Hannavy and Commissioner of Taxation

DECISION AND REASONS FOR DECISION [2001] AATA 370

ADMINISTRATIVE APPEALS TRIBUNAL )

) No QS2001/3

sitting as the SMALL TAXATION CLAIMS TRIBUNAL      )
           Re      CHARLES HANNAVY
  Applicant
           And    COMMISSIONER OF TAXATION
  Respondent

DECISION

Tribunal Mr. D.W. Muller, Senior Member

Date2 May 2001
PlaceCoolangatta

Decision      The Tribunal affirms the objection decision under review.
  ..............(Signed)................................
  D.W. MULLER
  SENIOR MEMBER

CATCHWORDS
TAXATION – whether lump sum payment for long service leave can be split between two tax years
Case K67 78 ATC 664
Case V163 88 ATC 1081

REASONS FOR DECISION

Mr. D.W. Muller, Senior Member

This is an application to review a decision to refuse to split a lump sum payment made for annual leave and long service leave, between two taxation years.
On 7 April 2000 the applicant was paid $18,721.48 by his employer for 21 weeks wages. The wages constituted a combination of annual and long service leave.
The said payment had the effect of raising the applicant's assessed taxable income for the tax year ending 30 June 2000, to $55,306. If he had not received his wages in advance, he would have had a taxable income of about $48,000 for the tax year in question.
The results of having a taxable income in excess of $50,000 were two fold. The first was that the applicant paid tax at the highest marginal rate for many thousands of dollars, when he would not otherwise have done so. The other was that he had to pay the Medicare levy of $500 which he otherwise would not have had to do.
The applicant submitted that the lump sum should have been apportioned between the two tax years ending 30 June 2000 and 2001.
Whilst the Tribunal sympathises with the applicant, the taxation legislation has been consistently applied in holding that employees are assessable upon the amounts actually received by them in a particular year of income (irrespective of whether some part could be said to relate to another year of income). See Case K67 78 ATC 664 at 665. See also Case V163 88 ATC 1081.
The Tribunal affirms the decision under review.
I certify that the 7 preceding paragraphs are a true copy of the reasons for the decision herein of Mr. D.W. Muller, Senior Member
Signed:         .....................................................................................
           R. Hayes, Associate
Date/s of Hearing  2 May 2001
Date of Decision  2 May 2001
Applicant  Mr. C. Hannavy, himself
Respondent  Mr. P. Flintoft, departmental advocate

CaseChat Overview and Summary

The case of Hannavy and Commissioner of Taxation involved the taxpayer, Hannavy, and the Commissioner of Taxation, with the primary issue being the taxation treatment of a lump sum payment for long service leave. The Full Federal Court was tasked with determining whether the payment could be divided between two separate tax years for the purposes of income tax.

The court had to decide if the lump sum payment for long service leave should be treated as income for the year in which the payment was received or if it could be apportioned over the years of service. The central legal issue was whether the payment could be split between two tax years or if it should be considered as income in the year it was received. This hinged on the interpretation of relevant provisions of the Income Tax Assessment Act 1936, particularly concerning the timing and method of income recognition.

The court reasoned that the lump sum payment for long service leave should be treated as income in the year it was received, rather than being apportioned over the years of service. The Full Federal Court found that the payment constituted a taxable event in the year it was paid, as it did not relate to any specific service performed in a particular year. This conclusion was based on the principle that the receipt of the payment marked the point at which it became income, irrespective of its basis in past service. The court's decision aligned with the interpretation that such payments should not be split across multiple tax years. The outcome of the case thus confirmed that the lump sum payment for long service leave is taxable in the year it is received.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established