Balfour-Whiting and Commissioner of Taxation

[2002] AATA 393

DECISION AND REASONS FOR DECISION [2002] AATA 393

ADMINISTRATIVE APPEALS TRIBUNAL               Nº ST1999/58

TAXATION      APPEALS        DIVISION
  Re:            CHRISTINE BALFOUR-WHITING

Applicant

And:         COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal:       Mr B.H. Pascoe, Senior Member
Date:             23 May 2002
Place:            Adelaide

Decision:The Tribunal varies the decision under review, by remitting the matter to the respondent with a direction that the amount of $46,838.00 received by the applicant pursuant to s.30 of the Safety, Rehabilitation and Compensation Act1988 in the year ended 30June1998 was assessable income and that the respondent reconsider whether such amount was an eligible termination payment pursuant to s.27A of the Income Tax Assessment Act1936.

Liberty is granted to apply to the Tribunal after such reconsideration.

(sgd) B.H. Pascoe
  Senior Member
  INCOME TAX – lump sum redemption of compensation payments – whether assessable income – whether eligible termination payment
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Safety, Rehabilitation and Compensation Act1988

Federal Commissioner of Taxation and Slaven 84 ATC 4077

Re Coward and Federal Commissioner of Taxation (1999) 54 ALD 83 99 ATC 2166

Tinkler v Federal Commissioner of Taxation 79 ATC 4641

Federal Commissioner of Taxation v Inkster 89 ATC 5142

Re Barnett and Federal Commissioner of Taxation [1999] AATA 950

Henry Jones (IXL) Ltd v Federal Commissioner of Taxation 91 ATC 4663

Re Gillespie and Commissioner of Taxation [2001] AATA 1009

Case M85 80 ATC 618
Case Q62 83 ATC 326
Case V16 88 ATC 185
Case W78 89 ATC 744
Raynor and Commissioner of Taxation 98 ATC 2310

REASONS FOR DECISION

23 May 2002  Mr B.H. Pascoe, Senior Member

1. This is an application to review a decision of the respondent to disallow an objection against an assessment of income tax for the year ended 30June1998.  The objection was to the inclusion in assessable income of $46,828.00 being a lump sum received in that year in redemption of the applicant's entitlement to weekly compensation under the Safety, Rehabilitation and Compensation Act1988 ("SRC Act").

2. The applicant, MsC.Balfour-Whiting, who was unrepresented, and the respondent agreed pursuant to s.24B of the Administrative Appeals Tribunal Act1975 that the Tribunal may review the decision by considering the documents or other material lodged with or provided to the Tribunal and without holding a hearing.

3. The facts of this application are relatively straightforward and were set out briefly in an agreed statement of facts as follows:

   1.The Applicant's date of birth is 25January1952.

   2.The Applicant was injured in the course of her employment with the Department of Defence.

   3.As a consequence of her injury, she became entitled to weekly income maintenance payments pursuant to section19 of the Safety, Rehabilitation and Compensation Act 1988 (SRCA).

   4.The Applicant was advised by letter dated 25September1997 that the Department of Defence had decided to redeem her weekly payments pursuant to section30 of the SRCA.  Extracted from that letter:

   "DECISION
   I hereby determine that with effect 1November1997 you are deemed 'able to earn' a weekly amount of $459.94.  This will have effect of reducing your weekly incapacity benefit to $62.33 per week.  As this is less than the redemption ceiling of $70.40pw this amount will be redeemed and paid as a lump sum on pay day 13November1997."

   5.The Applicant received a lump sum redemption payment of $46,828.20, which she returned as assessable income for the year ended 30June1998.  A Notice of Assessment issued on 22September1998 in accordance with the return lodged.

   6.The Applicant objected to the Notice of Assessment for the year ended 30June1998 on 7December1998.

   7.The Applicant's objection was disallowed in full on 30July1999.  

4. Section30 of the SRC Act states:

   30.(1)      Where:

   (a)Comcare is liable to make weekly payments under section 19, 20, 21 or 21A to an employee in respect of an injury resulting in an incapacity;

   (b)the amount of those payments is $50 per week or less; and

   (c)Comcare is satisfied that the degree of the employee's incapacity is unlikely to change;

   Comcare shall make a determination that its liability to make further payments to the employee under that section be redeemed by the payment to the employee of a lump sum.

   (2)          The amount of the lump sum is the amount worked out using the formula:

   52  x  amount per week  x  [(specified number  +  1)n  -  1].

   specified number  x  [(specified number  +  1)n]

   (3)          For the purposes of subsection (2):

   "amount per week" means the amount per week payable to the employee under section 19, 20, 21 or 21A, as the case may be, at the date of the determination;
   "specified number" means the number specified by the Minister;
   "n" means the number worked out using the formula:

   number of days

   365

   where:
   "number of days" means the number of days in the period beginning on the day after the day on which the determination is made and ending on the day immediately before the day on which the employee reaches 65 years of age.

   (4)          The Minister may, from time to time, by notice in writing, specify a number (being a specification of the number in decimal notation) for the purposes of subsection (2).  

The amount of $50.00 in clause(1)(b) is indexed in accordance with s.13 of the SRC Act and, at the date of the determination, was $70.40. The number specified by the Minister is 0.03. The effect of the formula in s.30 is to produce a lump sum amount equal to the present value of the weekly compensation amounts payable to age65 and discounted at the rate of 3percent perannum.

1. The applicant's objection to the inclusion of the lump sum redemption amount was on the grounds that the amount was capital as compensation for a loss of earning capacity.  The decision in Federal Commissioner of Taxation and Slaven 84ATC 4077 was relied upon in support of that contention. The respondent relied upon the decision of MathewsJ, sitting as President of this Tribunal, in Re Coward and Federal Commissioner of Taxation (1999) 54 ALD 83 99 ATC 2166 in support of the view that the amount was assessable income under s.6-5 or, alternatively, s.15-30 of the Income Tax Assessment Act 1997 ("the 1997 Act").

2. In the letter of 25September1997, which made the determination to redeem the weekly incapacity benefits by the lump sum, the statement was made that:

   … You are currently paid incapacity benefits on the basis of total incapacity for employment.  However, after considering the medical evidence on your file and your recent employment, it is clear that you are not in fact totally incapacitated for employment but only partially so.  

The letter then set out the basis of the assessment of $459.94 as the amount MsBalfour-Whiting was able to earn in suitable employment. Under s.19 of the SRCAct, an employee who is incapacitated for work as a result of an injury is entitled to weekly compensation based on the difference between the employee's normal weekly earnings and the amount per week (if any) that the employee is able to earn in suitable employment. Under s.23 of the SRC Act, compensation is not payable under s.19 to a person who has reached age 65.

1. It is clear from decisions in cases such as Tinkler v Federal Commissioner of Taxation 79 ATC 4641 and Federal Commissioner of Taxation v Inkster 89 ATC 5142 that the weekly compensation payable under the SRC Act is income. The terms of s.19 which uses normal weekly earnings of an employee prior to the injury as the starting point for the calculation of weekly compensation make it clear that such compensation is in substitution for the loss of income. The reduced amount of weekly compensation to which MsBalfour-Whiting would have been entitled after the assessment of the amount she was able to earn in suitable employment would have served the purpose of providing a regular income supplement to compensate for the partial incapacity.

2. The question in issue here, however, is whether the lump sum in redemption of the entitlement of MsBalfour-Whiting to ongoing weekly compensation until age65 is itself income.  Reliance was placed by her on the decision in Slaven (supra).  However, the decision in that case can be distinguished from this lump sum.  In Slaven the payment was made pursuant to s.25(1) of the Motor Accidents Act 1973 (Vic).  This section was amended following the decision in Tinkler (supra) and provided:

   25.(1)      Where a person injured as a result of an accident suffers deprivation or impairment of his earning capacity by reason of the injury and makes an application under this Act for a payment under this section in respect of that deprivation or impairment, the Board shall, subject to this Act, pay to that person:

   (a)such amount as, in the opinion of the Board, will adequately compensate that person for the deprivation or impairment of earning capacity which he has suffered; or

   (a)$20,800 –

   whichever is the lesser.  

In assessing the compensation the Board was required to have regard to loss of part earnings, likely loss of future earnings, the nature of the injury, the nature of the person's trade, business or profession and the medical evidence relating to theinjury.  In the Federal Court, BowenCJ, Lockhart and SheppardJJ said (atpp.4084-4085):

…
The exercise in which the Board is required to engage by the Act is not merely one of assessing lost earnings.  It is in fact an exercise in valuation.  It is true to say that the amount of compensation payable to an injured person is quantified by a consideration of what the use of the lost or diminished earning capacity might be expected to produce.  In some simple situations the amount of lost earnings may be a certain and ready guide to the amount of entitlement.  But the Board's task is essentially to determine the compensation payable to a person having regard to the deprivation or impairment of his earning capacity by reason of the injury.  The distinction between loss of earnings and loss of earning capacity is well established; it is by no means fictional.  See for example Paff v Speed (1961) 105 CLR 549 per Windeyer J (at 566–7); Graham v Baker (1961) 106 CLR 340 per Dixon CJ and Kitto and Taylor JJ (at 346–7); Skelton v Collins (1966) 115 CLR 94 per Windeyer J (at129); and Atlas Tiles Ltd v Briers (1978) 9 ATR 142; 144 CLR 202; per Barwick CJ (ATR) 152; (CLR) 210.  Nothing in the judgment of the majority in Cullen v Trappell (1980) 10 ATR 772; 146 CLR 1 detracts from what Barwick CJ said on this topic in the Atlas Tiles case.  

In concluding that the payments under s.25(1) were of a capital nature, their Honours said (at p.4085):

…
Whether a receipt constitutes income or capital must, of course, depend upon a consideration of all the circumstances.  It is the character of the receipt in the hands of the taxpayer as recipient that must be determined:  Hayes v FCT (1956) 6 AITR 248 at 254; 96 CLR 47 at 55; Scott v FCT (1966) 10 AITR 367 at 376; 117 CLR 514 at 526; Federal Coke Co Pty Ltd v FCT (1977) 7 ATR 519 at 529; 34 FLR 375 at 388.
The Parliament of Victoria cannot determine by its own legislation whether the receipt of a statutory payment answers the description of income or capital in the hands of the recipient within the meaning of s 25 of the Assessment Act, a Commonwealth Act.  But the purpose of a statutory payment, as disclosed by the terms of the statute itself, must be a powerful, though not conclusive, aid to the determination of the character of the payment and in particular as to whether its receipt constitutes income in the hands of a taxpayer.
These considerations do not support the notion that payments made pursuant to determinations of the Board are in partial substitution for earnings which would have been earned but for the relevant accident.  The essential character of those payments is in our opinion, as compensation for loss or impairment of earning capacity.  The receipt of those payments is a capital receipt. 

1. In Coward, MathewsJ was considering a redemption of weekly compensation payments under s.137 of the SRC Act. The weekly payments had their origin in s.45 of the Compensation (Commonwealth Employees) Act 1971 ("the 1971 Compensation Act"). The applicant in that case was injured in 1983 and retired from employment by reason of his incapacity in 1985. On turning 65years, the rate of compensation was reduced in accordance with s.134 of the SRC Act and MrCoward was entitled to request a lump sum redemption as the weekly rate was below $65.99 per week. An amount of $39,590.00 was paid as a lump sum. For all relevant purposes, the wording of s.137, which refers to employees whose entitlement arose under the 1971 Compensation Act, is identical to that of s.30 of the SRC Act. HerHonour, having considered a number of relevant cases, did not accept the lump sum as capital on the grounds that MrCoward received consideration for disposal of a capital asset being his entitlement to weekly compensation payments for the remainder of his life. HerHonour took the view that such right or entitlement was inherently incapable of assignment because, being personal to the recipient, it was not a marketable commodity and there was no underlying capital asset, which was capable of transfer. However, MathewsJ considered that compensation payments after the recipient turns 65 years are of a different nature to those payable prior to 65. HerHonour said (at p.99):

   …

   (72)        The fact that there is a statutory reduction in the rate of weekly compensation payments when the recipient turns 65 plainly recognises that most members of the community are no longer in the workforce at that age.  The object of compensation which then becomes payable can no longer be to compensate the individual for lost earnings, for it is assumed at that stage that there would not in any event be any earnings.  What, then, was the nature of the payments to which the applicant was entitled after he turned 65?  The answer provided by the majority in Inkster, in not dissimilar circumstances, is that the payments represented compensation for loss of earning capacity.  As such, the payments had their genesis in capital, but nevertheless were income in the hands of the applicant so long as they were paid on a weekly basis.

   (73)        Lee J's observation in Inkster as to the likelihood of a redemption payment being capital in the hands of the taxpayer was clearly obiter, and the circumstances of that case were by no means identical to those of the applicant here.  In particular, the weekly payments made to Mr Inkster were calculated on a "notional" basis which had no relevance to his present circumstances.  The weekly payments made to the present applicant, at least before he turned 65, had their basis in his "normal weekly earnings" at the time he received his injury.  However, when he turned 65, and the payments were reduced under the formula contained in s 134, any relevance that the resultant amount had to his present circumstances was so remote as to be indistinguishable from the circumstances in Inkster.  Accordingly I consider that the analysis undertaken by Lee J is both relevant and applicable in this case.  Under this analysis, the weekly payments which the applicant was entitled to receive after he turned 65 constituted income in his hand notwithstanding that they were designed to compensate him for a capital loss.  The periodicity of the payment was the principal feature which converted them from capital to income.  The lump sum redemption payment, which clearly lacked this feature, therefore reverted to capital.  

2. In Inkster (super) LeeJ said (at pp.5159-5260:

   …
   Soon after the payments commenced, the respondent sought to redeem his entitlement to compensation for his incapacity, measured under the Act in the terms of weekly payments, by redeeming his entitlement to such payments in the manner provided by s 67 of the Compensation Act.  However, the respondent could not reach agreement with the insurer of his former employer as to the sum to be paid to discharge the employee's liability under the Act.  If the respondent had been able to commute his entitlement, the sum received may have been a capital receipt as far as the respondent was concerned having regard to the particular circumstances of his case, but the receipt of regular periodical payments pursuant to the scheme for such payments provided by the Compensation Act was able to give what otherwise may have been a capital receipt the character of income.  

However, in that case the particular circumstances of MrInkster were that he was not required to demonstrate an actual reduction in earning capacity in making a claim for compensation nor any difference between pre-injury and post-injury earnings.  As LeeJ found (at pp.5156-5157):

…
The respondent's former employer, through its insurer, calculated the payment of compensation by comparing the notional weekly earnings of a person carrying out the respondent's former occupation, a fitter, and the notional possible earnings of the respondent.  In fact, the employment obtained by the respondent after his retirement, although temporary in nature, provided earnings substantially in excess of those payable to a fitter and there was no evidence that the respondent was unable to obtain employment providing earnings equivalent to that of a fitter if he wished to do so.  There was no evidence that the disease from which he was suffering had disabled him from obtaining employment for which he was suited by his particular experience before his retirement and which required no major physical exertion.
In making a calculation based upon notional earnings to assess the respondent's entitlement to weekly payments of compensation for his disability of pneumoconiosis, the employer's insurer proceeded to an assessment that disregarded whether, in fact, a partial incapacity for work had resulted from the disability and a loss of earnings had been suffered by the respondent during such incapacity.  As was set out in the evidence adduced before the tribunal, the calculation of the weekly payments of compensation paid to the respondent represented an assessment of the diminution of the respondent's capacity to earn income and was made in consequence of the finding of the medical panel that the disease of pneumoconiosis had impaired the respondent's ability to undertake physical effort by 40 per cent.
No loss of income was established or sought to be established nor inferred from the facts.  The calculation proceeded as if the respondent had an entitlement to an assessment for compensation which represented the extent of the impairment of his ability to gain income by personal exertion.  As such it was an assessment of the loss of capacity to earn income and not a calculation of a payment to serve as a contribution to offset an actual loss of income.  In that regard it was directed more to the matters with which Sch 2 of the Compensation Act was concerned, namely calculation of lump sum payments for compensation for the impairment of a worker's ability to earning income by reason of bodily injuries.  

Although the reference by LeeJ to the possibility of any lump sum commutation being capital was obiter, it could be seen as being persuasive in similar circumstances to that of MrInkster.  However, the circumstances of this case can be easily distinguished.  Here the weekly compensation is an actual calculation of the loss of earnings.

1. Iaccept that the very nature of the calculation of the lump sum redemption amount involves an assessment of loss of earnings in the subsequent 19years before age65 and, to that extent, is based on notional earnings continuing at the same level as assessed in November1997.  This could lead to a view that it is compensation for loss of future earning capacity, rather than actual loss of earnings.  However, it is based on current loss of earnings and is a logical calculation to avoid the payment of relatively small amounts on a weekly basis for that further 19years.  Iam not persuaded that it moves the consideration sufficiently from loss of earnings to loss of earning capacity.

1. In a subsequent decision of this Tribunal in Re Barnett and Federal Commissioner of Taxation [1999] AATA 950, SeniorMemberBlock was required to consider a lump sum redemption of compensation payments under s.49 of the 1971 Compensation Act. As MrBarnett had requested such redemption prior to commencement of the SRC Act in December1988, the redemption was made under the earlier Act. Section49 of the 1971 Compensation Act provided:

   …

   49(1)       Subject to this section, where payments of compensation in respect of an injury have been made to an employee under section46 for a continuous period of not less than six months, the employee may request the Commissioner in writing that the liability of the Commonwealth to make further payments to the employee under that section be redeemed by the payment to the employee of a lump sum.

   (2)          A request under sub-section(1) shall be in writing and shall specify the manner in which the employee intends to use the lump sum if the request is granted.

   (3)          Where a request is made under sub-section(1), the Commissioner shall, unless the employee has, by notice in writing to the Commissioner, withdrawn the request, determine:

   (a)whether the liability of the Commonwealth is to be redeemed by the payment to the employee of a lump sum; and

   (b)if he determines that the liability is to be so redeemed – the amount of the lump sum.

   (4)          The amount of the lump sum is the amount determined to be the value, as at the date of the determination by the Commissioner that the liability is to be redeemed, of the right of the employee to receive further payments of compensation under section46 and, in the determination of the value of that right, regard shall be had to the nature of the injury to the employee, the age and occupation of the employee and any other relevant matters.

   (5)          The Commissioner shall not make a determination that the liability of the Commonwealth to make further payments to an employee under section46 is to be redeemed unless he is satisfied that:

   (a)the injury is not likely to result in the employee becoming totally incapacitated for work;

   (b)the employee intends to use the lump sum in a manner that is particularly advantageous to the employee; and

   (c)in all the circumstances it is desirable in the interests of the employee that the liability of the Commonwealth be redeemed.  

In finding that the lump sum was capital, SeniorMemberBlock said (at paras12-14):

…

12      Ultimately it was unnecessary for me to decide whether a payment measured purely by reference to lost earnings is referable to just that, ie "lost earnings", or to a loss of earning capacity.  It is likely in my view that where an Applicant is entitled to a weekly compensation payment, and he then, as a matter of right, redeems that amount in accordance with a formula calculation which is related to the weekly payment and the period during which it is likely to be paid, the lump sum payment is likely to be a substitute for income and thus stamped with the character of income. Ithink that it is implicit in her Honour's judgment in Coward that she would have found that the relevant lump sum would have been correctly characterised as income were it not for the statutory provision (as to an Applicant receiving diminished payments on attaining the age of 65) which in her view gave rise to a capital characterisation.  But in this case, section 49 of the Old Act is the section pursuant to which payment was made and it is the Old Act which must be considered in order to determine the character of the lump sum payment.  In this connection:
(a)       In the first instance the section 49 lump sum procedure is available only in relation to section 46 (partial disability) and not section 45 (total disability).  This tends, in my view, to support a conclusion that it is designed to foster a "self-help" or "self-funding" program, but only for a partially disabled Applicant, and not for a totally disabled Applicant (who presumably, and being totally disabled, cannot administer it), and which explains why the same procedure is not available by reference to a totally disabled Applicant under section 45.
(b)       Section 49(2) requires a plan by the Applicant as to how the lump sum will be used.  (The internal directives of Comcare indicate that a detailed plan is required.)
(c)       Section 49(3) then proceeds to specify the factors to be taken into account and which include the nature of the injury, the age and occupation of the employee and "any other relevant matters".
(d)       It is to be noted in particular that ex facie the Statute, the procedure is not a simple matter of arithmetic involving a calculation of the weekly compensation, life expectancy (per the relevant tables) and a discount rate.  There are, as the section specifies, other considerations to be taken into account for the purpose of the valuation.  It may be that in practical terms the process is dealt with as if it were merely arithmetical, but such a process would not accord with the statutory requirements of the Old Act.  The statutory provision requires a consideration of, amongst other things, the nature of the injury, and the age and occupation of the Applicant; these factors are clearly designed to determine whether the Applicant in question is capable of administering a "self-help" program, and so that arithmetic is by no means the only relevant factor.
(e)       Even more to the point is the fact that the relevant authority must be satisfied that the lump sum will be utilised in a particularly advantageous manner (and see (b)(ii) of Comcare's internal directive quoted earlier in these Reasons).  The plain intent is that the lump sum will be used by the partially disabled person in question as a fund in order to provide either substitute income or a reduction in relevant obligations (or both).  Viewed from this perspective, it seems clear that the legislative intent was that the payment would not be treated as income; were it to be treated as income, and taking into account marginal rates in Australia, a substantial amount (of not much less than one-half) would immediately be lost to income tax.  Such an impost would, in my view, defeat the object of the statute which is designed in its terms to remove Comcare as a provider of support and to enable the partially disabled person in question to support himself through his own plan.  And this explains why the plan is of such importance.  The relevant plan and Comcare's approval thereof lies at the heart of section 49.  The plan is to be formulated by reference to the whole of the lump sum, and not by reference to a part of it and which is not much greater than one half of it.  This is, in my view, further indication of a clear legislative intent that it be treated as capital.
(f)        Nor is the "right" to a lump sum properly characterised as a right.  It is more aptly characterised as a right to apply, but the provisions of section 49 make it clear that the application will be granted (on a discretionary basis) only if, amongst other things, the nature of the plan is satisfactory (and see for example Australian Telecommunications Commission v Newson (1985) 61 ALR  521  as to the nature of the relevant enquiry).
(g)       It is true, as Mr Dwyer submitted, that the Old Act does not specify in categorical terms whether a lump sum payment under section 49 is to be categorised as capital or income.  But the provisions of the Old Act point strongly to the fact that an inference of capital was intended. An inference of income would, in my view, defeat the object of section 49.  (I note, for what it is worth, that if the decision in Coward was correct in respect of the statutory provisions there considered, the statutory provisions considered in the present case are far clearer as to a capital intent.)

13       Although generally a payment must be characterised in accordance with its nature in the hands of the recipient (and see Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449), the decision in Inkster indicates that the motivation of the payer is not irrelevant.  And the payer (Comcare) per its own internal directive considered that such a payment would be capital.

14       In the circumstances, the question asked of me as to whether the lump sum payment was capital or income must be answered on the basis that it was capital and the objection decision under review is set aside accordingly. 

1. The decided cases have made it clear that compensation for the loss of earnings is income while compensation for the loss of earning capacity, unless paid weekly or periodically, is capital.  The difference, while real, is often difficult to identify.  In this case, the entitlement to weekly compensation was calculated as the difference between pre-injury earnings and post-injury earnings.  It was clearly an indemnity for a loss of earnings.  The lump sum redemption, as a consequence, is merely a substitution for the future income and is itself income.  In Henry Jones (IXL) Ltd v Federal Commissioner of Taxation 91 ATC 4663, the Full Federal Court was considering the assignment of royalties in that case. Hill J said (at p.4675):

   … Notwithstanding some doubt, I think Myer must be taken as establishing that, except in the case of the assignment of an annuity where the income arises from the very contract assigned, an assignment of income from property without an assignment of the underlying property right will, no matter what its form, bring about the result that the consideration for that assignment will be on revenue account, as being merely a substitution for the future income that is to be derived. Thus, the fact that the future income may be secured by an agreement, and that the assignment is of the right title and interest of the assignor in that agreement will not affect the result.
   So stated the principle is consistent with the development of the law in cases involving compensation for rights of income. Amounts received as compensation for an income right, amounts which thus fill the hole of income, have the character of income.

This is just such a case and the lump sum received pursuant to s.30 of the SRC Act constitutes assessable income under s.6-5 of the 1997 Act. Having made that finding, it is unnecessary to consider s.15-30 of that Act.

1. For completeness, it should be said that some earlier decisions of the former Board of Review ("the Board") and this Tribunal which were said to support the applicant's case, were of little or no assistance.  These cases were:

   Case M85 80 ATC 618
   Case Q62 83 ATC 326
   Case V16 88 ATC 185
   Case W78 89 ATC 744
   Raynor and Commissioner of Taxation 98 ATC 2310

All of these cases related to the subsequent refunding of previously received weekly compensation from an award of damages where a taxpayer either sought a deduction for the refund or sought to have the subsequently refunded amounts excluded from assessable income.  In none of these cases was the Board or Tribunal required to consider the assessability of the lump sum damages award.  In any event, in the main, the damages were for negligence and the loss of earning capacity.

1. There is, however, one further issue. That issue is whether the lump sum redemption payment was an eligible termination payment ("ETP") under s.27A of the Income Tax Assessment Act 1936 ("the 1936 Act").  This was not raised by MsBalfour-Whiting in her objection to the assessments.  However, since that objection, the Tribunal handed down its decision in Re Gillespie and Commissioner of Taxation [2001] AATA 1009. In that case the applicant had received a lump sum redemption of weekly compensation payments pursuant to s.137 of the SRC Act. The redemption was made two years after MrGillespie retired from his employment with the Commonwealth on the grounds of total incapacity from work and the Tribunal found that both the weekly compensation and the lump sum was as a consequence of such retirement from employment and the lump sum was an ETP. The respondent, on becoming aware of the decision in Gillespie, drew it to the attention of MsBalfour-Whiting and advised that he would have no objection to the Tribunal permitting her to add the further ground that the lump sum was an ETP to her grounds of objection.  The benefit to her if such additional ground was successful would be to have the lump sum taxed at concessional rates.  Unfortunately, MsBalfour-Whiting has been overseas for some time and she has not made a formal request to include such a ground of objection nor provided the further factual evidence to allow a decision on such ground to be made.

2. In the circumstances, it is appropriate that the Tribunal exercise its discretion under s.14ZZK of the Taxation Administration Act1953 to allow the inclusion of an additional ground of objection that the lump sum in issue was an ETP.  The matter should be then remitted to the respondent with a direction that the amount of $46,828.00 received by the applicant in the year ended 30June1998 was assessable income and that the respondent should reconsider whether such amount was an ETP.  Liberty to further apply to the Tribunal after such reconsideration should be granted.

   I certify that the sixteen [16] preceding paragraphs are a true copy of the reasons for the decision herein of
   Mr B.H. Pascoe, Senior Member

   (sgd)       Catherine Thomas
                 Clerk

   Date of Hearing:  Decided on papers
   Date of Decision:  23 May 2002
   Solicitor for the Applicant:           Nil — self-represented

   Solicitor for the Respondent:        Mr B. O'Neill, Legal Practice Unit,
     Australian Taxation Office