COKER Applicant And COMMISSIONER OF TAXATION

[2010] AATA 367

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 367

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/6044

TAXATION APPEALS DIVISION		)
Re		JOHN COKER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Dr K S Levy RFD, Senior Member

Date18 May 2010

PlaceBrisbane

Decision The Tribunal affirms the decision under review.  

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

Senior Member

CATCHWORDS

TAXATION – Applicability of tax concession on redundancy payment – Termination payment not considered a genuine redundancy payment – Applicant not discriminated against on the basis of age – Decision under review affirmed.

Age Discrimination Act 2004 (Cth) s3, 17, 40, Pt 4

Income Tax Assessment Act 1997 (Cth) s 83-175

Dibb v Commissioner of Taxation [2004] FCA FC 126

Quality Bakes of Australia Ltd v Goulding (1995) 60 IR 327

Re Long and Commissioner of Taxation (2007) 66 ATR 806

Re Marriott and Federal Commissioner of Taxation [2004] AATA 806

REASONS FOR DECISION

18 May 2010 Dr K S Levy RFD, Senior Member           

INTRODUCTION

1.      The applicant, John Alfred Coker, a former part time Director of Uni Credit Union Ltd, received a redundancy payment on 31 July 2008, pursuant to an agreement with that Credit Union.  He was denied tax concessional treatment by the Commissioner for the amount of the termination payment.  His objection was not allowed by the Commissioner on 17 November 2009.  He now seeks review of that decision.

ISSUES

2.      The questions for the Tribunal are:

(a)Whether Mr Coker is entitled to a concessional tax treatment, that is, whether his termination payment is a genuine redundancy under s 83‑175 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997);

(b)Whether he has been discriminated against on the basis of age.

EVIDENCE

3.      The facts of this matter are as follows:

(a)Mr Coker was 76 years old at the time of his redundancy.  He is now 78 years of age.

(b)He retired from full time work in 1997.

(c)He was a part-time Director of the Credit Union in the late 1960s until its merger with another Credit Union in 2008.

(d)The Directorship was on the basis of election by the membership at the Annual General Meeting.  At the hearing, Mr Coker explained that Annual General Meetings attracted a very low attendance (average of 40 members) and it was difficult to get members to nominate to sit on the board.  As a result, he had been on the board for a very long time.

(e)Mr Coker told the Tribunal that at the time of his redundancy, the Credit Union did not know how the termination payment would be taxed and that he would have to negotiate that with the Australian Taxation Office (ATO).

(f)Mr Coker told the Tribunal that he was aggrieved by the ATO’s handling of the matter.  His request for amendment of the notice of assessment for the financial year ending 30 June 2009 was treated as an objection and not allowed.  Mr Coker said he was aggrieved by: the fact that his original letter was lost; the “tardiness” in dealing the matter generally; and, that instances of “incompetence” indicated his claim had legitimacy.  He also complained to the Taxation Ombudsman but he did not receive a reply. 

CONSIDERATION

4.      The facts in this matter are not in dispute.  The central issue of Mr Coker’s claim is for his termination payment to be regarded as a genuine redundancy.  Most other matters raised by the applicant regarding his perception of the respondent’s tardiness and lack of diligence are not issues that the Tribunal can make any finding or direction about.  However, Mr Coker raised at the hearing that he understood the legislative power relied upon was a breach of the Age Discrimination Act 2004 (Cth). I turn now to specific issues which the Tribunal must answer.

5.      The law dealing with this matter is relevantly contained in s 83-175 of the ITAA 1997 as follows:

Income Tax Assessment Act 1997 (Cth) s 83-175:

(1)  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.

(2)  A genuine redundancy payment must satisfy the following conditions:

(a)  the employee is dismissed before the earlier of the following:

(i)  the day he or she turned 65;

(ii)  if the employee's employment would have terminated when he or she reached a particular age or completed a particular period of service--the day he or she would reach the age or complete the period of service (as the case may be);

(b)  if the dismissal was not at * arm's length--the payment does not exceed the amount that could reasonably be expected to be made if the dismissal were at arm's length;

(c)  at the time of the dismissal, there was no * arrangement between the employee and the employer, or between the employer and another person, to employ the employee after the dismissal.

6.      The Commissioner’s advocate submitted that as the applicant was 76 years old when the termination payment was received, it cannot be a genuine redundancy under the above provisions.

issue 1: is the termination payment a “genuine redundancy”?

7.      Section 83-175(1) refers to a “genuine redundancy payment” of an “employee”.  Taxation Ruling 2009/2 (TR 2009/2 – Income Tax: Genuine Redundancy Payments) refers to a redundancy occurring “when an employer determines that it is superfluous to the employer’s needs and the employer does not want the position to be occupied by anyone.  Accordingly, it is fundamentally the employer’s decision that a position is redundant” (para 25). 

8.      A “genuine redundancy payment” does not always have the effect of a genuine “or bona fide” redundancy (ReMarriott and Federal Commissioner of Taxation [2004] AATA 806). The role of Director performed by the applicant was subsequently performed by another in the successor Credit Union after Mr Coker received his termination payment. The number of Directors in the merged (successor) organisation is not relevant for present purposes. Mr Coker was clearly made redundant. That is not in dispute. “A redundancy will arise where an employer has labour in excess of the requirements of the business; where the employer no longer wishes to have a particular job performed; or where the employer wishes to amalgamate jobs…” per Beazley J in Quality Bakers of Australia Ltd v Goulding (1995) 60 IR 327 at 332-33, cited in a decision of the Full Court of the Federal Court in Dibb v Commissioner of Taxation [2004] FCA FC126. 

9.      Mr Coker was clearly in excess of requirements.  This is because the Board on which he was a Director, ceased to exist when the Uni Credit Union ceased to exist as an independent legal entity.  It then became a new legal entity on merger with another Credit Union. 

10.     But was Mr Coker an “employee”?  The answer to this question is not straight forward.  He was paid for his part time services as a Director and was therefore a member of the governance body of the Credit Union.  He was not in a management role in the organisation nor was he an employee. 

11.     A redundancy of an employee is generally regarded as a dismissal in the sense that it is a non-consensual separation.  In ReLong and Commissioner of Taxation (2007) 66 ATR 806, the applicant there was an acting Director of a company and also held a management administrative role within the organisation. On winding up of the company, Mrs Long was regarded as having been dismissed as she had not consented, as a Director, to her own termination of employment. In Mr Coker’s case, he was a Director only and not an employee similar to the facts of Re Long.  Taking account of all the legal considerations in the present circumstances, the applicant is not, in my view, an employee and the provisions do not apply to him.

12.     Also, he clearly does not satisfy s 83-175(2).  In that provision, subsections (b) and (c) are not relevant here.  Only s 83-175(2)(a) is relevant in this case.  An applicant under that provision must satisfy the requirement that he was dismissed when he was under 65 years of age or that he was employed on a common law basis.  Mr Coker told the Tribunal there was no common law basis of employment.  Therefore, s 83-175(2)(a)(ii) cannot be satisfied.  He must therefore satisfy s 83‑175(2)(a)(i), which requires that his dismissal must have occurred before he turned 65 years of age.  That subsection also is not satisfied. 

13.     The decision to disallow the amount as a genuine redundancy payment is therefore correct as a matter of law as the statutory requirements have not been met. 

issue 2 – has mr coker been discriminated against on the basis of age?

14.     The issue of discrimination is dealt with under the Age Discrimination Act 2004 (Cth) which is designed, inter alia, “… to eliminate, as far as possible, discrimination against persons on the ground of age and the areas of work, education, … the administration of commonwealth laws and programs…” (s 3). It is re-emphasised in s 17 of that Act. However, Division 4 of Part 4 deals with general exemptions. Specific exemptions include areas such as charities, religious bodies, superannuation and taxation. Section 40 deals with “taxation laws” and provides, “this part does not make unlawful anything done by a person in direct compliance with a taxation law (within the meaning of the Income Assessment Act 1997).”

15. I am satisfied that s 40 does not have any overriding power in relation to s 83‑75 of the ITAA 1997.

16.     In these circumstances, I determine that the objection decision under review is affirmed.

I certify that the 16 preceding paragraphs are a true copy of the reasons for the decision herein of Dr K S Levy RFD, Senior Member

Signed: .........................[Sgd]....................................................
  Kate Slack, Research Associate

Date/s of Hearing  12 May 2010
Date of Decision  18 May 2010
The applicant was self represented 
For the Respondent                  Mr Scott Reeve, departmental advocate