herself before the Tribunal and at the hearing of this appeal. However, despite this legal background, it became apparent in oral submissions that Ms Weeks did not appear to be aware of the critical importance of identifying a question of law for the purposes of an appeal under s 44 of the AAT Act. This lack of awareness appears to have adversely affected the drafting of the questions of law in Ms Weeks' notice of appeal. 17 The four questions of law set out in her supplementary notice of appeal are as follows: 1. Whether a payment made by a Statutory Agency to an ongoing Australian Public Service (APS) officer, in relation to the termination of that officer's employment under paragraph 29(3)(a) of the Public Service Act 1999 on the grounds that the officer is excess to the requirements of the Agency, is an Employment Termination Payment under section 83-175 of the ITAA 1997. 2. Whether clause 97.2 of the ATO (Executive Level 2) Agreement 2009 (Agency Agreement) is invalid because it is inconsistent with clause 97.1 and is beyond the power of the Public Service Act. 3. Whether a redundancy payment, made to an ongoing APS officer in relation to the termination of that officer's employment following action under clause 97.1 of the Agency Agreement on the grounds that the services of the officer can no longer be effectively utilised by the ATO, is an Employment Termination Payment under section 83-175 of the ITAA 1997. 4. Whether a statutory agency, which has terminated the employment of an ongoing APS officer under paragraph 29(3)(a) of the Public Service Act on the grounds that the officer was excess to the requirements of the Agency, is authorised to make a payment to that officer out of the Consolidated Revenue Fund in relation to that termination, in circumstances where the statutory agency considers that the officer was not genuinely redundant. (Emphasis in original) 18 The grounds relied upon in the supplementary notice of appeal are as follows: 1. The Tribunal erred in law in determining that the redundancy payment made to the applicant was not a "genuine redundancy payment". 2. The Tribunal erred in law in that it failed in its duty of procedural fairness by demonstrating bias in favour of the respondent in that it: a. failed to consider the applicant's primary submissions that the proper approach to determining how section 83-175 of ITAA applies in the circumstances requires consideration of the relevant provisions of the Public Service Act; b. omitted mention of the terms of the key relevant document, being the respondent's business case for making the applicant redundant, in which the respondent made unfavourable allegations in relation to the applicant despite these matters never having been raised with the applicant (as required by the Agency Agreement), and which were not relevant to the grounds for the proposed redundancy; c. did not take into account the failure of the respondent, prior to the termination of the applicant's employment, to convene a mandatory meeting following the applicant's formal application under the dispute resolution clause of the Agency Agreement, thereby denying the applicant the opportunity to formally raise her employment concerns; d. found that the applicant's application under the dispute resolution clause of the Agency Agreement had been 'dealt with in a separate process' when there was undisputed evidence that it had never been dealt with. e. gratuitously referred in its findings to comments made orally by one of the respondent's witnesses casting doubt on the quality of the applicant's work performance. 3. The Tribunal erred in law by going behind the statutory notice in the Public Service Gazette of the termination of the applicant's employment on the grounds that the applicant was 'excess to the requirements of the Agency'. 4. The Tribunal erred in law in finding that the terms of clause 97.2 of the Agency Agreement were determinative of whether section 83-175 of ITAA 1997 applied to the termination payment. 5. The finding of the Tribunal, that the applicant was 'genuinely welcome to return to her role or something that closely approximated it', was so unreasonable that no reasonable Tribunal could have arrived at it because it amounted to a finding that the applicant was not redundant.

GENERAL PRINCIPLES 19 Before turning to consider the difficulties involved for Ms Weeks' appeal in these four questions of law, it is appropriate to identify with more precision what constitutes a question of law for the purposes of s 44 of the AAT Act. In Hartnett v Migration Agents Registration Authority [2004] FCA 50, Marshall J set out a helpful summary of the general principles on that issue (at [50]). For present purposes, the general principles as identified in that summary, together with some of the authorities referred to, are as follows: (a) the question of law must be stated with precision as a true question of law: Birdseye at [18]; (b) this requirement is applied strictly: Lambe v Director-General of Social Services (1981) 4 ALD 362 at 364 and Bishop v Secretary, Department of Education, Employment and Workplace Relations [2008] FCA 1118 at [5]; (c) one should expect to find the links between the question of law, the circumstances of the particular case and the orders sought on the appeal in the specification of the grounds relied upon in support of the orders sought: Birdseye at [18]; (d) a question whether the AAT denied procedural fairness can constitute a question of law: Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143 at [8].

NO QUESTION OF LAW ARISES IF THE ISSUE WAS NOT RAISED BEFORE THE TRIBUNAL 20 In addition to these general principles, it is of particular importance in this case to note the Full Court decision in Commissioner of Taxation v Glennan (1999) 90 FCR 538; [1999] FCA 297 at [82]. In that case, the Court held that: "as a general rule, there is no error of law if the AAT fails to address issues of fact and law not the subject of argument by the taxpayer". In other words, as the Court went on to observe in the next paragraph (at [83]), there will generally be no error of law such as to constitute a question of law for the purposes of s 44 of the AAT Act in relation to an issue that was not raised for consideration by the Tribunal and, therefore, was not the subject of any determination by the Tribunal. 21 This point applies with particular force in relation to two of the four questions of law set out in Ms Weeks' notice of appeal. That is so because Ms Weeks did not raise the issues set out in her second and fourth questions of law before the Tribunal. Those questions may be summarised as: (a) Second question of law: the validity of cl 97.2 of the Agency Agreement because of its alleged inconsistency with cl 97.1 and it being beyond the power of the Public Service Act 1999; (b) Fourth question of law: whether a payment can legally be made out of Consolidated Revenue for a redundancy under s 29(3)(a) of the Public Service Act 1999 where the statutory agency does not consider the officer was genuinely redundant. 22 Since Ms Weeks did not raise either of these issues before the Tribunal, neither of them was considered by it and, consequently, no opportunity arose for it to commit an error of law in relation to either of them, such that Ms Weeks could pursue an appeal under s 44 of the AAT Act in relation to it. 23 In any event, even if these two issues had been raised before the Tribunal such that an error allegedly made by the Tribunal in relation to them could be properly stated as questions of law in this appeal, in my view they are both misconceived. Clause 97.1 of the Agency Agreement provides for a process whereby an EL2 employee of the ATO can be made redundant. Clause 97.2 of the Agency Agreement makes it clear that the process set out in that clause is not to be used if the employee's position is to be made redundant. In that event, cl 98 of the Agency Agreement is to be used. It can therefore be seen that cl 97.1 may be validly linked with a redundancy of an employee under s 29(3)(a) of the Public Service Act 1999 and yet the employee's position remain unaffected. In this situation, it is the employee who is no longer required for the job by the employer, rather than the employee's position. As noted above, the latter situation is dealt with under cl 98 of the Agency Agreement. There is, therefore, no inconsistency between cl 97.2 and cl 97.1 and nor is the former beyond the power of the Public Service Act 1999. Further, an agency can validly make a payment for the redundancy of an officer under s 29(3)(a) of the Public Service Act 1999 and still retain that officer's position. 24 It follows that Ms Weeks' appeal, insofar as it relates to these two questions of law, must be dismissed.

NO "GENUINE REDUNDANCY PAYMENT" WHERE POSITION REMAINS 25 That leaves Ms Weeks' first and third questions of law. The difficulties with these two questions of law are that they both focus on the source of the authority to make the redundancy payment to Ms Weeks, viz s 29(3)(a) of the Public Service Act 1999 and cl 97.1 of the Agency Agreement, rather than the nature of the redundancy for which that payment was made. In this sense they raise similar issues to those raised in Ms Weeks' second and fourth questions of law (see above) and fail to address the critical question in this appeal, viz whether Ms Weeks' payment was made in relation to a "genuine redundancy" within the terms of s 83-175 of the ITA Act. 26 Despite the strictness of the requirement to state with precision a true question of law (see at [19] above), since Ms Weeks is self-represented and since, on a generous construction, these two questions of law could be said, at least in general terms, to raise the critical question in this appeal (see above), I propose to proceed on that basis. The generous construction I refer to would state these two questions of law in the following terms: If an employee is terminated under s 29(3)(a) of the Public Service Act 1999 or cl 97.1 of the Agency Agreement on the grounds that, as an employee, she is excess to the requirements of the ATO, in the sense that her services can no longer be utilised, does any payment made consequent upon that termination, fall within the expression "genuine redundancy payment" under s 83-175(1) of the ITA Act? 27 In my view, the answer to this question of law is plainly "no". This is so because, for the payment to be a "genuine redundancy payment" under s 83-175(1) of the ITA Act, the employee's position has to be made redundant. So much is clear from the language of s 83-175: "because the employee's position is genuinely redundant". More importantly, for the purposes of this appeal, I consider the Tribunal Member correctly identified this distinction where he highlighted the difference between a situation where an employer no longer requires a job to be done by any employee; and a situation where an employer no longer wants a job to be done by a particular (former) employee: see at [11] above. Having made this valid distinction, the Tribunal Member then found, as a matter of fact, that Ms Weeks' redundancy fell into the latter category: see at [12] above. Thus, the Tribunal Member has made no error of law in his construction of s 83-175(1) of the ITA Act and his finding of fact is not open to be reviewed in this appeal. 28 For these reasons, I do not consider the first and third questions of law as raised in Ms Weeks' notice of appeal, construed in the way set out above, demonstrate any error of law on the part of the Tribunal Member. 29 Before I leave this matter, it is appropriate for me to deal briefly with two other matters that Ms Weeks has raised in her grounds of appeal. There, Ms Weeks has raised allegations of bias and unreasonableness in the Tribunal's decision: see at [18]2 and 5 above respectively. While a failure to provide procedural fairness can involve a question of law for the purposes of s 44 of the AAT Act (see at 19 above), no such question of law is stated in Ms Weeks' four questions of law. Nor has unreasonableness in the Tribunal's decision been stated as a question of law. It follows that neither of these matters falls within the subject matter of this appeal (see at [15] above). 30 In any event, even if these allegations had been properly stated as questions of law, I do not consider there is any merit in either of them. The allegation of bias essentially reduces to a general disagreement on Ms Weeks' part with various aspects of the Tribunal's reasons for decision. Two things can be said about this approach. First, an allegation of bias of this kind is a serious allegation which must be clearly articulated and proved by admissible evidence: see, eg SBBS v Minister for Immigration and Multicultural and Indigenous Affairs (2002) 194 ALR 749; [2002] FCAFC 361 at [42]-[48]. I do not consider that this allegation of bias meets either of these two criteria. Secondly, it has been held that it will be a rare and exceptional case where bias can be demonstrated from published reasons for decision: see, for example, SBBF v Minister for Immigration and Multicultural and Indigenous Affairs [2002] FCAFC 358 at [16]. I do not consider this case is one of those rare and exceptional cases. I do not, therefore, consider there is any merit in Ms Weeks' allegation of bias on the part of the Tribunal Member. 31 As to the allegation of unreasonableness, that is limited to the Tribunal's finding that Ms Weeks was "genuinely welcome to return to her role or something that closely approximated it": see at [18]5 above. It was clearly open to the Tribunal Member on the material before him to make this factual finding and, while Ms Weeks may disagree with it, even strongly, that disagreement simply seeks to review the merits of that finding, rather than raise any vitiating unreasonableness in it: see, for example, Minister for Immigration and Citizenship v SZMDS (2010) 240 CLR 611; [2010] HCA 16. I do not, therefore, consider there is any merit in Ms Weeks' allegation of unreasonableness in the Tribunal's decision.

CONCLUSION 32 For these reasons, Ms Weeks' appeal must be dismissed. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.