Commissioner of Taxation v Macoun

[2014] FCAFC 162

FEDERAL COURT OF AUSTRALIA

Commissioner of Taxation v Macoun [2014] FCAFC 162

Citation:	Commissioner of Taxation v Macoun [2014] FCAFC 162
Appeal from:	Macoun v Commissioner of Taxation [2014] AATA 155
Parties:	COMMISSIONER OF TAXATION v ANDREW JOHN MACOUN
File number:	NSD 401 of 2014
Judges:	EDMONDS, PERRAM AND NICHOLAS JJ
Date of judgment:	4 December 2014
Catchwords:	INCOME TAX – appeal from Administrative Appeals Tribunal – whether appeal competent – whether pension from foreign retirement plan received in years of income when pensioner no longer employed by Specialised Agency exempt from income tax under cl 8 of the Specialised Agencies (Privileges and Immunities) Regulations 1986 (Cth); Part 1 of Fourth Schedule to International Organisations (Privileges and Immunities) Act 1963 (Cth); and s 6-20(1) of the Income Tax Assessment Act 1997 (Cth)
Legislation:	Administrative Appeals Tribunal Act 1975 (Cth) s 44(1) Income Tax Assessment Act 1936 (Cth) ss 23(x), 23(y), 27H Income Tax Assessment Act 1997 (Cth) ss 6-5,6-10, 6-20 International Organisations (Privileges and Immunities) Act 1963 (Cth) s 6 Specialized Agencies (Privileges and Immunities) Regulations 1986 (Cth) cl 8 Taxation Laws Amendment Act (No 2) 1988 (Cth) Vienna Convention on the Law of Treaties Convention on the Privileges and Immunities of Specialized Agencies Income Tax Regulations 1936 (Cth) cl 4AB Federal Court Rules 2011 rr 33.12, 33.30
Cases cited:	AAT Case 10,901 (1996) 32 ATR 1279 cited Australian Gas Light Company v Valuer-General (1940) 40 SR (NSW) 126 applied Birdseye v Australian Securities and Investments Commission (2003) 38 AAR 55 cited Brumby v Milner [1976] 1 WLR 1096 cited Brutus v Cozens [1973] AC 854 cited Case M90 (1980) 80 ATC 648 cited Federal Commissioner of Taxation v Broken Hill South Ltd (1941) 65 CLR 150 cited Hope v Bathurst City Council (1980) 144 CLR 1 cited Lombardo v Federal Commissioner of Taxation (1979) 28 ALR 574 cited Master Education Services Pty Limited v Ketchell (2008) 236 CLR 101 cited Nette v Howarth (1935) 53 CLR 55 cited Plaintiff M47/2012 v Director-General of Security (2012) 86 ALJR 1372 considered TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 cited
Date of hearing:	5 November 2014
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	60
Counsel for the Applicant:	Mr JO Hmelnitsky SC with Ms TL Phillips
Solicitor for the Applicant:	Australian Taxation Office Dispute Resolution
Counsel for the Respondent:	Mr RJ Ellicott QC with Ms MJ Hirschhorn and Mr B Symons
Solicitor for the Respondent:	Hazan Hollander

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 401 of 2014

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	ANDREW JOHN MACOUN Respondent

JUDGES:	EDMONDS, PERRAM AND NICHOLAS JJ
DATE OF ORDER:	4 DECEMBER 2014
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The appeal be allowed.

2.The decision of the Administrative Appeals Tribunal given on 20 March 2014 be set aside and the decision under review be affirmed.

3.The applicant pay the respondent’s costs, as agreed or taxed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 401 of 2014

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	ANDREW JOHN MACOUN Respondent

JUDGES:	EDMONDS, PERRAM AND NICHOLAS JJ
DATE:	4 DECEMBER 2014
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EDMONDS AND NICHOLAS JJ:

INTRODUCTION

1. This is an appeal from a decision of the Administrative Appeals Tribunal (“Tribunal”) setting aside the objection decision of the applicant (“Commissioner”) disallowing the respondent’s objections to amended assessments of income tax for the years of income ended 30 June 2009 and 30 June 2010 (“years of income”). 

2. The amended assessments included in the respondent’s assessable income for the years of income amounts the respondent had received by way of pension in those years of income under the World Bank Group Staff Retirement Plan.  The Tribunal substituted for the decision it set aside a decision that the pension received by the respondent in the years of income did not form part of his assessable income and was exempt from Australian income tax.

3. The appeal to this Court concerns the proper construction of s 6 of the International Organisations (Privileges and Immunities) Act 1963 (Cth) (“IOPI Act”) and cl 8 of the Specialized Agencies (Privileges and Immunities) Regulations 1986 (Cth) (“Regulations”).

4. Subsection 6(1)(d)(i) of the IOPI Act and cl 8(1) of the Regulations confer upon a person who holds an office in an international organisation to which the IOPI Act applies an exemption from taxation on salaries and emoluments received from the organisation. The question that arises in the present case is whether these provisions confer a taxation exemption in respect of pension plan payments received by the respondent, a former officer of the International Bank for Reconstruction and Development (“IBRD”), one of the organisations comprising the World Bank, at a time when he did not hold office in that organisation. The Commissioner contends that that question should be answered in the negative.

   THE FACTS

5. The primary facts, as found by the Tribunal, are not in dispute and are summarised below.

6. Between 1992 and 2007, the respondent worked overseas as a sanitary engineer for the IBRD.  During the respondent’s period of service with the IBRD he participated in the World Bank’s Staff Retirement Plan (“SRP”).  The SRP was a contributory defined benefit plan under which participants were required to make regular contributions equivalent to 7% of their pensionable gross salary.  During his employment with the IBRD, the respondent contributed a total of US$200,842 to the SRP.  The SRP required the IBRD to make contributions to fund the liabilities of the plan that were not funded by the participants’ contributions and to hold the assets of the SRP as a retirement fund.  Participation in the SRP was optional for employees under the age of 62 on fixed term appointments and mandatory for employees who had regular appointment status prior to attaining the age of 62, as did the respondent from September 1993 onwards.

7. The respondent retired from the IBRD in 2007, aged 60.  Participants in the SRP who retired between the ages of 55 and 62 could elect, as the respondent did, to receive monthly pension payments from the date of their retirement, calculated in accordance with formulae in the SRP.  During the years of income the respondent received pension payments under the SRP in the order of AUD$130,000 per annum.

8. The respondent originally lodged returns for the years of income that included as assessable income the amount of the pension payments received in each of those years.  He subsequently amended those returns to exclude the pension payments as assessable income, which led to the issue of the amended assessments referred to in [1] and [2] above.

   STATUTORY FRAMEWORK

9. Pension payments from a foreign pension fund would ordinarily fall to be taxed in accordance with s 27H of the Income Tax Assessment Act 1936 (Cth) (“1936 Act”) as assessable income, unless a relevant exemption applies: see s 27H(1)(a); and the definition of “annuity” in s 27H(4). See also ss 6-5, 6-10 and 6-20 of the Income Tax Assessment Act 1997 (Cth) (“1997 Act”). In particular, s 6-20(1) of the 1997 Act provides:

   An amount of *ordinary income or *statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another *Commonwealth law.

10. The IOPI Act and Regulations incorporate, as part of Australian domestic law, the international law obligations assumed by Australia under certain international conventions, including the Convention on the Privileges and Immunities of Specialized Agencies (“Convention”).  Australia agreed to the Convention with reservations in 1962 but only formally acceded to the Convention without reservation in 1986.

11. Parts of the Convention were originally given operation under Australian law by ss 23(x) and 23(y) of the 1936 Act, cl 4AB of the Income Tax Regulations 1936 (Cth) and Regulations No. 105 of 1962 made under the IOPI Act. However, those provisions and regulations were repealed in the late 1980s following Australia’s complete accession to the Convention. Since that time, the Convention has been implemented as part of Australian domestic law through the IOPI Act and the Regulations which were made pursuant to the broad regulation-making powers in ss 5(1) and 13 of the IOPI Act.

12. The IOPI Act applies to “international organisations” that are declared by the Regulations to be ones to which the Act applies. The Regulations specify that the IBRD, the organisation that employed the respondent, is a “Specialized Agency”, and that it is therefore an international organisation to which the IOPI Act applies.

13. Subsection 6(1)(d) of the IOPI Act provides the mechanism by which privileges may be conferred on officers of international organisations and is in the following terms:

    (1)Subject to this section, the regulations may, either without restriction or to the extent or subject to the conditions prescribed by the regulations:

    …

    (d)       confer:

    (i)upon a person who holds an office in an international organisation to which this Act applies (not being an office prescribed by the regulations to be a high office) all or any of the privileges and immunities specified in Pt I of the Fourth Schedule; and

    (ii)upon a person who has ceased to hold such an office the immunities specified in Part II of the Fourth Schedule.

14. Clause 8 of the Regulations, made pursuant to s 6(1)(d) of the IOPI Act, is in the following terms:

    8Privileges and immunities of officers (other than high officers) of Specialized Agencies

    (1)Subject to subregulation (2), a person who holds an office in a Specialized Agency, other than a person who holds, or is performing the duties of, an office specified in Column 3 of an item in the Schedule[*], has the privileges and immunities specified in Part I of the Fourth Schedule to the Act.

    (2)A person to whom subregulation (1) applies does not have the right to export furniture and effects free of duties when leaving Australia on the termination of his or her functions in relation to a Specialized Agency.

    (3)A person who has ceased to hold an office in a Specialized Agency, other than an office specified in Column 3 of an item in the Schedule, has the immunities specified in Part II of the Fourth Schedule to the Act.

    * Relevantly, the President of the IBRD, an office the respondent never held.

15. Subsection 6(1)(d) of the IOPI Act and cl 8 of the Regulations thus distinguish between a person who holds an office in an international organisation and a person who has ceased to hold such an office. While the former is given the privileges and immunities specified in Pt I of the Fourth Schedule to the IOPI Act, the latter is given only the immunities specified in Pt II of the Fourth Schedule.

16. The Fourth Schedule to the IOPI Act is in the following terms:

    Part I

    Privileges and Immunities of Officer (other than High Officer) of International Organisation

    1.Immunity from suit and from other legal process in respect of acts and things done in his capacity as such an officer.

    2.Exemption from taxation on salaries and emoluments received from the organisation.

    3.Exemption (including exemption of a spouse and any dependent relatives) from the application of laws relating to immigration and the registration of aliens.

    4.Exemption from the obligation to perform national service.

    5.Exemption from currency or exchange restrictions to such extent as is accorded to an official, of comparable rank, forming part of a diplomatic mission.

    6.The like repatriation facilities (including repatriation facilities for a spouse and any dependent relatives) in time of international crisis as are accorded to a diplomatic agent.

    7.The right to import furniture and effects free of duties when first taking up a post in Australia and to export furniture and effects free of duties when leaving Australia on the termination of his functions.

    Part II

    Immunities of Former Officer (other than High Officer) of International Organisation

    Immunity from suit and from other legal process in respect of acts and things done in his capacity as such an officer.

17. Although the Fourth Schedule is included as part of the IOPI Act, it is only given operative effect by force of the Regulations and is to be construed accordingly.

    THE TRIBUNAL DECISION

18. The Tribunal concluded at [59] of its Reasons (“R”) that the pension payments paid to the respondent in the years of income were exempt from tax on the basis that they were “emoluments” within the meaning of the Fourth Schedule to the IOPI Act. The Tribunal considered that “the immunity in respect of ‘emoluments’ in Pt I of that Schedule continued in force and effect after the termination of the respondent’s employment and after performance of the services in respect of which the pension entitlement was granted during the period of his service or office”.

19. The process of reasoning by which the Tribunal got to this conclusion is, with great respect, somewhat difficult to follow.  As a preliminary observation, exemption from taxation is not strictly an immunity like immunity from suit as conferred by item 1 of Parts I and II of the Fourth Schedule.  Indeed, the heading to Part II of the Fourth Schedule omits the word privilege by contrast to Part I of that Schedule.

20. At R [21]–[31] the Tribunal considered the respective submissions of the respondent and the Commissioner on the issue as to whether the pension payments were “emoluments”.  The Tribunal analysed various authorities to which it was referred, finding that one was not “on point” (Case M90 (1980) 80 ATC 648 at [15]–[18]) (R [24]); the reasoning in another was not “directly on point” (Nette v Howarth (1935) 53 CLR 55) (R [26]); referring to a decision of the House of Lords as authority for the proposition that if the payment “arose” from the employment or office it fell within the description of an “emolument” (Brumby v Milner [1976] 1 WLR 1096) (R [29]); dismissing a decision of the Tribunal, contrary to the conclusion of the Tribunal in the present case, on the basis that it “rests on an assertion without reasoning” and was not of any “assistance in resolving the question before me” (AAT case 10,901 (1996) 32 ATR 1279) (R [30], [31]). At R [32] the Tribunal concluded that the pension payments were “in the nature of an ‘emolument’ because they can be described as a profit or gain arising from an office or employment or as ‘compensation for services’ by way of remuneration”.

21. At R [34]–[37] the Tribunal reasoned that the pension entitlement arose as “part of the [respondent’s] remuneration entitlement and crystallised during the course of the [respondent’s] employment” and “did not cease on termination of his employment” (R [34]).  At R [38] it concluded:

    In my view the characterisation of the payments does not alter simply because the payments are made after the rendering of the services.  As noted earlier, if “salary” to which an employee became entitled prior to termination of employment is paid after employment ceased, it would nevertheless continue to be impressed with its character as “salary”.  The circumstance in which payment is actually made or received after the officer has ceased holding office is in my view immaterial.

22. The Tribunal at R [39]–[45] proceeded to consider the Commissioner’s submission that the reference to privileges and immunities of “officers” in Pt I and immunities of “former officers” in Pt II of the Fourth Schedule to the IOPI Act indicates that there is a difference between the entitlements of an officer and those of a former officer in relation to remuneration. The Tribunal rejected this in the following terms:

    [41]In my view no such dichotomy or inference can be inferred from the legislation that exemptions from tax on emoluments ceases after the person entitled ceases to hold office. 

    [42]I do not accept the submission because the language does not draw any such distinction or impose any requirement, or make any provision, that the person continue to hold office in order to attract the exemption from taxation.  Parts I and II of the Fourth Schedule are distinct provisions and in my view should be read according to their own specific provisions and language. 

    [43]Once it is accepted that the pension payments are “emoluments” then in my view they continue to bear that impressed character after the person ceases to hold office. 

    [44]Some exemptions in Part I of the Fourth Schedule which are not replicated in Part II are of a different character to of the emoluments exemption in Part I in that on ceasing to hold office those exemptions and rights are no longer appropriate to continue. 

    [45]The position with respect to exemption of “emoluments” is in a different category to those in other paragraphs of Part I, because that entitlement is impressed prior to ceasing to hold office and it cannot be said to be anomalous for this privilege to continue in the absence of express, clear language to the contrary… 

    COMPETENCY OF THE APPEAL

23. Section 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (“AAT Act”) provides:

    A party to a proceeding before the Tribunal may appeal to the Federal Court of Australia, on a question of law, from any decision of the Tribunal in that proceeding.

24. In TNT Skypak International (Aust) Pty Ltd v Federal Commissioner of Taxation (1988) 82 ALR 175 at 178, Gummow J, when a member of this Court, said:

    Section 44 of the AAT Act is expressed in narrower terms than the old s 196 of the Tax Act. This provided for appeals from the Board of Review which “involved” a question of law. The result was that if some question of law was involved, the whole of the decision of the Board was open to review, not merely the question of law …

    … This no longer will be the case with appeals brought to this court under s 44 of the AAT Act. The existence of a question of law is now not merely a qualifying condition to ground the appeal, but also the subject matter of the appeal itself ...
    (Citations omitted.)

25. In Birdseye v Australian Securities and Investments Commission (2003) 38 AAR 55, Branson and Stone JJ at [18] said of the predecessor to r 33.12(2) of the Federal Court Rules 2011 (“FCR”), namely O 53, r 3(2), that it:

    [D]iscloses an intention that a question of law to be raised on an appeal from the tribunal should be stated with precision as a pure question of law.  It is in the specification of the grounds relied upon in support of the orders sought that, in our view, one should expect to find the links between the question of law, the circumstances of the particular case and the orders sought on the appeal.

    Notice of Appeal

26. The applicant’s notice of appeal specifies that the appeal is brought on five questions of law:

    (1)Whether the pension payments received by the respondent from the World Bank Group’s staff retirement plan during the years of income (the pension payments) were exempt from inclusion in the respondent’s assessable income in those years by reason of Pt I of the Fourth Schedule to the IOPI Act and cl 8(1) of the Regulations.

    (2)Whether a person who does not hold an office in an international organisation to which the IOPI Act applies is entitled to all or any of the privileges and immunities specified in Pt I of the Fourth Schedule to the IOPI Act or cl 8(1) of the Regulations.

    (3)Whether the pension payments were emoluments received from the IBRD within the meaning of item 2 of Pt I of the Fourth Schedule to the IOPI Act and cl 8(1) of the Regulations.

    (4)Whether the pension payments were exempt from inclusion in the respondent’s assessable income by reason of former s 23(y) of the 1936 ITAA.

    (5)Whether the Tribunal was entitled to have regard to decisions of Spanish Tribunals and the Vienna Convention on the Law of Treaties (“Vienna Convention”) in construing the IOPI Act and the Regulations.

1. The grounds of appeal are expressed and confined to four alleged errors of law:

   (1)The Tribunal erred in law in finding that the pension payments were exempt from inclusion in the respondent’s assessable income in the years of income ending 30 June 2009 and 30 June 2010. More particularly:

   (a)The Tribunal erred in law in finding that the pension payments were within the scope of the exemption conferred by cl 8(1) of the Regulations and item 2 of Pt I of the Fourth Schedule to the lOPI Act. The Tribunal should have held that the respondent was not entitled to any of the privileges and immunities conferred by Pt I of the Fourth Schedule to the lOPI Act in respect of income received in the years of income ending 30 June 2009 and 30 June 2010 because, at that time, the respondent did not hold an office in an international organisation to which the IOPI Act applies.

   (b)The Tribunal erred in law in finding that the pension payments were emoluments received from the IBRD within the meaning of item 2 of Pt I of the Fourth Schedule to the IOPI Act. The Tribunal should have held that the pension payments were not emoluments within the meaning of that item.

   (2)The Tribunal erred in law in having regard to the operation of s 23(y) of the ITAA 1936 in reaching the conclusion that the pension payments were exempt from inclusion in the respondent’s assessable income. That subsection was repealed by Taxation Laws Amendment Act (No 2) 1988 (No 78), s 10(a) and had no application to the calculation of the respondent’s assessable income in the 2009 and 2010 years.

   (3)The Tribunal erred in law in having regard to decisions of Spanish Tribunals and the Vienna Convention in construing the IOPI Act and Regulations and in reaching its conclusion that the pension payments were exempt from inclusion in the respondent’s assessable income. The Tribunal should have had no regard to those decisions or to the Vienna Convention.

2. It is only necessary that one of the five questions stated in the notice of appeal be a question of law for the appeal to be competent.

   Notice of Objection to Competency

3. At the commencement of the hearing, senior counsel for the respondent sought the leave of the Court to file and rely on a notice of objection to competency outside the time prescribed by r 33.30(1) of the FCR for the filing of such notices. The Court indicated that it would consider and decide the respondent’s application and convey its decision and its reasons therefor at the time of delivering judgment.

4. The grounds of the respondent’s objection to competency of the appeal are expressed in the notice in the following terms:

   1.Questions 1 and 3 do not in their terms raise a question of law for the purposes of s.44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) but instead raise either a question of fact or a mixed question of fact and law.  The term “emolument” in Part I of the Fourth Schedule to the International Organisations (Privileges and Immunities) Act 1963 (Cth) (IOPI Act) is undefined and the learned Deputy President below decided that it bore its ordinary meaning. The question as to what is the meaning of an ordinary English word or phrase as used in a statute is one of fact not law. Further the question as to whether a set of facts, as found by the Tribunal below, falls within the description of such a word is also a question of fact. In the alternative, questions 1 and 3 raise mixed questions of fact and law and no pure question of law arises for the purposes of s.44( 1) of the AAT Act.

   2.Question 2 does not in its terms raise a question of law. A broad enquiry as to the construction and operation of the IOPI Act and any international organisation to which it applies and any of the privileges and immunities specified in Part I of the Fourth Schedule to the IOPI Act or clause 8(1) of the Specialized Agencies (Privileges and Immunities) Regulations 1986 (Cth) (the Regulations) is not a question of law and extends beyond any controversy between the parties. Further and in the alternative, if question 2 relates to the present case, it raises a mixed question of fact and law and is not a question of law.

   3.Question 4 does not in its term[s] raise a question of law because the question that is raised was not a question engaged by the Tribunal below in either its reasons or its decision.

   4.Question 5 does not in its terms raise a question of law because the decision of the Tribunal did not turn on the learned Deputy President's reference to decisions of Spanish Tribunals and the Vienna Convention on the Law of Treaties.

5. We would grant leave to the respondent to file and rely on the notice of objection to competency, however, for the reasons which follow, we are of the view that at least two of the questions stated in the notice of appeal are questions of law engaged by the relevant grounds of appeal.  We will return to these below.  On the other hand, the other questions are either not questions of law or not engaged by the grounds of appeal.

6. First, we do not think question 5 is engaged by ground 3 of the notice of appeal because we do not think the Tribunal reached its conclusion on the back of the decisions of Spanish Tribunals and the Vienna Convention. At most, the Tribunal drew comfort from those matters or considerations for the conclusion it had already reached at R [41].

7. Secondly, we do not think question 4 is engaged by ground 2 of the notice of appeal because, in our view, while the Tribunal referred to s 23(y) (repealed) of the 1936 Act, it did not, contrary to ground 2, reach its decision in reliance on it.

8. Thirdly, we agree that question 3 is a question of fact or, at best, a question of mixed fact and law having regard to ground 1(b). The term “emolument” in the exemption from taxation for officers of international organisations provided under Pt I of the Fourth Schedule to the IOPI Act is undefined, is not used in “any special or technical sense” and the Tribunal found that the pension payments were “in the nature of an ‘emolument’ because they can be described as a profit or gain arising from an office or employment or as ‘compensation for services’ by way of remuneration” (R [32]). In so doing, the Tribunal adopted the ordinary meaning of “emolument” as defined in the Macquarie Dictionary and the Oxford English Dictionary, being a profit arising from office or employment or compensation for services, consistently with the submissions advanced for the respondent (R [22]).

9. The question as to what is the meaning of an ordinary English word or phrase as used in a statute is one of fact not of law (Australian Gas Light Company v Valuer-General (1940) 40 SR (NSW) 126 at 137 (per Jordan CJ); Lombardo v Federal Commissioner of Taxation (1979) 28 ALR 574 at 576). Further the question whether a particular set of facts comes within the description of such a word or phrase is one of fact (Australian Gas Light Co at 137 per Jordan CJ; Federal Commissioner of Taxation v Broken Hill South Ltd (1941) 65 CLR 150 at 160; 2 AITR 257 at 263; and Brutus v Cozens [1973] AC 854 at 861).

10. However, for the reasons in [37] and [38] below, questions 1 and 2 are pure questions of law, both of which are properly engaged by ground 1(a) of the notice of appeal.  The complaint that they “[extend] beyond any controversy between the parties” cannot stand in the face of ground 1(a).  That ground provides “the links”, to use the words of Branson and Stone JJ in Birdseye at [18], “between the question of law, the circumstances of the particular case and the orders sought on the appeal”.

11. On the strength of the many authorities that can be found to sustain the proposition that the question whether facts fully found fall within the provisions of a statutory enactment properly construed is a question of law (see Hope v Bathurst City Council (1980) 144 CLR 1 at 7 per Mason J and the authorities there referred to), question 1 is a question of law.

12. Question 2 is also a question of law as it only requires one to engage in a process of construction of Pt I of the Fourth Schedule to the IOPI Act and cl 8(1) of the Regulations: see Hope at 8 per Mason J.

    CONSIDERATION AND ANALYSIS

13. The focus of the Tribunal’s process of reasoning was directed at the issue of whether the pension payments received by the respondent in the years of income were “emoluments” as that word is used in item 2 of Pt I of the Fourth Schedule to the IOPI Act and, having come to the conclusion that they were, focused on the issue as to whether they ceased to have that character by reason of the termination of the respondent’s employment. The Tribunal concluded that the termination of the respondent’s employment did not alter the character of the pension payments as “emoluments” and that therefore they were exempt from income tax. In coming to this conclusion, the Tribunal was heavily influenced by the consideration that “entitlement” to the pension arose during the respondent’s term of employment: R [33]; [36] [45] and that this entitlement did not cease on termination of his employment: R [34]; [38]; [59].

14. With great respect, this process of reasoning is flawed in two main respects. First, it adopts a “bottom up” approach to the construction of a statute (the IOPI Act) by reference to the terms of relevant delegated regulation (the Regulations), rather than a “top down” approach. As French CJ said in Plaintiff M47/2012 v Director-General of Security (2012) 86 ALJR 1372 at [56]:

    Generally speaking an Act, which does not provide for its own modification by operation of regulations made under it, is not to be construed by reference to those regulations: Hunter Resources Ltd v Melville (1988) 164 CLR 234 at 244 per Mason CJ and Gaudron J. That would be a case of the tail wagging the dog.

    See too Master Education Services Pty Limited v Ketchell (2008) 236 CLR 101 at [19].

15. Second, the consideration of “entitlement” arising during the course of employment is totally irrelevant. The only relevant consideration is “receipt” during the course of employment: see item 2 of Pt I of the Fourth Schedule to the IOPI Act.

16. In his defence of the Tribunal’s reasoning, Senior Counsel for the respondent relied upon the Second Reading Speech in the House of Representatives (8 May 1963) in relation to the International Organisations (Privileges and Immunities) Bill 1963 in which Sir Garfield Barwick referred to the reasons for according privileges and immunities to international organisations and persons connected with such organisations.  Relevantly, Sir Garfield said (at p 2):

    … certain exemptions from the fiscal laws of member states are justified on the ground that no one state should obtain financial advantages by imposing charges on assets contributed by the states which are members of an international organisation.

17. The reference to “certain exemptions” suggests that the privileges may not have been intended to provide the breadth of protection from the fiscal laws of member states implied by the respondent’s submissions. In any case, there is a clear dichotomy established by s 6(1)(d) of the IOPI Act between the privileges and immunities which apply to a person who holds office, and the immunities which apply to a person who has ceased to hold office. We think the clear language of s 6(1)(d) provides a more secure basis from which to infer the relevant legislative purpose.

18. In construing the IOPI Act, in particular s 6(1)(d), it is clear that regulations made under that Act could not confer any of the privileges specified in Pt I of the Fourth Schedule upon a person who did not hold office in a relevant international organisation, such as the IBRD, even if he or she had previously held such office; and the Regulations are not to be construed as purporting to do so. Regulation 8(1) confined the persons on whom the privileges specified in Pt I of the Fourth Schedule to the IOPI Act were to be conferred, to persons holding office in a Specialised Agency, the IBRD being specified as a Specialised Agency in col 2 of the Schedule to the Regulations. But the respondent did not hold office in the IBRD in the years of income and therefore the privilege conferred by item 2 of Pt I of the Fourth Schedule to the IOPI Act was not available to him in respect of the pension payments received by him in the years of income, even if such payments continued to be “emoluments” to which he became entitled while holding office in the IBRD.

19. For these reasons the Commissioner’s appeal must be allowed, the decision of the Administrative Appeals Tribunal set aside and the decision under review be affirmed.  We were informed that, by agreement, the applicant was to pay the respondent’s costs of the appeal irrespective of the outcome.  There will be an order accordingly.

I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds and Nicholas.

Associate:

Dated:        4 December 2014

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 401 of 2014

ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL

BETWEEN:	COMMISSIONER OF TAXATION Applicant
AND:	ANDREW JOHN MACOUN Respondent

JUDGES:	EDMONDS, PERRAM AND NICHOLAS JJ
DATE:	4 DECEMBER 2014
PLACE:	SYDNEY

REASONS FOR JUDGMENT

PERRAM J:

1. The issue in this case is whether Mr Macoun should have to pay income tax on his pension.  In 2007 he retired as an employee of the International Bank for Reconstruction and Development.  During his long career with the Bank as a water sector specialist he contributed 7% of his income to the Bank’s staff pension fund.  The fund is of the contributory defined benefit type so that the pension he now receives is not related to the amount he contributed or the underlying performance of the fund.  The amount contributed by Mr Macoun from his salary during his career was US$200,842.00. 

2. It is not in dispute that the Bank is an international organization within the meaning either of the Convention on the Privileges and Immunities of the Specialized Agencies, opened for signature 21 November 1947, 33 UNTS 261 (entered into force 2 December 1948) (‘the Convention’) or the Act which implements that convention, the International Organisations (Privileges and Immunities) Act 1963 (Cth) (‘the Act’). Nor is it in dispute that the Act certainly operated whilst Mr Macoun was employed by the Bank to render his salary tax free. The present question is whether the Act (and the regulations made under it) operate to render his pension tax free as well.

3. For reasons I shortly give, the Convention properly construed requires Australia not to impose income tax on Mr Macoun’s pension.  This is significant in the present context because every statute is ‘to be so interpreted and applied as far as its language admits as not to be inconsistent with the comity of nations or with established rules of international law’:  Jumbunna Coal Mine NL v Victorian Coal Miners’ Association (1908) 6 CLR 309, 363; Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR 1, 38; Minister of State for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 273, 287.

4. Notwithstanding this principle, for the reasons given by Edmonds and Nicholas JJ the meaning of Schedule 4 of the Act and the regulations are sufficiently clear that I do not feel that I can permissibly read them in a way which complies with what seem to me to be Australia’s clear obligations. I agree with their Honours’ reasons for allowing the appeal save that I consider it appropriate to recognise the correctness of Mr Macoun’s contentions about the operation of the Convention. Whilst I too would allow the appeal from the Tribunal because the meaning of the Convention cannot ultimately overcome the meaning of the plain text of the Act, I do not think the Tribunal should be criticised for having sought to ascertain the Convention’s meaning in the process of construing the Act which, in light of the authorities in the preceding paragraph, was an essential step in the process of construction.

5. The immunity which the Convention requires the Commonwealth to give Mr Macoun is set out in Article VI Section 19.  Article VI is entitled ‘Officials’.  Section 19 relevantly provides:

   Officials of the specialized agencies shall:

   …

   (b) Enjoy the same exemptions from taxation in respect of the salaries and emoluments paid to them by the specialized agencies and on the same conditions as are enjoyed by officials of the United Nations;

   …

6. The Bank is a ‘specialized agency’ (see Article I Section 1(f)).  It follows that section 19 requires the Commonwealth to give the same exemption from taxation to Mr Macoun in respect of his ‘salary and emoluments paid’ as is enjoyed by officials of the United Nations.  The immunities of officials of the United Nations are regulated by the Convention on the Privileges and Immunities of the United Nations, opened for signature 13 February 1946, 1 UNTS 15 (entered into force 17 September 1946) (‘the UN Convention’).  Article V Section 18 of that Convention provides:

   Officials of the United Nations shall:

   (a) Be immune from legal process in respect of words spoken or written and all acts performed by them in their official capacity;

   (b) Be exempt from taxation on the salaries and emoluments paid to them by the United Nations;

   ….

7. The question at hand then is the proper construction of Article V Section 18(b).  One starts with the words on the page.  I can see no reason why an emolument would not include a pension.  This is particularly so where, as here, the official has diverted a contribution from salary towards the pension.  I see no reason to read it narrowly.  Further, it is clear that immunities in s 18 in many cases must extend to times after which a person has ceased to be an official.  For example, the immunity in (a) must be applicable after a person leaves the organisation.   In my opinion, the text supports the non-taxable nature of a pension. 

8. How then should s 18(b) be interpreted?  This is a question of public international law.  Article 38(1)(d) of the Statute of the International Court of Justice provides that that Court ‘whose function is to decide in accordance with international law such disputes as are submitted to it, shall apply...(d)...judicial decisions and the teachings of the most highly qualified publicists of the various nations, as subsidiary means for the determination of rules of law’.  Although, strictly speaking, the operation of that provision is limited to the activities of the International Court of Justice, ‘[a]rticle 38 is generally regarded as a complete statement of the sources of international law’: Ian Brownlie, Principles of Public International Law (Oxford University Press, 7th ed, 2008) 5.  Consequently, the sources of public international law include the domestic ‘judicial decisions…of the various nations’ so that the decisions of national courts are relevant materials for the interpretation of Article V Section 18(b): see also James Crawford, Brownlie’s Principles of Public International Law (Oxford University Press, 8th ed, 2012) 41; Australian Competition and Consumer Commission v PT Garuda Indonesia(No 9) (2013) 212 FCR 406 at 417 [45]-[47].

9. Article V Section 18(b) has been directly interpreted three times by domestic courts.  In Serafin and Yolanda (unreported, appeal number 478/2001, judgment dated 17 January 2003) the Disputes Chamber of the Supreme Court of Andalusia concluded that the pensions of United Nations officials were not subject to income tax because of Article V Section 18 of the UN Convention.  Having explained the administration’s argument that a retired UN official should no longer enjoy the immunities granted by the convention, the Court concluded as follows:

   SECOND. – However, we cannot agree with the argument made by the administration because, firstly, if we considered the employment earning the amounts received as pensions or passive income, as recognised by the TEARA judgment and considering consequently that such income has a nature of “deferred salary”, as reminded by the Supreme Court, it is clear that these amounts are received as a consequence of having been an active official United Nations, which in no way can be dissociated from the reality of belonging to that cited international organisation.   Moreover, the affirmation that the privileges and immunities granted in the interest of United Nations and not for the benefit of individuals cannot be interpreted as does the administration, since the intent of the limitation of privileges is to avoid having UN officials use their privileges to obtain personal gain, outside the needs of their duties, as affirmed by the plaintiff of this proceedings.

   [translated from Spanish]

1. In Enrique (unreported, appeal number 1227/2003, decision 326/2007, judgment dated 28 March 2007) the Chamber of Administrative Disputes of the Supreme Court of Catalonia concluded that Article V Section 18(b) of the UN Convention meant that the appellant’s pension was also exempt from taxation ‘as the same should not be treated differently from the salary paid to an active official’.

2. The High Court of Bombay in Commissioner of Income Tax v Kolhatkar (unreported, 25 November 1994) reached the same conclusion on Article V Section 18(b) holding that ‘emolument’ included a pension.

3. The expression ‘salaries and emoluments’ appears in other treaties too and has also been interpreted, using the deferred income approach, to exempt pensions from national income taxes.  Thus Article 14 of Supplementary Protocol No 1 to the Convention for European Economic Co-operation on the Legal Capacity, Privileges and Immunities of the Organisation (done at Paris, 16 April 1948) confers tax exemption on employees of the OECD in respect of their ‘salaries and emoluments’ and this was held in Bruno (unreported, appeal number 736/2000, decision 351/2003, judgment dated 12 March 2003) by the Chamber of Administrative Disputes of the Supreme Court of Madrid to include pensions because of the word ‘emolument’. 

4. The materials available on the interpretation of Article V Section 18(b) lead to only one place and that is to the conclusion that an ‘emolument’ under that provision includes a pension.  This accords with the text as I would interpret it.  Further, it appears to be accepted under other treaties creating tax immunity by reference to the expression ‘salaries and emoluments’ that this extends to pensions.  It follows that it is not seriously contestable that the pensions of UN officials are not taxable under the Convention on the Privileges and Immunities of the United Nations.  Because it is the immunity of UN officials which is given to officials of the Bank by Article VI Section 19 of the Convention on the Privileges and Immunities of the Specialized Agencies it must be accepted that as a matter of public international law the Commonwealth is not permitted to levy income tax on Mr Macoun’s pension.

5. If it were possible to read the Act and Regulation so as to avoid the outcome that Mr Macoun’s pension is liable to income tax, I would do so. However, it seems to me that the legislation has been drafted with the specific intention of ensuring that pensions of employees of international organizations are subject to income tax.

6. I agree with the orders proposed.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:

Dated:        4 December 2014