Finlayson and Commissioner of Taxation
[2002] AATA 836
•9 September 2002
DECISION AND REASONS FOR DECISION [2002] AATA 836
ADMINISTRATIVE APPEALS TRIBUNAL )
) No NS2002/39
SMALL TAXATION CLAIMS TRIBUNAL )
Re GREG FINLAYSON
Applicant
And COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr J Block, Deputy President
Date9 September 2002
PlaceSydney
Decision The objection decision under review is affirmed.
[SGD] Mr J Block
Deputy President
CATCHWORDS
TAXATION - Averaging provisions – meaning of "schemes" in section 405-30(1)(b) of the Income Tax Assessment Act 1997
Income Tax Assessment Act 1997 sections 1-3, 405-15, 405-30, 995-1
Income Tax Assessment Act 1936 section 158G
REASONS FOR DECISION
9 September 2002 Mr J Block, Deputy President
1. (a)The objection decision which is under review is the disallowance by the Respondent of an objection dated 8 February 2002 against the Applicant's assessment in respect of the year ending 30 June 2001 ("relevant year").
(b)The Applicant was self-represented, while Ms R Miller of the Australian Taxation Office represented the Respondent.
(c)The Tribunal had before it the statement in lieu of the documents required under section 37 of the Administrative Appeals Tribunal Act 1975.
At the end of the hearing the Tribunal (as it is required to do in accordance with the relevant practice direction) orally affirmed the objection decision under review. The Applicant requested written reasons by the Tribunal for its oral decision; this decision constitutes the Tribunal's written reasons.
I commence by including clauses 1 to 8 (inclusive) under the heading "Relevant Facts" in the Respondent's Statement of Facts and Contentions, as follows:
"(1) The Applicant was employed as a computer programmer with Cougar Software Pty Limited in the financial year 2001.
(2)The Applicant is an Australian resident but spends part of the year in Indonesia.
(3)The 2001 financial year the Applicant was performing his work both in Australia and Indonesia. It was the first year that the Applicant had operated his business in Indonesia.
(4) The Applicant's salary and wages income from his employment in Cougar Software Pty Ltd for the year 2001 was $39,088.
(5) The Applicant has also received some business income in the amount of $500.00 from a program that he authored.
(6) The Applicant incurred business expenses in the amount of $7464.00
(7) The Applicant's net business income for the 2001 financial year was a loss of $6,964.
(8) The Applicant was making a claim for income averaging for the year ended 30 June 2001."
The Respondent furnished a helpful "Outline of Submissions"; clauses 12 to 15 (inclusive) of that outline are set out in this decision as follows:
"12.The Respondent submits that the Applicant has failed to satisfy a requirement of section 405-15 of the ITAA 1997 that the taxpayer's taxable income for the current year include above-average special professional income. Section 405-15 (1) (d) provides:
"(1)your taxable income for the current year includes above average special professional income if and only if:
(d) either:
(i) your taxable professional income for the current year is more than $2,500; or
(ii) your taxable professional income for an earlier income year was more than $2,500 and you were an Australian resident for all or part of that income year"
The applicant's taxable business income for the year in question was a loss of $6964, comprised as follows:
Business income: $500
Business Deductions: $7,464That taxable special professional income comes well short of the benchmark set by the legislation of $2,500. Further, there is no evidence that in the earlier year such income satisfied section 405-15.
13.The Respondent submits that the Applicant's income derived from his employment at Cougar Software does not count as assessable professional income in accordance with section 405-30 of the ITAA. In particular, section 405-30 provides:
(1) You cannot count as assessable professional income any assessable income you derive for meeting your obligations under a scheme to provide services to another person by engaging in activities as the author of a literary, dramatic, musical or artistic work, or as the inventor of an invention, unless:
(a) the scheme was entered into solely to require you to provide services by:
(i) making one or more specified literary, dramatic, musical or artistic works; or
(ii) inventing one or more specified inventions; and
(b) you have not been providing services, and may not reasonably be expected to provide services to that person or his or her associates under successive schemes that result in substantial continuity of your providing services.
14.In Respondent's submission the Applicant's employment with Cougar Software Pty Limited resulted in substantial continuity of Applicant's providing services to that company and therefore the income received from Cougar as a salary and wages cannot be counted as assessable professional income.
15.The Respondent refers to the explanatory memorandum accompanying section 158G of ITAA1936, subsequently re-enacted as section 405-30 of ITAA 1997. The memorandum says:
" Section 158G will exclude from the averaging arrangements under the new Division 16A those persons who are no more than employees but whose activities give rise to the technical production of artistic works, literary works, dramatic works or musical works and inventions.""
5. (a)The Applicant gave oral evidence before the Tribunal. He said that he commenced work as an employee of Cougar Software Pty Limited ("Cougar") on 1 July 2000 at a commencing salary of $35,000 per annum exclusive of an accommodation allowance. That salary was subsequently increased on two occasions and is now $50,000 per annum.
(b)The Applicant's evidence was that he was employed to work as a member of a team on a number of specific Cougar software products; he said that each of the relevant Cougar products would be improved or upgraded and that the terms of his employment required him to work on the relevant improvements or modifications (collectively referred to as "modifications"). He said also that apart from the specified Cougar products (and modifications of each of them) he was not required and indeed did not agree to work on any other Cougar product. Given that the Applicant commenced work at the beginning of the relevant year, and bearing in mind that he is still in the employ of Cougar (at an increased salary) it seems improbable that he would have been able to stipulate that his services would be available only on so restricted a basis; there was no evidence by Cougar in the form of a letter or otherwise which would suggest that this is in fact the case, and one would have thought that evidence of this nature would have been available if this assertion is true. However, the Applicant was not cross-examined at to this assertion and natural justice requires me, in my view, to accept that it is true. I note then that for the purposes of this decision I accept that the Applicant was, under the terms of his contract with Cougar, obliged to work as a member of a team on the specified products to which I have referred, and in addition on modifications of each of them. The Applicant said that in relation to a software product, modifications are inevitable. He said also that copyright in all of the software products vested in Cougar.
6.It is clear that section 405-15 of the Income Tax Assessment Act 1997 ("the 1997 Act") does not apply because the Applicant's taxable business income did not achieve the relevant statutory threshold.
7. (a)The Applicant contended moreover that he fell within section 405-30 of the 1997 Act in that section 405-30(1)(a) is satisfied because his work was restricted to the specified Cougar software products and that section 405-30(1)(b) is satisfied because there were no "successive schemes that result in substantial continuity of your providing services".
(b) The Applicant contended moreover that, resort to the explanatory memorandum (referred to in clause 15 of the Respondent's Outline and quoted previously in these reasons) was unnecessary because the statutory wording was clear and unambiguous in its terms; he contended in addition that the explanatory memorandum was in any event irrelevant because it related to the predecessor legislation and being section 158G of the Income Tax Assessment Act 1936 (the "1936 Act").
8. (a)The term "scheme" is defined in section 995-1 of the 1997 Act as follows:
"scheme means:
(a) any *arrangement; or(b)any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise."
(b)The definition is such that, in my view, it is wide enough to encompass not only the specified Cougar software products but also and in respect of each of them any modification, improvement or upgrade. It follows in my view that, the Applicant was expected to provide services under "successive schemes…" falling with subsection (b). The word "and" at the end of subsection (a) makes it clear that the Applicant cannot succeed unless he satisfies both subsections of section 405-30.
(c)The result is that even if the Applicant satisfies section 405-30(1)(a) of the 1997 Act he does not satisfy section 405-30(1)(b) of the 1997 Act.
9. My own view is that the wording of the legislation is sufficiently clear, having regard in particular to the wide definition of "scheme" to render resort to the explanatory memorandum unnecessary. However if I am wrong in this regard, the explanatory memorandum makes it clear that a taxpayer cannot for this purpose claim that his salary income as an employee should be taken into account for the purposes of the averaging provisions. Although the explanatory memorandum relates in its terms to the predecessor section, the two sections are couched in such similar terms that the explanatory memorandum is relevant for this purpose. Section 158G of the 1936 Act read as follows
"SECTION 158G
Artists, composers, inventors and writers rendering services to
others not to be treated as eligible persons unless engaged to produce
specified works etc.For the purposes of paragraphs 158H(1)(a), (b) and (c), a taxpayer shall not be taken to be an eligible person by reason of engaging in activities as:
(a) an artist;
(b) a composer;
(c) an inventor; or
(d) a writer;
in fulfilment of the taxpayer's obligations under an arrangement for the rendering of services by the taxpayer to another person unless:
(e) the arrangement was entered into solely for the purpose of requiring the taxpayer to render services by way of:
(i) the authorship of one or more specified artistic works, literary works, dramatic works or musical works; or
(ii) the invention of one or more specified inventions; and
(f) the taxpayer has neither been, nor may reasonably be expected to be, rendering such services to the other person, or associates of the other person, under successive arrangements of a kind that result in substantial continuity in the rendering of services by the taxpayer."
I refer also in this context to section 1-3 of the 1997 Act which reads as follows:
"SECTION 1-3 Differences in style not to affect meaning
(1) This Act contains provisions of the Income Tax Assessment Act 1936 in a rewritten form.
(2) If:
(a) that Act expressed an idea in a particular form of words; and
(b)this Act appears to have expressed the same idea in a different form of words in order to use a clearer or simpler style;
the ideas are not to be taken to be different just because different forms of words were used.
Note: A public or private ruling about a provision of the Income Tax Assessment Act 1936 is taken also to be a ruling about the corresponding provision of this Act, so far as the 2 provisions express the same ideas: see sections 14ZAAM and 14ZAXA of the Taxation Administration Act 1953."
10.The Applicant is not a lawyer but he handled his somewhat technical argument with considerable ability. In effect he seeks to rely on a narrow construction of the term "schemes" as used in section 405-30(1)(b) of the 1997 Act, and being, in my view a construction which is not supported by the relevant definition. Any possible ambiguity in this context is resolved by referring to the explanatory memorandum.
11.It is for these reasons that the objection decision under review was orally affirmed.
I certify that the 11 preceding paragraphs are a true copy of the decision and reasons for decision herein of:
Mr J Block, Deputy President
Signed: H Sim
..................................................................................……………………………….Associate
Date of Hearing 9 September 2002
Date of Decision 9 September 2002Representative for Applicant Self represented
Solicitor for Respondent Rimma Miller, Australian Taxation Office
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