Biswas and Commissioner of Taxation (Taxation)

[2019] AATA 2372

Biswas and Commissioner of Taxation (Taxation) [2019] AATA 2372 (5 August 2019)

Division:  TAXATION AND COMMERCIAL DIVISION

File Number:      2019/0643

Re:         Ratul Biswas

APPLICANT

And        Commissioner of Taxation

RESPONDENT

DECISION

Tribunal:  Senior Member Ehrlich QC

Date:      5 August 2019

Place:     Melbourne

The Tribunal affirms the decision under review.

.....[sgd]..................................................................

Senior Member Ehrlich QC

Catchwords

INCOME TAX – application for review of an objection decision – taxable income during the tax year ended 30 June 2017 – lump sum payment in arrears for underpaid wages – lump sum assessed as taxable income – where Applicant qualified for a tax rebate – whether Applicant was also eligible or entitled for medicare levy rebate or other relief in that income year – decision affirmed

Legislation

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

Judiciary Act 1903

Medicare Levy Act 1986

Tax Laws Amendment (2006 Measures No 3) Act 2006

Taxation Administration Act 1953

Secondary Materials

Legal Services Directions 2005

REASONS FOR DECISION

Senior Member Ehrlich QC

5 August 2019

Introduction and Background

1.        The facts that bring this matter to the Tribunal, and which are not in dispute, focus attention on whether the Parliament should legislate for a provision which would allow the Commissioner of Taxation (the Commissioner) to exercise a discretion in favour of taxpayers where the taxation legislation operates in an anomalous or unintended manner, as it does here. 

2.        The Applicant, Mr Ratul Biswas, arrived in Australia for the first time in March 2010 and in November 2016 became an Australian citizen.

3.        During much of that period he worked as an employee of a 7-Eleven franchise.  He worked long hours and, like many of his co-workers in 7-Eleven franchises, was grossly and unlawfully underpaid. 

4.        The revelation of widespread underpayments by 7-Eleven franchisees led to inquiries by the Senate and by Commonwealth agencies, including the Fair Work Ombudsman.  The franchisor set up a company, Independent Claims Pty Ltd, to investigate, assess and pay the claims of underpaid workers in the franchises.

5.        Subsequently, during the tax year ended 30 June 2017 (TY17), Mr Biswas received a lump sum payment of $61,985.69 in payment of the arrears of his underpaid wages (the lump sum).  I interpolate to observe that it is apparent from the Amended Assessment (as defined below) that a portion of the lump sum was withheld in accordance with the PAYG scheme.  His total PAYG withholding for FY17 was $34,257.  There is no dispute about such withholding. 

6.        The years of income to which the lump sum related was as follows:

Referrable year(s) of income

Amount

Year ended 30 June 2016

$2,470.28

Year ended 30 June 2015

$14,934.16

Year ended 30 June 2014 and earlier years

$44,581.25

Total

$61,985.69

7.        For much of the period for which Mr Biswas was underpaid he was exempt from paying the Medicare levy, and certainly for the period 1 July 2011 to at least 23 February 2014.  However, it is not disputed that by 1 July 2016 he was no longer exempt from paying the levy and that this remained the position during all of TY17.

8.        When Mr Biswas, through a tax agent, lodged his taxation return for TY17 he included the lump sum as assessable income in TY17.  It is not in dispute in this proceeding that the lump sum was assessable as income in TY17, and the return was lodged on that basis.

9.        In his return Mr Biswas included the following notation in the Additional Information Schedule (the notation):

“THE LUMP SUM PAYMENT OF $61,985 RELATES TO THE 2014 TO 2016 TAX YEAR AS FOLLOWS: 2014 TAX YEAR - $44,581 2015 TAX YEAR – $14,934 2016 TAX YEAR - $2,470”

10.      An assessment was issued on 7 November 2017.  Pursuant to that original assessment, Mr Biswas’ taxable income was $119,903.00, the tax on taxable income was $31,996.11 and a Medicare levy of $2,398.06 was imposed.  Leaving aside the notation, this was entirely consistent with the income tax return lodged on his behalf.

11.      On 25 January 2018 Mr Biswas amended his income tax return for TY17 (the Amended Return). He again returned the lump sum as income assessable in TY17, but now sought a tax rebate for the lump sum under Subdivision AB of Division 17 (ss.159ZR – 159ZRD) of the Income Tax Assessment Act 1936 (the ITAA 1936).

12.      If the income qualifies, the taxpayer is entitled to claim a rebate of tax in relation to lump sums paid in that tax year in respect of earnings which accrued in previous tax years.  The rebate is designed to address the problem of more tax being payable in the year of receipt of the lump sum arrears than would have been payable if the lump sum had been taxed in each of the years in which it accrued. 

13.      Broadly, the rebate is calculated as the difference between the extra amount of tax payable in the year of receipt because of the lump sum and the amount of tax that would have been payable if the lump sum had been taxed as it accrued.  The rebate thereby recognises the unfairness that can be caused in those circumstances by marginal rates. 

14.      Mr Biswas qualified for a rebate.

15.      The amended assessment was issued on 4 May 2018 (the Amended Assessment). Pursuant thereto, Mr Biswas’ taxable income remained at $119,903.00, the tax on taxable income remained at $31,996.11 and a Medicare levy of $2,398.06 was again imposed. However, in accordance with Subdivision AB of Division 17 of the ITAA 1936, he was allowed a non-refundable tax offset of $1,481.00. Thus, the only adjustment was to the assessed tax payable, which was reduced from $31,996.11 to $30,515.11.

16.      On or about 5 June 2018 Mr Biswas lodged an Objection to the Amended Assessment.   The basis of his Objection was as follows:

“I was charged Medicare levy for a Lump sum amount of $61,985, during the year end 30 June 2017.  However, significant portion of the Lump Sum amount is related to the period before 23 Feb 2014, when I was exempt from paying Medicare Levy.”

17.      On or about 21 September 2018 the Commissioner published his Notice of Objection Decision and reasons for decision.  The objection was not allowed.

18.      On or about 7 February 2019, Mr Biswas, who at all times has been self-represented in this proceeding and who appeared on his own behalf at hearing, lodged an application for review in the Tribunal in respect of the rejection of the said objection decision.  In his application, under the proforma heading “Why do you claim the decision is wrong”, Mr  Biswas stated as follows:

“I received a Lump Sum payment of $61985 during the financial year ended 30 June 2017.  This lump sum payment was subject to underpay for a period of March 2011 to June 2016. 

I was charged a Medicare Levy of $2,398.06 in the financial end 30 June 2017. 

Until 23 February 2014, I was Exempt from paying Medicare Levy. 

Therefore, significant portion of the lump sum payment relates to a period prior I became liable to pay Medicare Levy.  ATO have allowed me tax offset to reduce my tax debt considering the fact that the lump sum payment relates to "Prior multiple financial Years".  However, in calculating Medicare Levy ATO did not consider the same fact and they charged me for Medicare Levy (for the Lump sum amount received) during the period when I was exempt from paying Medicare Levy.

I am applying not to charge me for Medicare Levy for the portion of Lump sum payment which is subject to prior of 23 February 2014.”

19.      This is therefore an application to review a decision of the Respondent, the Commissioner, to disallow the objection against the imposition of the Medicare levy made in the Amended Assessment in respect of the year ended 30 June 2017.

20. Pursuant to section 14ZZK of the Taxation Administration Act 1953, Mr Biswas has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been.

21.      In the hearing, and in the Commissioner’s detailed outline of submissions to the Tribunal (which were filed in addition to the Commissioner’s Statement of Facts, Issues and Contentions) (SFIC), the Commissioner appeared to criticise Mr Biswas for not complying with a direction made on 18 April 2019 that Mr Biswas file “any statement that the taxpayer relies upon to support the view that the decision under review is not correct.” 

22.      That criticism, albeit faint, was not justified.  The direction was not mandatory and it is hardly surprising, in the circumstances of a case like this, and where Mr Biswas is self-represented, that the opportunity to file a statement was not taken up.  We are dealing with complex legislative provisions and the intersection of provisions found in three statutes.  Such issues are well beyond the submission of most self-represented litigants.  And in this regard it should be noted that the Commissioner briefed counsel to appear on his behalf. 

23.      In any event, the issue before the Tribunal is clear enough and was succinctly stated by the Commissioner in his SFIC: 

“Whether the Medicare levy of $2,398.06 payable by Mr Biswas pursuant to the notice of assessment for the year of income ended 30 June 2017 was correctly imposed.”

The Contentions

24.      It is convenient to start with the position of the Commissioner. 

25.      The position of the Commissioner is straightforward.  The Commissioner contends that:

(a)       the lump sum payment in arrears (LSPIA) of $61,985.00 was derived by Mr Biswas for the purposes of subsection 6-5(2) of the Income Tax Assessment Act 1997 and was properly included in his assessable income for the year ended 30 June 2017 (as I have said, this was not in dispute);

(b) the LSPIA of $61,985.00 was an eligible lump sum within the meaning of that expression in subsection 159ZR(1) of the ITAA 1936;

(c) for the year ended 30 June 2017, Mr Biswas was eligible for a LSPIA rebate of tax pursuant to section 159ZRA of the ITAA 1936 in respect of the payment of $61,985.00. The LSPIA rebate of tax was calculated pursuant to section 159ZRB on the basis that the LSPIA of $61,985.00 was referrable to the years of income set out in the table reproduced above;

(d) for the year of income ended 30 June 2017, Mr Biswas was a resident of Australia and was not a prescribed person pursuant to section 251U of the ITAA 1936. Pursuant to section 251S of the ITAA 1936, Mr Biswas was liable to pay the Medicare levy at the applicable rate of 2% under subsection 6(1) of the Medicare Levy Act 1986 on his taxable income;

(e)       Mr Biswas’ taxable income for the year ended 30 June 2017 was $119,903.00 and the amount of the Medicare levy payable of $2,398.06 (i.e. $119,903.00 x 2% = $2,398.06) was correctly imposed; and

(f)        in the circumstances, the decision under review should be affirmed.

26.      In his contentions at hearing, Mr Biswas was also succinct and articulate.

27.      The primary submission made by Mr Biswas was that it was unfair for the Medicare levy to be imposed where the lump sum related in large part to years in which he was exempt from paying it.  In making this submission Mr Biswas relied upon not only general notions of fairness but upon the model litigation obligations, which bind the Commissioner pursuant to the Legal Services Directions 2005 made under section 55ZF of the Judiciary Act 1903. Mr Biswas specifically referred the Tribunal to the obligation of the Commissioner to act fairly in the handling of claims and litigation.

28.      This secondary aspect of the fairness submission is, as I pointed out to Mr Biswas at hearing, mistaken at the outset.  The model litigant obligation to act fairly does not relate to the determination of the substantive issue falling for adjudication in the Tribunal.  It is procedural in nature.  It does not require or authorise the Commissioner to apply idiosyncratic notions of fairness in the application of the taxation laws of the Commonwealth.  I therefore reject this aspect of the fairness submission at the outset. 

29.      The secondary submission made by Mr Biswas was that the calculation made pursuant to section 159ZRB applied to reduce his taxable income in FY17 by the amount of the lump sum, and therefore the Medicare levy calculated thereon.

Consideration

30.      It is convenient to deal with Mr Biswas’ secondary submission first. 

31. The offset that arises under Subdivision AB of Division 17 (ss.159ZR – 159ZRD) of the ITAA 1936 is a rebate of tax provided under section 159ZRA. That section relevantly provides that:

(a)       where the assessable income of a natural person in an income year includes an eligible lump sum payment that is assessable in the year of receipt but accrued in earlier income years; and 

(b)       that lump sum exceeds the relevant threshold amount,

then, the taxpayer is entitled to a rebate of tax for the year of receipt equal to the amount calculated under Subdivision AB.

32.      As I have already said, the purpose of the offset or rebate is to address the disadvantage to the taxpayer of a lump sum payment attracting more tax in the year of receipt than would have been payable if the underlying payments had been taxed in the years in which they had accrued.

33.      But Subdivision AB does not operate to alter or recalculate the quantum of Mr Biswas’ taxable income in TY17.  It remains the same.  What Subdivision AB relevantly does, and only does, is provide a rebate (offset) against assessed tax payable on that taxable income.  It self-evidently does not also operate to change the actual sum of that taxable income.  Mr Biswas’ submission to the contrary must therefore be rejected. 

34.      Thus, notwithstanding the application of Subdivision AB to his taxation affairs in TY17, Mr  Biswas remained liable to pay the Medicare levy at the applicable rate of 2% on his taxable income – $119,903.00 – unless Mr Biswas’ primary submission of fairness impacts upon the issue or some other relevant provision can be identified.

35.      In most cases, the receipt of a lump sum payment in arrears will not cause injustice in respect of the Medicare levy because the levy is a flat rate imposed on taxable income; such that it takes no account of marginal rates or tax free thresholds or the quantum of taxable income.  Put simply, 2% is 2% whenever accrued. 

36.      This should be contrasted with the position in respect of income tax which is often impacted upon by the receipt of lump sum payments in arrears.  This is because income tax is assessed at marginal rates.

37.      But as this case well demonstrates, unfairness can result where the taxpayer was, in fact, exempt from paying the Medicare levy in a year or years in which the lump sum in arrears accrued.  Regrettably, an unfairness arises in those circumstances.  Given public revelation of continuing ‘wage theft’, especially in the hospitality sector, this unfairness is likely to be repeated.

38.      A similar unfairness was previously recognised and alleviated in relation to the Medicare levy surcharge by the introduction of the Tax Laws Amendment (2006 Measures No 3) Act 2006 and the insertion of Subdivision 61-L into the Income Tax Assessment Act 1997. This provision provided for an additional offset against surcharge similar to that provided by section 159ZRA of the ITAA 1936.

39.      Subdivision 61-L was introduced because the Parliament recognised that as the surcharge is imposed on a threshold basis, its imposition may be unfairly dictated by the receipt of a lump sum payment in arrears. 

40. Unfortunately for Mr Biswas, Subdivision 61-L does not also apply to the standard levy and the ITAA 1936 does not provide any further exemption or rebate for the purposes of the calculation or imposition of the Medicare levy in consequence upon the receipt of a lump sum payment in arrears.

41.      Nor does any other legislation provide any exemption or rebate for the purposes of the calculation or imposition of the Medicare levy in consequence upon the receipt of a lump sum payment in arrears. 

42.      This leaves only the question of fairness. 

43.      The only question for the Tribunal is whether or not the assessment of Medicare levy is excessive or otherwise incorrect.  This involves the application of law to facts.  Concepts of general or idiosyncratic fairness are not relevant to that question and do not operate to allow the Tribunal to set aside the decision under review.  This is so notwithstanding that the Tribunal well recognises that the consequence is that Mr Biswas is, in effect, being required to pay a Medicare levy in respect of periods of time in which he was exempt from paying it. 

44.      The Tribunal is therefore bound to reject the submissions made by Mr Biswas that were based upon concepts of fairness. 

45.      At the hearing Mr Biswas also brought to the attention of the Tribunal a settlement agreement he has entered into with the Secretary of the Department of Social Services in relation to a dispute concerning a family tax benefit debt of $2,451.75 for the period 1 July 2016 to 30 June 2017.  The agreement reduced that debt by $2,135.53.

46.      It is open to infer that the compromised debt arose because of the receipt of the lump sum in arrears in TY17 and its effect on Mr Biswas’ social security obligations.  Such may be inferred because the agreement recites that:

“On 18 March 2019, the Administrative Appeals Tribunal (Social Services and Child Support Division) affirmed a decision by an authorised review officer of the Department of Human Services (the Department) that the Applicant had a family tax benefit debt of $2,451.75 for the period 1 July 2016 to 30 June 2017 (the debt).”

47.      Even if that is so, however, the circumstances of that settlement are not known to the Tribunal and are not, in any event, relevant to the decision here under review.  It is not for the Tribunal to have regard to whether or not the Commissioner, acting properly, could have compromised this tax debt.  The only question for the Tribunal is whether or not the assessment of Medicare levy is excessive or otherwise incorrect after the application of legal principle to found or, as in this case, undisputed facts – not notions of idiosyncratic fairness. 

Decision

48.      In my determination:

(a)       the Commissioner correctly calculated Mr Biswas’ taxable income for the year ended 30 June 2017 as $119,903.00 and the amount of the Medicare levy payable as $2,398.06 (i.e. $119,903.00 x 2% = $2,398.06); and

(b)       Mr Biswas has failed in proving that the assessment of Medicare levy is excessive or otherwise incorrect.

49.      Accordingly, notwithstanding the sympathy that the Tribunal has for Mr Biswas’ position, the Tribunal affirms the decision under review. 

I certify that the preceding 49 (forty nine) paragraphs are a true copy of the reasons for the decision herein of Senior Member Ehrlich QC

....[sgd].................................................

Associate

Dated: 5 August 2019

Date of hearing:

18 July 2019

Applicant:

In person

Counsel for the Respondent:

Mr  Matthew Meng

Advocate for the Respondent:

Ms Hollie Golding

Review and Dispute Resolution,
Australian Taxation Office