Applicant and Commissioner of Taxation
[2006] AATA 614
•11 July 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 614
ADMINISTRATIVE APPEALS TRIBUNAL )
) No NT2005/435
TAXATION APPEALS DIVISION ) Re APPLICANT Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms G Ettinger, Senior Member Date11 July 2006
PlaceWallsend
Decision The decision under review is affirmed. ...................................... Ms G Ettinger
Senior Member
CATCHWORDS
Taxation – Arrears of weekly payments made under NSW workers compensation legislation paid in a lump sum – Applicant objects to Commissioner’s assessment of the amounts as ordinary income – Applicant received the amounts on 4 July 2003, and objects to the assessment in the 2004 year, claiming they represent payment for years past – decision under review affirmed.
Income Tax Assessment Act 1997 s 6-5
Workers Compensation Act1987 s 40
Taxation Administration Act 1953 s 14ZZK
Taxation Ruling TR98/1Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540
Federal Commissioner of Taxation v Blake (1984) 84 ATC 4661
Scott v Federal Commissioner of Taxation (1966) 117 CLR 514
Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47
Federal Commissioner of Taxation v Inkster (1989) 89 ALR 137
Re Cooper and Federal Commissioner of Taxation (2003) 52 ATR 1199
Re Hannavy and Federal Commissioner of Taxation (2001) 47 ATR 1018REASONS FOR DECISION
11 July 2006
BACKGROUND
Ms G Ettinger, Senior Member 1. The Applicant Taxpayer sustained various injuries at work and ceased physical work on 14 July 2000. His employment contract was terminated on 4 August 2000 when he was deemed not fit to return to work. He had joined his last employer some time prior to 2000.
2. The Applicant commenced litigation in regard to the injuries sustained at work, and was awarded various heads of compensation, including two aggregated sums for weekly payments pursuant to section 40 of the Workers Compensation Act 1987 (NSW), in an action at the Compensation Court of New South Wales. The Taxpayer received the two payments, $27,080.20 and $4,587.80 subject of this dispute on 4 July 2003. The deemed date of injury was 14 July 2000.
3. The Commissioner of Taxation assessed the payments as ordinary income in the 2004 tax year. The Taxpayer appealed to this Tribunal. He had other assessments which were under discussion, but not in issue in these proceedings.
4. At the hearing I had before me documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (“the T-documents”), and a supplementary set of T-documents.
ISSUES BEFORE THE TRIBUNAL
· The issues before me were:
· whether the sums of $27,080.20 and $4,587.80 representing aggregated arrears of weekly payments awarded to the Taxpayer by the Compensation Court, and paid to him on 4 July 2003 were assessable as income pursuant to section 6-5 of the Income Tax Assessment Act 1997 (“the Act”); and if so,
· in what year the payments should be assessed.
CONSIDERATION OF THE ISSUES
5. There was no dispute between the parties, and I accepted that for purposes of this appeal, the Taxpayer received the payments of $27,080.20 and $4,587.80 from CGU Workers Compensation (NSW) Ltd on 4 July 2003. The first amount was shown at T6-35, where it was indicated that the payment was for weekly wage benefits for the period 10 January 2001 to 31 July 2003. The amount of $4,587.80 was shown at T6-36 to be for weekly wage payments for the period 4 August 2000 to 9 January 2001.
6. The Taxpayer argued that he had been told that lump sum compensation payments were not taxable as income. He also indicated that he relied upon T7-39, which was a photocopy of page 10-180 of the Australian Master Tax Guide headed “Workers Compensation”. The section consisted of five paragraphs, but as the Taxpayer sought to rely on paragraph two, I have reproduced only the relevant paragraph below. He referred to it in support of his argument that a payment of workers compensation is not assessable.
“A fixed sum workers compensation award for loss of a limb, eye, finger, etc is not assessable, nor is a payment for medical, etc expenses. An undissected lump sum paid to redeem an entitlement to weekly workers compensation payments and medical expenses is also not assessable (ID 2003/707). Likewise a fixed sum awarded in full satisfaction of the employee’s workers compensation claim against the employer, even though it represents in part unpaid periodical payments as well as compensation for loss of a limb, etc and loss of earning capacity.”
7. The Taxpayer also told me that due to the way the Commissioner had handled the two payments made to him by CGU Insurance on 4 July 2003, he had incurred debts of family payment and child support.
8. Mr G Diab, advocate for the Commissioner, the Respondent in these proceedings, however, relied on section 6-5 of the Act which is reproduced below:
“6‑5 Income according to ordinary concepts (ordinary income)
(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Note: Some of the provisions about assessable income listed in section 10‑5 may affect the treatment of ordinary income.
(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
…
(4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.”
9. Mr Diab also relied on a document produced by the Respondent entitled “Respondent’s General Outline of Submissions”.
10. I was mindful that to decide whether the sums of $27,080.20 and $4,587.80 representing aggregated arrears of weekly payments awarded to the Taxpayer by the Compensation Court were assessable as income pursuant to section 6-5 of the Act, I had to consider the legislation, nature of the payments and the case law. I was mindful also that in tax matters the Applicant bears the onus of proving, pursuant to section 14ZZK of the Taxation Administration Act1953 that an assessment is excessive, and must then indicate what he thinks the correct assessment should be (Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87-88).
11. Section 6-5 of the Act states that a taxpayer’s assessable income includes income according to ordinary concepts which it calls ordinary income. Some of the tests enunciated by the Courts when determining when an amount of income is ordinary income include:
· The character of the amount in the hands of the recipient;
· Whether in considering all the circumstances, one could conclude that the payment received was income;
· The application of an objective test; and
· Reliance on the ordinary concepts and usages
12. In coming to a decision, I turned first to consider the award of the Compensation Court which follows:
“…
Having duly considered the matters submitted, THE COURT –
HEREBY ORDERS AND AWARDS:
1.That the respondent pay the applicant, in respect of his partial incapacity for work resulting from injuries deemed to have happened on 14th July 2000, weekly compensation at the rate of $222 from 4th August 2000, such weekly payment to continue in accordance with the provisions of the Act.
2.(1) That the respondent pay the applicant, as lump sum compensation under section 66, $2,000 in respect of 5% permanent impairment of the applicant’s neck resulting from injury deemed to have happened on 14th July 2000 (being in respect of 10% permanent impairment of the applicant’s neck less a deductible proportion of 50% thereof pursuant to sections 68A and 68B).
(2)That the respondent pay the applicant, as lump sum compensation under section 66, $4,500 in respect of 7.5% permanent impairment of the applicant’s back resulting from injury deemed to have happened on 14th July 2000 (being in respect of 15% permanent impairment of the applicant’s back less a deductible proportion of 50% thereof pursuant to sections 68A and 68B).
(3)That the respondent pay the applicant, as lump sum compensation under section 66, $7,500 in respect of 10% loss of use of the applicant’s left leg at or above the knee resulting from injury deemed to have happened on 14th July 2000.
(4)That the respondent pay the applicant, as lump sum compensation under section 66, $7,500 in respect of 10% loss of use of applicant’s right leg at or above the knee resulting from injury deemed to have happened on 14th July 2000.
3.That the respondent pay the applicant, as lump sum compensation under section 67, $10,000 in respect of pain and suffering.
4.That the respondent pay the applicant’s section 60 expenses.
5.That the respondent pay the applicant’s costs forthwith after they have been agreed or assessed.
…”
13. I noted that the Applicant was not disputing any item other than Item 1. of the Order, Item 1. being the only one which related to weekly payments, whereas the others were for lump sums in relation to permanent impairment, pain and suffering, and costs. He was not concerned with Item 2., which dealt with lump sum awards for permanent impairment of various body parts as anticipated in the legislation, and mentioned on page 10-180 of the Australian Master Tax Guide.
14. As noted above, the Compensation Court ordered the ex-employer to pay the Taxpayer $222 per week from 4 August 2000 on an ongoing basis pursuant to section 40 of the Workers Compensation Act 1987. Because the Order was only made on 3 March 2003, the amounts dating from 4 August 2000, long past, had to be paid as arrears, and were paid in two aggregated sums, ($27,080.20 and $4,587.80). The Taxpayer told me that he knew from the day of the Order, 3 March 2003, that he was receiving those arrears, but agreed they were only paid to him on 4 July 2003, that is during the currency of the 2004 tax year.
15. In coming to a decision, I am mindful that the Taxpayer experienced some difficulty with the terminology because the aggregated sums have been referred to loosely as “lump sums”, or “lump sum payments”, which can be confusing.
16. Section 40(1) and (2) of the Workers Compensation Act follow.
“40 Weekly payments during partial incapacity—general
(1) Entitlement
The weekly payment of compensation to an injured worker in respect of any period of partial incapacity for work is to be an amount not exceeding the reduction in the worker’s weekly earnings, but is to bear such relation to the amount of that reduction as may appear proper in the circumstances of the case.
(2) Calculation of reduction in earnings of worker—general
The reduction in the worker’s weekly earnings is (except as provided by this section) the difference between:
(a) the weekly amount which the worker would probably have been earning as a worker but for the injury and had the worker continued to be employed in the same or some comparable employment (but not exceeding $1,000), and
(b) the average weekly amount that the worker is earning, or would be able to earn in some suitable employment, from time to time after the injury (but not exceeding $1,000).”
17. The above has assisted me with identification of the nature of the payments, because it refers to payments of earnings to substitute for what the injured worker might have been earning had he not been thus injured. The Taxpayer was found to have been partially incapacitated by his injuries, and as he was not working, he was awarded deemed payments for the loss in income he was deemed to have incurred due to his injuries. Those facts alone, equating the payments to substitute for what the injured worker might have been earning had he not been thus injured, are sufficient to characterise the receipts as income (Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 55).
18. That now brings me to consider section 6-5 of the Act which states that a taxpayer’s “assessable income” includes income according to ordinary concepts which it calls “ordinary income”. To work out what “ordinary income” is, I turned to the case law.
19. Amongst the leading cases are Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 557, Federal Commissioner of Taxation v Blake (1984) 84 ATC 4661, Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 at 526, Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 55, Federal Commissioner of Taxation v Inkster (1989) 89 ALR 137 at 157.
20. Dixon (supra) dealt with the situation of an employer during World War II, and the situation where earnings to account for the difference between military and civilian pay were addressed. The High Court emphasised in that case that in determining whether the amounts paid were ordinary income, it would take into account the use to which the taxpayer would put the money.
21. Case law has instructed the Commissioner and the Tribunal standing in his shoes to consider, in determining what is “ordinary income”, amongst other indicia:
· Whether the amount of money is the product of any employment, services rendered or business;
· Whether the payment is periodic or a lump sum;
· The purpose of the payment;
· Whether the amount is paid in substitution for another amount so as to take on the character of the substituted amount;
· Whether the person expects to receive an amount on a regular basis so that he/she can rely on it for their regular requirements.
22. In considering the above tests, I have also noted the case of Inkster (supra), where the taxpayer was awarded damages for a disability which arose due to exposure to asbestos dust while working for the railways in Western Australia. It is to be noted that in that case there had been no actual loss calculated; however the Court held that the fact the payments were calculated by reference to, and as part of a weekly income, was indicative of their character as income.
23. I was satisfied that the Applicant’s payments made to him on 4 July 2003 had the character of income as they were an aggregate of past weekly payments as awarded by the Compensation Court. They were periodic payments which were paid in a lump sum because they were arrears, and it may be that which caused confusion to the Taxpayer. I was satisfied that the amount of money paid to the Applicant related to his employment with his ex-employer, and that it was to compensate the Applicant for what he could not nominally earn due to his partial incapacity which arose due to injury during his employment with his ex-employer. The amounts were awarded pursuant to section 40 of the Workers Compensation Act 1987, and were referable to the Applicant’s earnings. The Applicant was not in employment after he left his ex-employer 4 August 2000 at least until he received his lump sum payments, and accordingly had to use the earnings paid to him as arrears of wages for income support.
24. A by-product of that may be the reason he has incurred debts of child support and family tax benefit, which is regrettable, but as pointed out in Re Cooper and Federal Commissioner of Taxation (2003) 52 ATR 1199, this has occurred before the Tribunal over the years, and whilst the Tribunal is sympathetic, it must apply the law consistently, and make the correct or preferable decision on the material before it (Re Hannavy and Federal Commissioner of Taxation (2001) 47 ATR 1018).
25. I have considered the Taxpayer’s submissions regarding the Master Tax Guide at T7-39. It is a “Guide”, and that is exactly what it purports to be, and accordingly is not binding on me. I find the information therein generally helpful to readers, but it seems that this Taxpayer has not fully understood the terms used. The first sentence refers to compensation for various body parts (as the Applicant also received in his award in Item 2), and that compensation is, as stated there, not assessable. The Guide then refers to an “undissected lump sum”, and that is where it does not apply to the Taxpayer’s case, because in the Applicant’s Order from the Compensation Court, the sums were dissected or separated into awards for various body parts which were injured, and for legal costs and for the weekly payments.
26. Having decided that the payments made by CGU Insurance to the Applicant were assessable income, I then had to consider in which tax year or years they should be assessable. In doing so, I referred to Taxation Ruling TR98/1. At paragraph 42, the document states that employment income is assessable on a receipts basis, and that employment remuneration is assessable on receipt even though it relates to a past or future income period. There was no disagreement, and I accepted that the Taxpayer here received his two payments of arrears of weekly payments awarded by the Compensation Court on 3 July 2003, (even though he knew about the Award on 3 March 2003, when it was made). Accordingly it is assessable in the 30 June 2004 tax year.
DECISION
27. The decision under review is affirmed.
I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Ms G. Ettinger, Senior Member:
Signed:
Associate
Date of Hearing 24 May 2006
Date of Decision 11 July 2006
Applicant Self representedRepresentative of the Respondent Mr G. Diab
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