Dibb and Commissioner of Taxation

[2005] AATA 378

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 378

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  QT2004/205

TAXATION APPEALS DIVISION		)
Re		RAYMOND DIBB

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member B J McCabe

Date29 April 2005

PlaceBrisbane

Decision The decision under review is affirmed.

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

SENIOR MEMBER

CATCHWORDS

TAXATION – Income tax and related legislation – exempt income - termination of employment - eligible termination payment – application for private ruling – private ruling obtained – objection to ruling lodged – objection decision made – applicant’s limited right to object to assessment following an objection decision on a ruling - applicant did not establish the Commissioner’s decision was defective – decision under review affirmed.

Income Tax Assessment Act 1936 (Cth)

Taxation Administration Act 1953 (Cth)

Commissioner of Taxation v McMahon (1997) 79 FCR 127; (1997) 149 ALR 159; (1997) 97 ATC 4986; (1997) 37 ATR 167; BC9705378

Dibb v Commissioner of Taxation [2003] FCA 673; 2003 ATC 4613; (2003) 53 ATR 290; BC200303615

Dibb v Commissioner of Taxation [2004] FCAFC 126, (2004) 136 FCR 388; (2004) 207 ALR 151; 2004 ATC 4555; (2004) 55 ATR 786; BC200402647

REASONS FOR DECISION

29 April 2005    Senior Member  B J McCabe

introduction

1.      These proceedings arise out of a private ruling by the Commissioner issued on 28 November 2001. The applicant, Mr Dibb, sought the ruling from the Commissioner in relation to the application of the Eligible Termination Payment (ETP) provisions of the Income Tax Assessment Act 1936 (ITAA36). He objected to the decision and appealed to the Federal Court. After a further appeal, the Full Federal Court remitted the objection decision to the Commissioner for reconsideration: see Dibb v Commissioner of Taxation [2004] FCAFC 126. The Commissioner issued a fresh objection decision on 2 September 2004. The decision allowed the objection in part.

2. The applicant remains unhappy and he has brought the matter to the Tribunal. He knows s 14ZVA of the Taxation Administration Act 1953 (the TAA) has the effect of limiting his right to object to an assessment following an objection decision on a ruling. Section 14ZVA says a taxpayer in those circumstances is:

“limited to a right to object on grounds that neither were, nor could have been, grounds for the taxation objection against the ruling”.

3.      The applicant has attacked the fresh objection decision on a number of bases. The Commissioner says he has applied the reasoning of the Full Court, and suggests the applicant’s appeal amounts to a collateral attack on that judgment.

4.      I am satisfied the objection decision should be affirmed. I have set out my reasons below.

the material before the tribunal

5. The respondent tendered the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. The Tribunal was also provided with a copy of the transcript of the earlier proceedings in the Full Court. The applicant did not tender any new material.

6.      Mr Dibb represented himself at the hearing. Ms Brennan of counsel represented the Commissioner.

the ruling

(a) The background to the ruling

7.      The applicant was employed as a state manager of Avco Financial Services until his termination on 12 August 1996. He commenced proceedings in the Queensland Industrial Commission seeking reinstatement. Avco conceded the termination contravened the law in that it was harsh. The Commissioner decided reinstatement was not an appropriate remedy but required that Avco pay an amount of money in settlement of the claim. Avco subsequently sent the applicant two cheques: one in the amount of $44,837 (calculated on the basis of six months base salary plus superannuation benefits) and the other in the amount of $8,972.84 (in respect of annual leave and long service leave entitlements). The applicant refused to accept the cheques. They were returned to Avco.

8.      Mr Dibb subsequently commenced proceedings against Avco in the Federal Court. The details of his claim are summarised in the judgment of the Full Court in Dibb v Commissioner of Taxation (at paragraphs 6-13). All of the allegations related to Avco’s decision to terminate the applicant’s employment, and to the manner in which that decision was executed.

9.      The claim did not make it to trial. It was settled after mediation on the basis that Avco would pay the applicant $788,544 “less tax calculated on the said sum as an eligible termination payment”. The deed of settlement executed on 9 March 2001 recited the applicant’s employment and termination and the institution of the legal proceedings. The deed also recited the applicant had claimed damages “under a variety of heads of damage and interest”. The deed noted Avco denied the allegations. The applicant agreed to release Avco from any further liability in connection with the proceedings in the Queensland Industrial Commission or arising out of the applicant’s employment or termination.

(b) The text of the ruling

10.     The applicant decided to obtain a private ruling in relation to the settlement package. He supplied information to the Commissioner for that purpose and a ruling was duly issued on 27 November 2001. The ruling consisted of the following questions and answers:

1. Is the payment received pursuant to a Deed of Release subsequent to dismissal from employment an eligible termination payment (ETP)? Yes.

2. Does s 27F of the Income Tax Assessment Act 1936 (ITAA 36) apply to any part of this payment? No.

3. Is any part of the payment excluded from being an ETP under paragraph (n) of the definition as consideration for personal injury? No.

(c) The objection to the ruling and the Federal Court appeal

11.     The applicant objected to the ruling on 17 January 2002. The Commissioner’s objection decision dated 18 March 2003 gave the same answers to the questions posed in the ruling but agreed the following amounts should be deducted from the amount of the ETP:

·$1,222 salary and wages;

·$9,064 unused annual leave; and

·$25,472 unused long service leave.

12.     Heerey J affirmed the objection decision in Dibb v Commissioner of Taxation [2003] FCA 673. His Honour concluded the payment to the applicant was an ETP within the meaning of s 27A of ITAA36. His Honour agreed with the Commissioner’s view that the applicant had not been made redundant. It was therefore impossible to excise any amount from the payment that had been made in respect of a bona fide redundancy (s 27A(1) says the expression eligible termination payment does not include the tax free amount of a bona fide redundancy payment: see sub-section (ja)). His Honour also confirmed no part of the payment could be characterised as a payment in respect of a personal injury (amounts paid in respect of personal injury are also excluded from the definition of eligible termination payment: see sub-section (n)).

13.     The Full Court agreed with Heerey J that no part of the payment could properly be characterised as being made in respect of personal injury. However their Honours allowed for the possibility the applicant had been made redundant. That meant the respondent was required to consider whether any part of the total amount paid by Avco was in fact a bona fide redundancy payment in relation to the taxpayer within the meaning of s 27F. If an amount was a bona fide redundancy payment, it should have been deducted from the amount of the eligible termination payment: s 27A(1)(ja). The deducted amount would not attract any tax: see ss 27A(19), (20) and 27CB.

14.     Mr Dibb argued in the Full Court that the amount of $53,810 – the amount offered to him by Avco pursuant to the orders of the Queensland Industrial Commission – was a bona fide redundancy payment. The Full Court suggested the applicant’s attempts to settle on a particular figure tended to obscure the central point: the applicant was made redundant, and part of the payment he received was a bona fide redundancy payment which should have been taken into account in the ruling. The Court set aside this aspect of the objection decision and remitted the matter to the Commissioner for reconsideration.

(d) The Commissioner reconsiders

15.     The Commissioner notified the applicant of a fresh objection decision on 2 September 2004. The Commissioner decided to exclude from the amount of the ETP:

·     $1,222 of gross salary;

·     $9,065 in respect of unused annual leave;

·     $25,473 in respect of unused long service leave; and

·     $53,151 being the bona fide redundancy payment, which is tax exempt.

16.     The Commissioner says the identification of a bona fide redundancy payment and the decision not to identify an amount in respect of personal injury is consistent with the reasons of the Full Court.

The applicant’s cricitisms of the fresh objection decision

17. The applicant has attacked the objection decision on several bases. It is important to remember in the course of discussing his arguments that he is obliged to establish the objection decision should have been made differently: s 14ZZK(b) of the TAA.

18.     Mr Dibb handed up a document titled “Amended Reasons for Application” at the commencement of the hearing. This document appears to summarise his arguments. He claimed in particular that the Commissioner made findings of fact in the ruling, which he should not have done. He also criticised aspects of the decision not to allow the objection relating to payments made in respect of the personal injury he suffered. Lastly, he said his former employer had already withheld tax in respect of the amounts of gross salary and unused annual leave and unused long service leave identified in the objection decision.

19. The applicant contended in his Statement of Facts and Contentions that the Tribunal should conclude the private ruling should not have been made, or that it should have been withdrawn pursuant to s 14ZAV of the TAA. He also claimed in the alternative that the Commissioner should have excluded $648,644 from the ETP on the basis it was paid in respect of personal injury, and was thus exempt pursuant to s 27A(1)(n).

20.     Both sides referred to the decision of the Full Federal Court in Commissioner of Taxation v McMahon (1997) 79 FCR 127. Lockhart J explained (at 132-133):

The private ruling regime is quite different from the process of assessment to tax under the Assessment Act. A private ruling is founded on the way in which, in the Commissioner's opinion, a tax law applies to the applicant in respect of a year of income. The arrangement is but a complex of assumed or identified facts. It may also involve assumptions which, if made by the Commissioner, must be stated in his identification of the relevant arrangement.

21.     His Honour continued (at 133):

When making a private ruling the Commissioner does not make findings of fact. He simply identifies facts and then states his opinion about the way in which the relevant tax laws apply to the applicant in relation to those identified facts.

22.     I have considered the Commissioner’s reasons for decision included in the T documents (exhibit 1, pp 7-12). The document clearly sets out a series of factual assumptions (at p 11) which are essentially those identified in the reasons of the Full Court in Dibb v Commissioner of Taxation. Those assumed facts form the arrangement which the Commissioner analyses in order to make his ruling. I do not think the Commissioner exceeded his authority by making findings of fact: the respondent merely identifies and assumes facts from what he was told (as the Full Court did on appeal). There is no “fact finding” process as such apparent in the reason for decision. I am satisfied the applicant has not established the Commissioner’s decision is defective in this respect.

23.      The Commissioner’s conclusions on the bona fide redundancy payment are the direct result of the application of the Full Court’s reasoning. The Tribunal is bound by those reasons too. The applicant has not demonstrated how the decision should have been made differently. It must therefore stand.

24.     The Commissioner’s decision not to identify and exclude any amount from the ETP in respect of personal injury is also mandated by the Full Court. The Tribunal is bound by the same reasons. In any event, the applicant is unable to demonstrate how the decision should have been made differently.

25.     That leaves only the argument in respect of the other entitlements that were excluded from the ETP. In his Statement of Facts and Contentions, the applicant noted his former employer had already withheld amounts of tax on the gross salary and unused leave entitlements. Mr Dibb said the after tax amounts should have been excluded from the ETP and the gross amounts should not have been assessed in the 2000/2001 income tax year.

26.     The Full Court made it clear what amounts should be excluded from the ETP. The Commissioner has done as he was told in this respect. I do not think the amount of the deduction in respect of entitlements can now be varied as the applicant has asked in paragraph 7 of his Statement of Facts and Contentions.

27.     The objection decision under review does not say anything about whether the gross amounts of the specified payments should be included in the assessable income of the applicant. Those matters fall outside the scope of the ruling and the objection decision, so I am inclined not to express an opinion. If pressed to do so, I would conclude the applicant has not discharged his onus of showing the decision under review was wrong, or should have been made differently.

conclusion

28.     The objection decision under review is affirmed.

I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member B J McCabe.

Signed:         .....................................................................................
  Associate:  Sam J Appleton

Date of Hearing  5 April 2005
Date of Decision  29 April 2005
The applicant appeared in person.
The respondent was represented by Ms Brennan of Counsel.