Ashworth and Commissioner of Taxation

[2005] AATA 54

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 54

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No QT2003/406

TAXATION APPEALS DIVISION		)
Re		KEVIN ASHWORTH

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr S C Fisher, Member

Date20 January 2005  

PlaceBrisbane

Decision The Tribunal affirms the decision under review.  

..................[Sgd].......................

S C Fisher
  Member

CATCHWORDS

TAXATION – Income Tax – Whether Applicant entitled to rebate benefit by access to “low rate part” – Whether Applicant able to “average” amounts withdrawn as eligible termination payments – Whether Applicant liable to pay Medicare Levy – Decision under review affirmed

Income Tax Assessment Act 1936 ss 27A, 27B, 27C, 27D, 159SA, 159SF, 159SG, 251S, 251T, 251U, Part III, Division, Subdivision AAA
Taxation Administration Act 1953 ss 14ZZA-14ZZM
Income Tax Assessment Act 1997 Division 405
Medicare Levy Act 1986

Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63

Secretary, Department of Social Security v Murphy, Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 269

McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81; 75 ATC 4257
Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248; (2003) 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598; (1981) 4 ALD 198

REASONS FOR DECISION

20 January 2005   Mr S C Fisher, Member      

Introduction and Background

1.      Mr Kevin Ashworth (the Applicant) withdrew an amount of $208,532 by way of eligible termination payments over the course of the 2001 and 2002 fiscal years.  Of this sum, $180,000 was applied by the Applicant to purchase an interest in a retirement villa. The Commissioner of Taxation (the Respondent) issued an assessment on 29 January 2003 that levied tax upon part of the eligible termination payment. Internal review sought by the Applicant was unsuccessful leading to this appeal.

2.      In these Reasons for Decision, references to statutory provisions are references to provisions of the Income Tax Assessment Act 1936 (“ITAA 1936”) unless the context indicates otherwise. For convenience, “ETP” means “eligible termination payment”.

Jurisdiction

3. The Tribunal has jurisdiction in this appeal by virtue of sections 14ZZA – 14ZZM of the Taxation Administration Act 1953.

The Burden of Proof

4. Under section 14ZZK(a) of the Taxation Administration Act 1953, the applicant is limited to the grounds stated in the taxation objection to which the decision relates unless this Tribunal orders otherwise. Among other things, the applicant has the burden of proven that the assessment is excessive or that the taxation decision concerned should not have been made or and that it should have been made differently: section 14ZZK(b). In general, the taxpayer must go further than showing the assessment is excessive or wrong and show what the correct assessment should be: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 – 88. In the absence of evidence, the Tribunal is not able to infer facts in favour of taxpayers: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 289. The scheme of the Income Tax Assessments Act 1936 and the Income Tax Assessment Act 1997 does not place any onus on the Respondent to show that the assessment was correctly made: Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81; 75 ATC 4257 at 4261.

The Decision under Review

5.      The decision under review is a decision made by the Respondent on 29 January 2003 to raise an assessment of tax payable by the Applicant in an amount of $5,909.55.

The Role of the Tribunal

6. The role of the Tribunal is to review the merits of the decision before it: section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy.29 June 1998, 908/98; (1998) 52 ALD 269. The Tribunal is guided by the norm that it should reach the correct and preferable decision on the basis of the material before it: Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33]. The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at [23]. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598 at 601.

The Material Before the Tribunal

7. The Applicant did not file any material with the Tribunal in relation to the hearing. Material recording the objections made by the Applicant to the operative notice of assessment of the Respondent formed part of the section 37 documents. The Applicant was self-represented.

8. The Respondent lodged documents T1 to T10 under section 37 of the Administrative Appeals Tribunal Act 1975 which were taken into evidence by the Tribunal as Exhibit 1. The Applicant’s income tax return for the 1999 fiscal year was taken into evidence as Exhibit 2. The Applicant’s income tax return for the 2000 fiscal year was taken into evidence as Exhibit 3. The Respondent was represented by Mr Aftanas. The Respondent lodged an outline of submissions.

Evidence

9.      The Applicant gave evidence in person. The Applicant did not call any other witnesses. The Respondent did not call any witnesses.

10.     There were no issues of credit in this appeal. The appeal turns on the application of the law to undisputed facts. For the purposes of this appeal, it was not necessary to recite or recount the evidence given by the Applicant, whether in his examination in chief or under cross-examination.

Issues

11. The central issue in this appeal is whether the Applicant is entitled to the benefit of a rebate under section 159SA of the ITAA 1936. In particular, the Applicant seeks access to the “low rate part” in which tax of 0% is payable under section 159SA, Table 1, Item 2 for an entire amount of several ETPs received by him in the 2002 fiscal year. A subsidiary issue is whether the Applicant is able to “average” amounts withdrawn by way of eligible termination payments during the 2002 fiscal year over other years of income in which the Applicant accessed other eligible termination payments. As another subsidiary issue, the Applicant disputed his liability to pay the Medicare levy on the basis that he was already paying for private health insurance.

Applicant’s Submissions

12.     The Applicant’s submissions, made in his opening and closing addresses, were to the following effect:

A.There is a Commonwealth Government policy, enunciated by the Treasurer, to the effect that self-funded retirees and age pensioners should enjoy some tax relief. In effect, insufficient tax relief had been afforded to the Applicant. The Applicant mentioned a tax free threshold of $20,000 and made reference to media announcements reporting such a threshold and policy.

B.The Applicant complained about delays in dealing with his objections against assessment issued by the Respondent.

C.The Applicant contended that for the 1999 fiscal year, approximately $1,500 should have been carried forward by way of an unused portion of the ETP rebate.

D.For the 2000 fiscal year, an unused rebate of about $1,555 should have been allowed to him by way of a carry forward amount to offset against future tax liabilities.

E.It was “unfair” for the Applicant not to be able to carry forward unused rebates and offset this against later years’ income.

F.The Applicant said that he used $180,000 sourced from the ETPs to buy an interest in a retirement villa.

G.The Applicant did not dispute the calculations of tax liability made by the Respondent, but rather the basis on which the relevant tax liability was raised in the first place.

H.The Applicant said that the arduous circumstances of his working life, including a stint as a chief executive officer of a local council at Mount Isa, should be taken into account by the Tribunal in making its decision.

I.The Applicant contended that as he pays private health insurance, he should not be liable for the Medicare levy.

J.The due date of payment of the tax assessment cannot predate the date of issue of the assessment.

Respondent’s Submissions

13.     The Respondents’ submissions can be crystallised into the following account:

A.The Applicant’s assessable income includes the taxed element of the retained amount of the post-30 June 1983 component of an ETP (section 27B(1)(a)), plus the untaxed element of the retained amount of the post-30 June 1983 component of an ETP (section 27B(1)(b)) and 5% of the pre-July 1983 component of an ETP (section 27C(1)).

B.The Applicant received ETPs totalling $79,435 over the 1999 – 2001 fiscal years. The difference between the sum of $79,435 and the upper limit of $105,843 (the upper limit under the 2001 – 2002 fiscal year under section 159SG) is $26,408.

C. The sum of $26,408 is the residual amount under section 159SF.

D.The “low rate part” cannot exceed the residual amount of $26,408, and so the nil rate of tax is only available to the extent of $26,408 of the ETP.

E.The liability of the Applicant to pay the Medicare levy arises under section 251S based upon his taxable income for the relevant year in question. The Medicare Levy Act 1986 provides that the liability of a person who is liable to pay the base Medicare levy is not affected by the circumstance of that person holding any relevant health insurance policy. There was no evidence to suggest that the Applicant is a prescribed person who is not liable to pay the base Medicare levy under sections 251T and 251U of the ITAA 1936.

F.The Applicant’s contention that the destination of the funds that were extracted from the ETPs, namely to purchase a retirement villa, is not equivalent to a rollover under section 27D and so exempt from tax under section 27A.

G.There is no basis in law for the averaging of income amounts as maintained by the Applicant.

14.     The Respondent did not cite any decisions of this Tribunal or of any relevant Court to the Tribunal.

Summary of The Legislative Scheme

15. Section 27B of the ITAA 1936 brings into the tax equation the taxed element of a retained amount of post-June 1983 components and the untaxed element of the retained amount of the post-June 1983 component of an ETP. Section 27C includes within a person’s assessable income 5% of the retained amount of any pre-July 1983 component of an ETP. ETPs paid to persons aged 55 or over receive concessional tax treatment under section 159SA of the ITAA 1936. This concessional tax treatment takes the form of a rebate of tax in a person’s assessment of tax according to a table contained in section 159SA(1).

Findings of Fact

A.       Mr Kevin Ashworth (the Applicant) was born on 22 January 1939.

B.The Applicant received ETPs totalling $79,435 over the 1999 – 2001 fiscal years.

C.       The Applicant’s income tax return for the year ended 30 June 2001 was     lodged with the Respondent on 8 November 2002.

D,       The Applicant’s income tax return for the year ended 30 June 2002 was     lodged with the Respondent on 5 November 2002.

E.       The Respondent issued a notice of assessment for the year ended 30 June         2002 on 11 November 2002.

F.        The Respondent issued an amended notice of assessment for the year ended      30 June 2001 on 28 January 2003.

G.       The Respondent issued an amended notice of assessment for the year ended      30 June 2002 on 29 January 2003.

H.       The Applicant used $180,000 sourced from the eligible termination payments       in the year ended 30 June 2002 to purchase an interest in a retirement villa.

I.         The Applicant received eligible termination payments in the year ended      30 June 2002 in an amount of $208,532 comprising:

(i)        Undeducted contributions -- $10,457.

(ii)       Pre-July 1983 component -- $113,144.

(iii)      Post-June 1983 component (taxed element) -- $84,931.

Tribunal’s Reasons

16. As pointed out (correctly) by the Respondent, the only decision before the Tribunal in this appeal is in relation to an assessment for the year ended 30 June 2002. The central issue in this appeal is the amount of the section 159SA rebate available to the Applicant and what are the applicable tax rates.

17.     The Applicant’s assessable income includes the taxed element of the retained amount of the post-30 June 1983 component of an ETP (section 27B(1)(a): $84,931), plus the untaxed element of the retained amount of the post-30 June 1983 component of an ETP (section 27B(1)(b): not applicable) and 5% of the pre-July 1983 component of an ETP (section 27C(1): $113,144).

18. The Applicant received ETPs totalling $79,435 over the 1999 – 2001 fiscal years. The difference between the sum of $79,435 and the upper limit of $105,843 (the upper limit under the 2001 – 2002 fiscal year under section 159SG) is $26,408. The sum of $26,408 is the residual amount under section 159SF. Under section 159SF, the upper limit for the year ended 30 June 2002 is $105,843. The section 159SA rebate cannot exceed the residual amount under section 159SF because this is predicated by a combination of sections 27B and 159SF and 159SG. Section 159SF aggregates as an element of the “residual amount” calculation amounts assessable to the Applicant under section 27B in previous years while the Applicant was over 55 years of age, and in this case that amount is $79,435 (which explains the relevance of previous years’ ETPs). The Applicant received ETPs totalling $79,435 over the 1999 – 2001 fiscal years, and this sum is deducted from the residual amount under section 159SF. The nil rate of tax under section 159SA(1), Table 1, Item 2, only applies to the sum of $26,408 and the remaining part is subject to a tax rate of 15% because of section 159SA(1), Table 1, Item 3. The Applicant did not dispute the calculations of the Respondent, and in fact the Applicant made a concession that they were correct.

19. There is nothing in the scheme of the rebate provisions comprising Part III, Division 17, Subdivision AAA of the ITAA 1936 (portions of which are relevant to this appeal) which allows for unused portions of the 0 % tax rate from previous years to be carried forward and utilised by taxpayers. This is sufficient to dispose of the Applicant’s contention to that effect. Similarly, the Applicant’s contention that the Tribunal should average the Applicant’s ETP income from previous years (if in substance this is what the Applicant was contending, the exact nature of the contention not being entirely clear to the Tribunal or to the Respondent, for that matter) is not supported by any of these or any other provisions. Income averaging takes place for special classes of taxpayers such as autos, inventors, performing artists and production associates, and sports persons under Division 405 of the Income Tax Assessment 1997 (for an analysis and review of these specialist income-averaging provisions, see RL Deutsch and Ors, Australian Tax Handbook 2004 (Thomson/ATP, Sydney, 2004), Chapter 36).

20. The Applicant contended that he used $180,000 from the funds derived from his 2002 fiscal year ETPs to purchase an interest in a retirement villa. While the exact nature of this basal contention was not clearly articulated by the Applicant, the Tribunal took this contention to be advancing a proposition that because the Applicant had provided for his retirement living out of his own resources, the Respondent should not bring those funds into the tax equation whether as an ETP or in some other capacity. Once an amount of money is received in the capacity of an ETP (the payment being properly classifiable as such), then it is taxable as such in accordance with whatever concessions or rebates or other privileges Parliament chooses to confer or provide and subject to such burdens, liabilities for disabilities as Parliament chooses to impose. There is no legislative warrant for this Tribunal to override the clear language of Part III, Division 17, Subdivision AAA of the ITAA 1936 and to assign the ETPs received by the Applicant with a different characterisation that is not supported by the law or the facts before it that takes these payments outside of the ETP regime. The Tribunal was unable to accede to the Applicant’s contention.

21. The Applicant disputed his liability to pay the Medicare levy because he is paying private health insurance. The liability of the Applicant to the Medicare levy arises under section 251S of the ITAA 1936 based upon his taxable income for the relevant year in question. Section 251S(2) provides that the Medicare levy (whether the base amount or any surcharge amount) is payable in addition to any tax payable by the taxpayer in accordance with any other provision of the ITAA 1936. The Medicare Levy Act 1986 contains no mechanism in the nature of a concession exception that provides that the liability of a person who is liable to pay the base Medicare levy is excused by the circumstance of that person holding any relevant health insurance policy. There was no evidence before the Tribunal to suggest that the Applicant is a prescribed person who is not liable to pay the base Medicare levy under sections 251T and 251U of the ITAA 1936. The Tribunal notes that the Applicant did not so contend. Accordingly, there is no basis for the Applicant’s contention that he is not liable to pay the Medicare levy.

Tribunal’s Conclusion

22. For these Reasons, the Tribunal concludes that the correct and preferable decision in this case is that for the 2002 fiscal year, the Applicant’s ETPs (being aged 55 ETPs) are taxable at the “low rate part” of 0% as to the amount of $26,408 under section 159SA, Table 1, Item 2 and the balance (or the “remaining part”) is taxable at the rate of 15% under section 159SA, Table 1, Item 3 of the ITAA 1936. The Applicant is not able to average his income from ETPs to take advantage of any more advantageous tax concessions or rebates that have been afforded him already. The Applicant is liable to pay the Medicare levy despite the fact he pays for private health insurance.

Tribunal’s Order

23.     The Tribunal decides to affirm the decision under appeal.

I certify that the 23 preceding paragraphs are a true copy of the reasons for the decision herein of Mr S C Fisher, Member

Signed:         Camille Banks

Associate

Date/s of Hearing  20 October 2004 [Bundaberg]
Date of Decision  20 January 2005 [Brisbane]
The Applicant appeared in person
Solicitor for the Respondent     Mr S Aftanas, Australian Taxation Office