KCZH and Comcare

[2009] AATA 861

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2009] AATA 861

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   2009/0473

GENERAL ADMINISTRATIVE  DIVISION		)
Re		KCZH

Applicant

And COMCARE

Respondent

DECISION

Tribunal Mr John Handley, Senior Member

Date10 November 2009

PlaceMelbourne

Decision

The decision under review is set aside and in substitution IT IS DECIDED:

(i) The weekly compensation entitlement of the applicant for the period 27 February 2007 to 7 December 2007 shall be calculated, pursuant to s 19(2)(b) of the Safety, Rehabilitation and Compensation Act 1988; and

(ii)       The AE component shall be the amount per week earned by the applicant in self employment in the above period; and

(iii)      The application is remitted to the respondent for calculation of the AE component; and

(iv)      The respondent shall pay the applicant's costs pursuant to paragraph 6.8 of the Guide to the Workers' Compensation Jurisdiction published by the Tribunal in March 2007.

(Sgd) John Handley
  Senior Member

COMPENSATION – Applicant earns income from part time self employment – decision reviewed found amount earned (AE) exceeded normal weekly earnings (NWE) and found nil entitlement – respondent relied on gross earnings and made no allowance for expenses – evidence of actual gross and nett weekly earnings deficient – decision set aside and remitted to respondent for calculation of weekly entitlement

Administrative Appeals Tribunal Act 1975 (Cth) s 35

Safety, Rehabilitation and Compensation Act 1988 (Cth) s 14, s 19(2), s (19(2)(a), s 19(2)(b) and s 33(2)(c)

J & H Timbers Pty Ltd v Nelson (1971) 126 CLR 652

Secretary, Department of Social Security v Read (1987) 15 FCR 456

Re Secretary, Department of Social Security v McLaughlin (1977) 26 AAR 390

REASONS FOR DECISION

10 November 2009 Mr John Handley, Senior Member           

1. The applicant is 60 years of age and is employed by a Commonwealth agency. An Order has been made by the Tribunal pursuant to s 35 of the Administrative Appeals Tribunal Act 1975 (the AAT Act) which prohibits publication of his identity or any materials which might identify him.

2. In application 2008/2247 the Tribunal made a decision, pursuant to s 42C of the AAT Act reflecting an agreement between the parties that the applicant was entitled to compensation pursuant to s 14 of the Safety, Rehabilitation and Compensation Act 1988 (the Act) for the condition of aggravation of allergic rhinitis and allergy not elsewhere classified.

3.      In this application, which was heard on 19 August 2009, the applicant said that the diagnosis described in the previous proceedings was inaccurate and said that more precisely his illness or condition should be described as multiple chemical sensitivity.  He said that condition was previously known as toxic building syndrome and he had been advised that the diagnosis currently amongst doctors for his condition is idiopathic environmental intolerance (Trans. p12).  Nothing turns on the diagnosis of the applicant's illness save that the Commonwealth continues to agree that the applicant remains entitled to compensation.

4.      The issue between the parties by this review is the quantum of weekly compensation payable to the applicant having regard to his part time self employment as a remedial sports and therapeutic masseur.  Additionally he performs Bowen Therapy and Manual Lymphatic Drainage Therapy and Clinical Aromatherapy.  His practice is conducted in suburban Melbourne, is regarded by him as a hobby business and was a supplement to his Commonwealth income.  His practice is conducted on week days after the conclusion of his Commonwealth employment and during weekends.  The practice is conducted with the permission of the Commonwealth.  On occasions when he was engaged in Commonwealth work after ordinary working hours, his patients were cancelled.

5.      The quantum of entitlement to weekly compensation is determined by s 19 of the Act, particularly, for the purposes of this review, at s 19(2) which is reproduced as follows:

19  Compensation for injuries resulting in incapacity 

(2)Subject to this Part, Comcare is liable to pay to the employee in respect of the injury, for each week that is a maximum rate compensation week during which the employee is incapacitated, an amount of compensation worked out using the formula: 

NWE ‑ AE

where: 

AE is the greater of the following amounts: 

(a)the amount per week (if any) that the employee is able to earn in suitable employment; 

(b)the amount per week (if any) that the employee earns from any employment (including self-employment) that is undertaken by the employee during that week. 

NWE is the amount of the employee’s normal weekly earnings. 

6.      For the purposes of this review the period of time comprising the amounts earned is 28 February 2007 to 7 December 2007.  The dispute between the parties is the quantum of the AE component.

7.      Mr Carey on behalf of the applicant and Mr Dillon on behalf of the respondent agreed that the primary decision and the reviewable decisions were both incorrect.  Those decisions, having regard to s 19(2)(a) and s 33(2)(c) of the Act namely, computation of the AE component, had regard to the ability of the applicant to earn in suitable employment.  Additionally it was submitted, jointly, that the decisions were wrong because no regard was had to the applicant's expenses in his earning of income from his self employment.  That is to say, the gross amount earned per week was regarded as being the AE amount and by reason of it exceeding the NWE amount, the entitlement to compensation was decided as being nil (refer T58, p204).

8.      Quantification of weekly compensation for incapacity is principally found at s 19 of the Act.  In my view, the use of the word earnings against the meaning given to NWE and the phrase the amount per week . . . the employee earns are a deliberate intention to calculate a weekly compensation rate by regard to an amount actually received, on a reward or remuneration for labour (refer J & H Timbers Pty Ltd v Nelson (1971) 126 CLR 652.

9.      There is no reference within the section to income which can be monies received without undertaking any labour (for e.g. periodical returns from a capital investment, other receipts not necessarily paid weekly; refer Secretary, Department of Social Security v Read (1987) 15 FCR 456 at 458‑459; Re Secretary, Department of Social Security v McLaughlin (1977) 26 AAR 390 at 399.

10.     The respondent properly conceded that the reviewable decision was in error by not having regard to the costs incurred by the applicant of producing his earnings.  A similar error would have occurred if the gross wages of a salaried employee without regard to the compulsory deduction by the employer of income tax.  Absent the deductions and expenses incurred by salaried and self employed persons, there will not be any true identification of earnings or the amount . . . the employee earns.

11.     Both Counsel acknowledged that there was difficulty calculating or identifying the amount earned per week by the applicant during the period in issue because it spanned two financial years.  The only evidence before the Tribunal of the income earned in the period were completed tax returns and profit and loss statements.  There was also a summary prepared by the applicant of his client contact hours for each week during the period.

12.     There was reliance by the applicant on a letter prepared by his accountant dated 3 March 2008 (T41, p123) which stated that the average gross weekly earnings of the applicant in the period 28 February 2007 to 7 February 2008 (the relevance of that latter date was not explained) was $1438.00 per week.  The average weekly expenditure during that period was $906.00 and the average nett earnings for that period were stated to be $532.00.  It was that sum relied upon by the applicant and was asserted by him as the amount that should be regarded as the AE figure for the purposes of s 19(2)(b) of the Act.

13.     It was submitted that sum was calculated by regard to income tax returns being the amount declared by the applicant to the Australian Taxation Office (ATO).  Although it was initially thought that sum was calculated by the accountant from the BAS statements submitted by the applicant, it was the understanding of the applicant that his accountant had made his calculations by regard to the profit and loss statements (Trans. p10).

14.     It was submitted that the sum of $532.00 should be adopted because it was calculated by regard to the profit and loss statements and should be regarded as the best estimate available (Trans. p33).

15.     It was the case of the respondent, by regard to its Statement of Facts and Contentions and the evidence of the applicant, that it should be found that the applicant worked an average of 20 hours per week during the period under review and by regard also to the amount of $40.00 per week payable to a masseur, that a finding should be made of the AE figure being $800.00.

16.     It was noted that the tax returns declared a gross income from self employment in 2007 of $96,068 and expenses of $55,707.  In 2008 the tax returns declared income of $84,092 and expenses of $55,604.  That is, whilst gross income was reduced, expenses remained static.  The average nett weekly income in 2007 calculated at $776.00 per week and that sum was submitted as an alternative basis for a finding of the AE component.

17.     It was submitted that there was no rational explanation between the variation in gross income between the 2007 and 2008 income years when expenses for the same income years were almost identical.  However, it was explained by the applicant that at November 2007 and thereafter his income and the income also from neighbouring businesses was reduced, by reason of the global financial crisis.

18.     On balance it was the case of the respondent that whilst the period in issue does not coincide with one financial year, permissible inferences should be drawn from the tax returns and a finding should be made that the average nett earnings of the applicant in the period 28 February to 30 June 2007 should be found to be the equivalent of the earnings for the period 1 July 2007 to 7 December 2007.

conclusion

19.     A feature of this review was the absence of evidence of the amount actually earned per week by the applicant in the period in issue. 

20.     Income tax returns, profit and loss statements and a summary of client contact hours were submitted but there was nothing which identified the amounts earned each week.

21.     For practical purposes I do not suggest that the AE figure for each week in the period should be identified for the purposes of defining the compensation amount for each week in the same period.  That will cause an enormous workload for all parties and I would have thought that it would be appropriate and expedient to identify the nett amount earned in the period and that sum be averaged and the amount then determined be fixed as the AE amount.

22.     However it is not possible on the evidence of the applicant and the documents tendered for that exercise to be conducted.

23.     Income tax returns and profit and loss statements for the two income years which traverse the period in issue will not permit an exercise of that type because those documents do not record the amounts earned each week.

24.     It was suggested that the BAS statements should identify the amounts earned but they were not tendered.  They might provide some certainty but they are quarterly statements and again there would be some traversing of the period in issue.  The suggestion of the respondent that inferences should be drawn from the tax returns and the evidence of the applicant and calculations then made, is not without merit but it is an uncertain process and is not an appropriate substitute for an examination of the weekly receipts of the applicant which I suggest should be undertaken.

25.     The accountant who wrote the letter (T41, p123) was not called and the basis for his calculations of $532.00 per week, whatever assumption might be made, was not known.  What troubles me about that letter and the calculation made is another letter written by him on 15 February 2008 where for the same period he recorded the applicant's nett average weekly income at $558.00.  The variation was not explained and the letter of 3 March which recorded the sum of $532.00 describes that amount as the revised nett earnings.  The basis for his revision was not explained.

26.     The applicant said in evidence that he understood that his accountant had made the calculations referred to above by regard to profit and loss statements.  But the applicant said that he kept all records of receipts and expenditure and income, that he completed his own book keeping, indeed he said that I try and do my books daily so that I know exactly where I stand (Trans. p15).  The profit and loss statements, the BAS statements and income tax returns were completed by the applicant's accountants by regard to the applicant's records and books of account. 

27.     In those circumstances I would have thought, particularly because the relevant income years in issue are within the statutory period of compulsory retention of records, that the applicant could disclose to the respondent his books of account where for each week in the period in issue his income could be readily identified.

28.     For the whole of the period the expenses incurred could also be identified.  Relevant accounts and receipts of payment should also have been retained.  To the extent that some of those expenses traverse the commencement and the ending of the period, calculations can be undertaken which establish a proportion of those accounts for the period before and after the commencing date of the period and before and after the ending of the period.

29.     I am satisfied that undertaking the above process will provide certainty of the AE amount and it would be a more preferable process than either relying on a letter from an accountant who has not explained his calculations and would also be more preferable than reaching conclusions based on inferences.

30. The respondent's submission at paragraph 15 earlier was made after lengthy evidence was heard concerning the hourly rate payable to persons engaged by agencies who work as a masseuse and the qualifications of those persons. That evidence is not now relevant to the findings that will be made because on the evidence of the applicant, his compensable illness prohibits him from working in locations other than his own premises. That, in large part, also supports the contention, with which I agree, that s 19(2)(b) of the Act applies and not s 19(2)(a). Accepting the income payable to a contracted masseuse as the basis of finding the AE component suggests the suitable employment basis of s 19(2)(a) of the Act should apply.

31.     To reach that conclusion would also deny the reality that the applicant did not engage contracted persons, (to do so would be prohibitive), but rather he actually did the work, in his practice.  The issue is not what he might or could have earned by industry comparisons, but, rather what he actually did earn as evidenced by his books of account and financial records.

32.     The respondent properly agrees that the reviewable decision is incorrect because it had regard to s 19(2)(a) and it did not take account of the expenses incurred by the applicant in earning income from self employment.  It therefore follows that that decision should be set aside.  The applicant is entitled to have his legal costs and disbursements paid by the respondent pursuant to paragraph 6.8 of the Guide to the Workers' Compensation Jurisdiction published by the Tribunal in March 2007. 

33.     For the reasons given above the application is remitted to the respondent for calculation of the AE amount upon the basis that the applicant will make available to the respondent his books of account for the period in issue together with the accounts and receipts for expenses incurred, from which a nett weekly amount for the period can be calculated and an average of the weekly amount for the purposes of identifying an AE figure can be achieved.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of:
Mr John Handley, Senior Member

Signed:         Grace Carney, Personal Assistant

Date/s of Hearing  19 August 2009
Date of Decision  10 November 2009
Counsel for the Applicant         Mr M Carey
Solicitor for the Applicant          Clark Toop & Taylor
Solicitor for the Respondent     Mr A Dillon, Australian Government Solicitor