Deputy Commissioner of Taxation as Delegate of the Insurance and Superannuation Commissioner v Martin, Keith C
[1995] FCA 841
•20 OCTOBER 1995
CATCHWORDS
INCOME TAX - Liability to taxation of eligible termination payment - whether "salary" under the Occupational Superannuation Standards Act and Regulations extends to amounts paid from source outside Australia to non citizen non resident of Australia - whether territorial restrictions should be imposed on the definition of "salary".
STATUTES - interpretation - extraterritorial operation of legislation.
ADMINISTRATIVE LAW - appeal from decision of the Administrative Appeals Tribunal
Occupational Superannuation Standards Act 1987 (Cth)
ss 15G, 15L
Superannuation Entities (Taxation) Act 1987 (Cth)
Fringe Benefits Tax Assessment Act 1986 (Cth) ss 57, 57A, 58
Income Tax Assessment Act
Occupational Superannuation Standards Regulations,
Part IIIA, reg4A
Cooke v Charles A Vogeler Company [1901] AC 102
Jeffreys v Boosey (1854) 4 HLC 815
Macleod v Attorney-General for New South Wales [1981] AC 455
Re A. B. & Co [1990] 1 QB 541
Welker v Hewett (1970) 120 CLR 503
Jumbunna Coal Mine NL v Victorian Coal Miners' Association (1908) 6 CLR 309
Croft v Dunphy [1933] AC 156
The Queen v Bull (1974-1975) 131 CLR 203
Union Steamship Co of Australia Pty Ltd v King (1988-1989)
166 CLR 1
Ex parte: Iskra (1964) 80 WN(NSW) 923
Bennion, Statutory Interpretation, 1st edition, (1984)
Craies, Statute Law, 7th edition (1971)
Maxwell, The Interpretation of Statutes, 12th edition (1969)
D C Pearce & Geddes, Statutory Interpretation in Australia, 3rd edition (1988)
ON APPEAL FROM THE TAXATION APPEALS DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY DEPUTY PRESIDENT B J McMAHON between
DEPUTY COMMISSIONER OF TAXATION AS DELEGATE OF THE INSURANCE AND SUPERANNUATION COMMISSIONER (Appellant)
and KEITH C MARTIN (Respondent)
No G179 of 1995
Ryan, O'Loughlin and Tamberlin JJ
Sydney
20 October 1995
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No.G179 of 1995
GENERAL DIVISION )
ON APPEAL FROM THE TAXATION APPEALS DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY DEPUTY PRESIDENT B J McMAHON
BETWEEN:
DEPUTY COMMISSIONER OF TAXATION AS DELEGATE OF THE INSURANCE AND SUPERANNUATION COMMISSIONER
Appellant
- and -
KEITH C MARTIN
Respondent
CORAM: RYAN, O'LOUGHLIN AND TAMBERLIN JJ
PLACE: SYDNEY
DATED: 20 OCTOBER 1995
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The appeal be allowed.
The decision of the Administrative Appeals Tribunal be set aside.
The respondent pay the appellant's costs of the appeal.
NOTE: Settlement and entry of orders is dealt with in accordance with Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. G179 of 1995 GENERAL DIVISION )
ON APPEAL FROM THE TAXATION APPEALS DIVISION OF THE ADMINISTRATIVE APPEALS TRIBUNAL CONSTITUTED BY DEPUTY PRESIDENT B J McMAHON
BETWEEN:
DEPUTY COMMISSIONER OF TAXATION AS DELEGATE OF THE INSURANCE AND SUPERANNUATION COMMISSIONER
Appellant
- and -
KEITH C MARTIN
Respondent
CORAM: RYAN, O'LOUGHLIN AND TAMBERLIN JJ
PLACE: SYDNEY
DATED: 20 OCTOBER 1995
REASONS FOR JUDGMENT
THE COURT:
The respondent in these proceedings, Mr Keith Corlett Martin, then aged 51 years, received a termination payment of $847,372 on 4 March 1993. The payer was the Coca Cola Australia Superannuation Fund ("the Superannuation Fund"). At that time, Mr Martin was a New Zealand citizen with non- resident status in that country; he was not required to lodge a taxation return in New Zealand. He had, prior to 1983, worked for the Coca-Cola Organization in Australia and, presumably, it was during that period that he became a member of the superannuation fund. However, he had not resided in Australia in the ten years between 1983 and 1993, nor had he submitted an Australian tax return in that period.
During this ten year period, Mr Martin had worked for the Coca Cola Organization in various South East Asian countries including the Philippines, Thailand and, most recently, Singapore.
In a letter dated 3 September 1993, written on Mr Martin's behalf by Tory Roe, Human Resources Manager, Australasia Region, Coca Cola South Pacific Pty Limited, Mr Martin's taxation position was described in these terms:
"The company's policy for international service employees allow them to receive their pay split (sic) between two locations. Salary packages are $US dollar based and are taxed using US Hypothetical Tax schedules. For example in Bangkok Mr Martin received half his salary locally and submitted a local tax return in Thailand. The remaining half of his salary was received in the USA where he is not required to lodge a tax return."
That letter also explained the relationship between Mr Martin and the Superannuation Fund in this way:
"Although Mr Martin has been employed overseas he has remained a member of the Coca-Cola Australian Superannuation Fund. This membership requires that his total salary and bonuses be recorded as all contributions and benefits are based on these figures...
Please find attached a schedule detailing the salary and bonuses received by Mr Martin during the years 1990, 1991 and 1992."
The Superannuation Fund considered that it had made to Mr Martin an "eligible termination payment"; it therefore gave notice to the Insurance and Superannuation Commissioner ("the Commissioner") as required by s15G of The Occupational Superannuation Standards Act 1987 ("the Act") as then enacted:
(the Act has been substantially amended since 1993 and in addition, with effect as from 1 July 1994, its name has been changed to the Superannuation Entities (Taxation) Act 1987). All references to the Act will be to its provisions as they existed in 1993. As the Commissioner did not then have a record of a tax file number for Mr Martin, he did not have sufficient information to make a determination (see subs15L(2)). That conclusion, which was not challenged, brought into operation the provisions of subs15L(3) of the Act and as a result, and by way of an interim determination, the whole of the amount of the payment by the Superannuation Fund had to be treated as "in excess of the reasonable benefit limits".
In due course, Mr Martin applied for and obtained a tax file number from the Commissioner of Taxation and supplied it to the Insurance and Superannuation Commissioner. This then enabled a review to take place for the purpose of considering whether, in terms of part IIIA of the Act and the Occupational Superannuation Standards Regulations ("the regulations"), the alleged eligible termination payment was within the reasonable benefits limits. Those limits are calculated by having regard to the highest average salary (HAS) that has been received by an outgoing member of a superannuation fund over any three consecutive years.
The Commissioner concluded, after taking into consideration the definition of "salary" in reg4A(1) of the regulations, that no regard should be had to any salary paid to Mr Martin outside Australia. That decision was, however, set aside by the Administrative Appeals Tribunal which ordered that the matter be remitted to the Commissioner with the direction that the salary that was paid to Mr Martin from sources outside Australia should be taken into account in calculating his HAS.
Regulation 4A(1) defines "salary" as follows:
"'Salary' means salary, wages, commissions, bonuses, fees, allowances or gratuities paid to a person during a financial year, and includes:
(a)other earnings (other than earnings on investments); and
(b)the amount that would be the value of a benefit to which section 57, 57A or 58 of the Fringe Benefits Tax Assessment Act 1986 applies if that benefit were not an exempt benefit; and
(c)a payment made by a company by way of remuneration to a director of the company; and
(d)in the case of a person who is an Australian citizen, or a resident of Australia within the meaning of the Tax Act - any amounts paid to the person from a source outside Australia that would fall within this definition if they had been paid from a source in Australia..."
The definition then proceeds to exclude various payments that have no application to the facts of this appeal; they need not therefore be considered.
The competing propositions of the parties can be simply expressed: for the Commissioner it is submitted that the definition, save only for the provisions of par(d), relates to Australian source payments and that such a conclusion is
emphasised by the contents of par(d). For Mr Martin, it was submitted that the breadth of the introductory words is such that there is no warrant to impose any territorial restrictions on the definition; it was submitted on his behalf that the word "salary", as defined in the regulation, extended to amounts paid from any source outside Australia to a member of the superannuation fund even though that member was neither an Australian resident nor an Australian citizen. It was said that the word "salary" in the first line of the definition is wide enough to cover all salary from whatever source and that the inclusive leg of the definition is simply by way of elaboration and is not intended to read down the normal meaning of the term. The argument that was advanced on Mr Martin's behalf found favour in the Administrative Appeals Tribunal. It agreed with the submission that there was nothing in par(d) that called for a reading down of the words in the opening lines of the definition so as to exclude a non-Australian source salary.
The Tribunal accepted an argument that par(d) was designed to ensure that:
"... payments of income to Australian citizens and Australian residents, but not non-residents, from sources out of Australia were included as part of their salary in calculating their highest average salary, even though the characterization of such payments in the country of source may, or would, mean that they fell outside the definition."
But such an explanation cannot, with respect, be valid. The classification or the characterization of the payment to an
Australian tax payer by the country of source is immaterial; the only matter of concern is the manner in which the payment will be treated by the Australian revenue legislation. The answer to that issue is to be determined by having regard to the entire definition as distinct from merely looking as the introductory two lines. So expressed, it seems inescapable that there must be some Australian component in or with respect to the relevant payment: either it must be from an Australian source or the recipient of a non-Australian source payment must either be an Australian citizen or a resident of Australia within the meaning of the Income Tax Assessment Act.
Counsel for Mr Martin submitted that such a conclusion would constitute an unwarranted discrimination between Australian taxpayers and non-Australian taxpayers. But such a submission does not pay sufficient regard to the general principle that legislation is primarily territorial: Cooke v Charles A Vogeler Company [1901] AC 102 at 107 per Halsbury LC; see also Bennion; Statutory Interpretation p497. In Jeffreys v Boosey (1854) 4 HLC 815 at 926 Parke B said:
"The legislature has no power over any person except its own subjects - that is, persons natural-born subjects, or resident, or whilst they are within the limits of the kingdom. The legislature can impose no duties except on them, and when legislating for the benefit of persons must prima facie be considered to mean the benefit of those who owe obedience to our laws and whose interests the legislature is under a correlative obligation to protect."
This passage was quoted with approval in the advice of the Privy Council in the famous case of Macleod v Attorney-General for New South Wales [1891] AC 455 at 458 in which a New South Wales conviction for bigamy based on a form of marriage that took place in the United States of America was set aside as being beyond the territorial competence of the New South Wales legislature.
In Craies on Statute Law (7th Ed by SGG Edgar, 1971) the subject is dealt with in this manner:
"Another way of stating this principle is that all jurisdiction is properly territorial, and that the courts will as a general rule presume that Parliament did not intend to interfere with international usage on this subject or to legislate for foreigners not within British territory. In Re A. B. & Co." [1900] 1 QB 541, 544." (Affirmed on appeal sub nom Cooke v Vogeler (supra)).
"Lindley M.R. in dealing with the question whether a foreigner resident abroad could be made bankrupt in England, said: 'What authority or right has the court to alter in this way the status of foreigners who are not subject to our jurisdiction? If Parliament had conferred this power in express words, then of course the court would be bound to exercise it. But the decisions go to this extent, and rightly, I think, in principle, that unless Parliament has conferred on the court that power in language which is unmistakable, the court is not to assume that Parliament intended to do that which might seriously affect foreigners who are not resident here, and might give offence to foreign governments."
See also Maxwell on The Interpretation of Statutes (12 Ed by P St J Langan 1969 at p171); D C Pearce & Geddes Statutory Interpretation in Australia (3 Ed 1988) at p97 ff.
Both Cooke's case and MacLeod's case have been referred to with approval by the High Court in Welker v Hewett (1970) 120 CLR 503 at 511 per Kitto J, with whom Barwick CJ, Menzies and Windeyer JJ agreed.
In Jumbunna Coal Mine NL v Victorian Coal Miners' Association (1908) 6 CLR 309 at 363, O'Connor J said:
"In the interpretation of general words in a Statute there is always a presumption that the legislature does not intend to exceed its jurisdiction. Most Statutes, if their general words were taken literally in their widest sense, would apply to the whole world, but they are always read as being prima facie restricted in their operation within territorial limits."
This is not to say that it is beyond the power of the Australian Parliament to legislate with extra-territorial effect. The advice of the Judicial Committee of the Privy Council in Croft v Dunphy [1933] AC 156 makes it clear that there is "no reason to restrict the permitted scope of such legislation by any other consideration than is applicable to the legislation of a fully Sovereign State." (163). Mason J (as he then was) noted the effect of Croft v Dunphy on Macleod's case in The Queen v Bull (1974-75) 131 CLR 203 at 280, saying:
"It is beyond question that a doctrine of extra-territorial legislative incompetence was thought to apply to colonial legislatures in the nineteenth century. It found its clearest expression in Macleod v Attorney-General (NSW) [1891] AC 455. However, in so far as the reasoning in Macleod's Case rests upon the doctrine of extra-territorial incompetence, as distinct from a principle of statutory construction, its authority is qualified by the decision and the reasoning in Croft v Dunphy [1933] AC 156."
More recently, in 1988, the High Court in the unanimous decision of a bench of seven, reaffirmed the consequences of Croft v Dunphy in these terms:
"It is now accepted beyond any question that colonial legislatures had power to make laws which operate extraterritorially."
(Union Steamship Co of Australia Pty Ltd v King (1988-1989) 166 CLR 1 at 12).
The Superannuation Fund was established and conducted in Australia. That factor alone would be sufficient to give a relevant connection between the legislation and the operation of the fund, including any payments that might be made to its members. But the fact that the Act and the regulations made under the Act have the potential to have extra-territorial effect does not mean, without more, that they have that effect; absent express words or necessary intendment, there is, as has already been stated, a general principle that legislation is primarily territorial. See Ex parte Iskra (1964) 80 WN (NSW) 923 at 934 per Brereton J.
Furthermore, as the Lord Chancellor said in Cooke's case supra:
"But a court of law has nothing to do with the reasonableness or unreasonableness of a provision, except so far as it may help them in interpreting what the legislature has said." (p107)
In any event, the alleged discriminatory treatment could be more apparent than real. It so happens that the interpretation advanced by counsel for Mr Martin would substantially favour him: Australian Income Tax would otherwise be attracted to the payment to him from the superannuation fund at a rate which, undoubtedly, will be higher as a result of not taking account of his non Australian salary. But that is not the appropriate test. The appropriate test is, rather, to ask whether the Australian legislature intended that its laws relating to aspects of taxation should extend to salaries paid to persons who were neither Australian citizens nor Australian residents and to the receipt by such persons of income from sources outside Australia. So expressed the answer must clearly be in the negative.
Moreover, the argument based on the alleged discriminatory effect assumes that salaries from whatever source and to whomever paid should be taxed on a similar basis for revenue purposes. Such an assumption is not warranted. Taxation legislation frequently selects criteria for more favourable taxation treatment. The requirement of an Australia source for salary payments is such a criterion. The selection of such criteria is a matter of legislative policy. In the final analysis, the intent of the legislation must be decided by the Court from the language used.
The specific inclusion of par(d) in the definition of "salary" provides support for the conclusion that "salary" was
not intended to include non-Australian salary paid to a non-citizen and non-resident.
Finally, regard should be had to the provisions of reg4A(2). It states (inter alia) that for the purposes of the definition of "salary" in subreg(1):
"(a)amounts to which paragraph (d) of that definition applies are to be converted into Australian currency at a rate that is the average of the exchange rates for the currency in which the foreign source amounts were paid at the start, and at the end of the financial year in which the amounts were paid; and..."
It is significant that subreg(2) refers only to the amounts to which par(d) of the definition applies, for that supports the conclusion that they are the only amounts covered by subreg(1) that are capable of being derived from a source outside Australia.
The appeal must be allowed and the decision of the Tribunal must be set aside. The respondent should pay the appellant's costs of and incidental to the appeal.
I certify that this and
the preceding ten (10)
pages are a true copy of the
Reasons for Judgment of
the Court
Associate:
Date: 20 October 1995
Counsel for Applicant: Mr A.Robertson
Solicitor for Applicant: Australian Government Solicitor
Counsel for Respondent: Mr R.F. Edmonds
Solicitors for Respondent: Ternes & Salier
Date of Hearing: 19 September 1995
Date Judgment Delivered: 20 October 1995
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