Mann and Inspector-General in Bankruptcy
[2001] AATA 821
•24 September 2001
CATCHWORDS – BANKRUPTCY – contribution assessment – income – salary sacrifice arrangements – whether salary sacrificed is income – whether income should be reduced by fringe benefits tax paid in respect of benefits – decision affirmed
Bankruptcy Act 1966 – ss 6, 139J, 139K, 139L, 139M, 139P, 139S, 139W, 139X, 139Y, Division 4B
Bankruptcy Legislation Amendment Act 1996
Income Tax Assessment Act 1936
Bond v Trustee of Property of Bond (a bankrupt) (1994) 34 ALD 385
Federal Commissioner of Taxation v Cooke and Sherden (1980) 10 ATR 696
Scott v Federal Commissioner of Taxation (NSW) (1935) 35 SR (NSW) 215
Sweeney and Inspector-General in Bankruptcy [2000] AATA 109 (16 February, 2000, Senior Member Purcell)
DECISION AND REASONS FOR DECISION [2001] AATA 821
ADMINISTRATIVE APPEALS TRIBUNAL )
) V2000/1181
GENERAL ADMINISTRATIVE DIVISION )
Re PATRICIA ANNE MANN
Applicant
And INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Miss S A Forgie (Deputy President)
Date 24 September, 2001
Place Melbourne
DecisionThe Tribunal affirms the decision of the respondent dated 30 August, 2001
S A FORGIE
Deputy President
REASONS FOR DECISION
On 28 September, 2000, the applicant, Ms Patricia Anne Mann, applied for review of decision of a delegate of the respondent, the Inspector-General in Bankruptcy ("Inspector-General") dated 30 August, 2000. In that decision, he set aside decisions of the Official Trustee in Bankruptcy ("Official Trustee") to make compulsory contribution assessments for two contribution assessment periods under the Bankruptcy Act 1966 ("Act") and substituted fresh assessments.
At the hearing, Ms Mann represented herself and the Inspector-General was represented by Mr Lenczner of counsel. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence together with various documents which relate to the payment of Ms Mann's remuneration and to which I will refer in the course of these reasons. Oral evidence was given by Ms Mann in support of her own case. Mr Nigel Sutton, a supervisor with Remunerator Australia Pty Ltd, and Mr Wesley Walker, the Manager of Staff Services with the University of Ballarat, also gave oral evidence.
THE ISSUE
There are two issues in this case. The first is whether Ms Mann's salary sacrificing arrangements constitute income under the Act. The second is whether the income for both compulsory contribution assessments should be reduced by all or some of the proportion of fringe benefits tax ("FBT") paid during the income assessment period.
BACKGROUND
There was no dispute between the parties as to the facts forming the background to this matter. In light of that and on the basis of the material in the documents in evidence in this matter, I have made a number of findings of fact that I will set out in the following paragraphs.
Ms Mann is the Manager, Planning Services, at the University of Ballarat ("University"). She is paid by the University under the "Flexible Remuneration Program" ("Program") (T documents, pages 107-152). The Program provides for a method of payment known either as "Flexible Remuneration" or as "Salary Packaging". The manner of her payment means that, rather than paying certain expenses from her net salary after tax, the University pays those expenses from her gross salary and pays her the balance as taxable income. The Flexible Remuneration Manual for the University of Ballarat ("Manual") states that this manner of payment "… enables you to tailor your remuneration to best suit your needs as well as taking advantage of any legitimate tax benefits to maximise your gross salary" (T documents, page 110). A number of benefits, including motor vehicles and their running expenses, laptop computers, mortgage repayments, private health insurance, certain superannuation payments and professional development expenses, can be included in a salary package. The superannuation payment is 1.25% above the 7% she would have been required to pay had she not been on a salary sacrifice package. As she is on such a package, the additional 1.25% is compulsory.
Employees enter the Program on an annual basis (T documents, page 109). An employee contemplating entering the Program is required to attend a Flexible Remuneration Seminar, read the Employee Benefits Guide, decide on the benefits he or she requires, meet with a financial consultant to design a package with the employee's needs in mind, complete an application and return to the administrator of the Program. Remunerator Employee Benefit Management ("Remunerator"), which is an entity independent of the University, administers the Program. Remunerator processes the employee's application and advises the University whether the application comes within the University's guidelines. The University may reject a package as it retains the right to determine how its employees are paid (T documents, page 184). Remunerator then sends the employee an Offer of Remuneration Packaging Agreement. The employee confirms the package with a representative from the University and that person confirms the package with the Remunerator, notifies the University's Payroll Department and signs the documentation. The package commences in operation. The University pays the amount of the salary sacrifice into a bank account and Remunerator has drawing rights on that account. It draws amounts from the account for such expenses as the motor vehicle lease payments and the sports club membership but the University pays the superannuation payments while Remunerator merely records the amount paid. The University shows the full amount of the annual salary on its payslips but shows fortnightly payments based on the salary package.
Recovery of the costs of administration is on a "user pay basis" amounting to $50 per annum and 3% of the benefits packaged. If a motor vehicle is packaged, an annual fee of $250 is charged. The employee selects the motor vehicle and the University enters a lease agreement with a finance company as well as entering an agreement with the employee.
Ms Mann applied to join the Program on 27 March, 1998 after following these steps (Exhibit 1). At that time, her gross salary had been $55,119.00. The salary sacrifice agreement signed by her and on behalf of the University on 30 March, 1998, provided that the University would provided the salary and benefits set out in the Schedule until the agreement was terminated (T documents, page 185). Ms Mann decided to package her superannuation payments, car parking and University staff and sports club memberships. Ms Mann selected a motor vehicle within certain specified guidelines as to value, place of manufacture and the like. The lease of that is paid by Remunerator together with registration and insurance. A budget was decided on for fuel and maintenance and that was paid by Remunerator. If, at the end of the year, the funds allowed for fuel and maintenance had not been fully expended, Remunerator would pay that money back to the University to pay to Ms Mann. The University would calculate the tax payable on the amount remitted. FBT is paid by the University. The University and Ms Mann entered an agreement regarding the motor vehicle. Among other matters, it was agreed that the motor vehicle was provided to Ms Mann for her own purposes subject to its being available at any time for University business as the University may direct from time to time. She was not entitled to claim for travel expenses and was not entitled to use University fleet cars or taxi vouchers. Fuel and oil reimbursement were permitted when the car was used for University business when undertaking work more than 80 kilometres from their work base (T documents, page 192).
The package summary prepared by Remunerator shows that, without packaging, her gross salary was $55,119.00 and her net annual income would have been $37,784.29 after $17,334.72 had been deducted to meet income tax payments. After paying for the benefits she had selected in the sum of $9,249.38, Ms Mann would have $28,534.91 to take home. With salary packaging, her gross salary became $40,173.66 and her net income $29,694.38. Her income tax amounted to $10,479.28 and the cost of the benefits totalled $14,945.34. Remunerator advised her that she was "… effectively in front by $1,159.47 in takehome pay" (Exhibit 3 and see also Exhibit 2).
Each year, Ms Mann re-negotiated her salary package. In April, 1999 and again in early 2000, Ms Mann re-negotiated her salary package. The comparisons for both years with and without packaging as prepared by Remunerator were:
1999 without packaging 1999 with packaging 2000 without packaging 2000 with packaging
Gross salary $57,347.00 $41,940.12 $58,494.00 $41,168.59
-
Annual fee - $ 47.17 - $ 47.28
Serviced Vehicle - $ 9,713,94 - -
Employer's facilities - $ 371.39 - $ 372.26
Car parking - $ 174.91 - $ 75.97
Superannuation employer - $ 4,856.55 - $ 4,970.53
Vehicle fee - $ 242.92 - $ 243.50
Motor vehicle - - $11,615.87
Total package $57,347.00 $57,347.00 $58,494.00 $58,494.00
Less income tax payable $18,415.30 $11.265.35 $17,097.32 $ 9,984.56
Take home pay $38,931.71 $30,674.76 $41,396.68 $31,184.03
Less benefits not packaged $10,379.30 - $14,228.68 $ 632.20
Plus tax deductions available - - - -
Cash remaining $28,552.41 $30,674.76 $27,168.00 $30,551.83
(taken from Exhibits 4 and 5)
The costs to Remunerator and Ms Mann during the same periods are also reflected in the following table. The packaged cost was said to reflect the annual cost together with the administration fee and FBT less the oncost saving (T documents, page 180). On the basis of the evidence of Mr Walker I find that the University paid pay roll tax each year.
Benefit 1999 Amount per annum 1999 Packaged cost 2000 Amount per annum 2000 Packaged cost
Initial fee $50.00 $ 47.17 $ 50.00 $ 47.28
Serviced vehicle - $9,713.94 - $11,615.87
Lease payment $2,592.00 - $ 6,216.00 -
Insurance $ 320.00 - $ 351.72 -
Petrol and oil $1,940.00 - $ 2,125.00 -
Club membership - - - -
Employer's Services $ 382.20 $ 371.39 $ 382.20 $ 372.26
Car parking $ 180.00 $ 174.91 $ 78.00 $ 75.97
Additional super $4,715.10 $4,856.55 $ 4,825.76 $ 4,970.53
Vehicle fee $ 250.00 $ 242.92 $ 250.00 $ 243.50
Employee total $10,429.30 $15,406.88 $14,278.68 $17,325.41
Payroll deduction $ 592.57 $ 666.36
(taken from T documents, pages 180-181)
On 26 March, 1999, Ms Mann presented a debtor's petition accompanied by her Statement of Affairs. Upon its presentation, she became bankrupt. On 28 March, 2000, Ms Mann sent a completed Income Questionnaire to the Insolvency and Trustee Service of Australia ("ITSA"). In a covering letter, Ms Mann raised various issues and wrote that she was not aware of the amounts that she should include in the questionnaire as she was on a salary package (T documents, page 77). She offered to provide any extra paperwork so that an accurate and fair assessment could be made. In the middle of the salary package negotiated in early 2000, Ms Mann changed her motor vehicle. The package was recast as a result.
The Official Trustee issued an income assessment notice to Ms Mann for the contribution assessment period from 26 March, 1999 to 25 March, 2000 ("CAP1"). He did so in a letter dated 7 April, 1999 and assessed her contribution as $2,565.89 (T documents, pages 90-92). There then followed various correspondence between Ms Mann and the Official Trustee regarding the income assessment notice for that period and then the issue of a further income assessment notice for the period 26 March, 2000 to 25 March, 2001 ("CAP2") (T documents, pages 93-104). The effect of that correspondence was that Ms Mann stated that her gross income was $57,150.86 and that her pay slip had not been adjusted to reflect her salary sacrifice. The University permits her to take her salary in a "flexible" way provided she does not exceed her total employment costs of $57,150.86.
The Official Trustee first reassessed Ms Mann's liability for CAP1 by removing the fringe benefit part of the calculation. Her contribution was then assessed to be $1,301.49 for that period. He then wrote to her on 24 May, 2000 to advise her that a number of errors had been made in the previous assessments both for CAP1 and CAP2. Her contribution was assessed to be $5,138.99 for CAP1 and $9,820.08 for CAP2.
Ms Mann sought review of the Official Trustee's decisions for the two contribution assessment periods. She advised the Inspector-General of her salary and the effect of the salary package. The effect of the Inspector-General's decision on that review was to assess a contribution of $4,633.68 for CAP1 and a contribution of $7,505.79 for the period CAP2. He did so on the following bases:
CAP1 CAP2
Gross income $57,347.00 $58,494.00
Plus: income tax refund $ 1,417.36
Total gross income $58,764.36
Less: Income tax paid/payable Medicare levy paid/payable $10,083.70 $ 626.55 $2,636.66 $3,363.00 $165.21
Assessed income $48,054.11 $52,329.13
Less: Actual income threshold amount $38,786.75 $37,317.55
Income for contribution purposes $9,267.36 $15,011.58
Contribution for CAP1 $4,633.68 $7,505.79
(T documents, pages 25 and 27)
CONSIDERATION
The contribution provisions
Division 4B of the Act is concerned with contribution by a bankrupt and recovery of property. Section 139J provides that the objects of that Division are:
"(a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and
(b)to enable the recovery of certain money and property for the benefit of the bankrupt's estate."
The word "derived" is defined in s. 139K to mean "… earned, derived or received from any source, whether within or outside Australia".
In specified circumstances, a bankrupt is liable to pay to the trustee a contribution in respect of certain periods. They are set out in Subdivision D of Division 4B. Certain sections in that subdivision were amended by the Bankruptcy Legislation Amendment Act 1996 ("Amendment Act"). Some applied in relation to each bankrupt for whom the date of the bankruptcy was on or after the commencement of the Amendment Act and others applied to all bankruptcies current on or after its commencement. The Amendment Act commenced on 16 December, 1996. I will refer to the provisions of the Act in the form in which they apply in this case.
The liability to pay a contribution is found in s. 139P. Subject only to the provisions of s. 139Q regarding changes in the liability of a bankrupt, he or she is liable to pay a contribution to the trustee in respect of a contribution assessment period if:
"… the income that a bankrupt is likely to derive … under an original assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made …" (s. 139P(1))
If the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the trustee under an original assessment does not exceed the actual income threshold amount applicable in relation to that bankrupt, he or she is not liable to make a contribution. He or she may, however, choose to pay a contribution if he or she so wishes. Again the provision is subject to the provisions of s. 139Q.
A "contribution assessment period" means:
"… a period that:
(a)begins on the day the bankrupt becomes a bankrupt or an anniversary of that day during the bankruptcy; and
(b)ends one year after that day or anniversary, as the case requires, or if the bankrupt is discharged or the bankruptcy is annulled within that year, ends upon the discharge or annulment." (s. 139K)
The expression "original assessment" is defined to mean in relation to a contribution assessment period "… the assessment made by the trustee under subsection 139W(1) in respect of that period." (s. 139K). In so far as it applies to Ms Mann's circumstances, the expression "actual income threshold amount" in relation to a contribution assessment period means:
"(d) if the bankrupt has 3 dependants at that time – the base income threshold amount increased by 32%" (s. 139K)
The expression "base income threshold amount" at the time when the assessment is made in relation to a contribution assessment period means:
"(a) for a contribution assessment period of one year – 3.5 times the amount that, at that time, the amount that, at that time, is specified in column 3, item 2, Table B, point 1064-B1, Pension Rate Calculator A, point 1064-B1, Pension Rate Calculator A, in the Social Security Act 1991; or
(b)for a contribution assessment period less than one year – a proportionally smaller amount based on the number of whole days in the period." (s. 139K)
The amount of the contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:
"Assessed income – Actual income threshold amount
2" (s. 139S)
For the purposes of s. 139S, the expression "assessed income" means "… the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period" (s. 139S). The "actual income threshold amount" means "… the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made" (s. 139S).
Section 139W sets out the manner in which the trustee must make an assessment of the bankrupt's income and contribution. There is no question in this case that he has followed the procedures set out in that section in issuing fresh contribution assessment notices in the first instance and issuing fresh notices.
In making an assessment of the income that a bankrupt is likely to derive, or has derived, in a contribution assessment period, the trustee may have regard to any information provided by the bankrupt but may also have regard to any other information in the trustee's possession (s. 139X(1)). The trustee may disregard any information provided by the bankrupt if he or she considers that it may be incorrect (s. 139X(2)).
What is the "income" that the trustee must assess? In relation to a bankrupt, the word "income" has the meaning given by s. 139L (s. 139K). That section, which was inserted by the Amendment Act with effect from 16 December, 1996, provides that the word is to have its ordinary meaning subject to certain qualifications which it sets out. Apart from that in s. 139L(a)(vii), the qualifications are not relevant in this case. Section 139L(a)(vii) provides:
"(a) the following are income in relation to a bankrupt (whether or not they come within the ordinary meaning of 'income'):
(vii)the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessarily incurred by the first-mentioned person in connection with the work or services."
Section 139M is concerned with the derivation of income. It provides:
"(1) Income is taken to be derived by a bankrupt for the purposes of this Division even though it is not actually received by the bankrupt because:
(a)an amount is deducted from it, or it is wholly or partly otherwise applied, under a law of the Commonwealth, of a State or of a Territory; or
(b)it is reinvested, accumulated or capitalised; or
(c)it is dealt with on behalf of the bankrupt or as the bankrupt directs.
(2) A reference in this Division to the income that a bankrupt is likely to derive during a contribution assessment period includes a reference to income that the bankrupt has derived during that period.
(3) A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period."
There was no question in this case that the remuneration that a person receives in employment or in other work is income for the purpose of the Act. That brings me to s. 139Y(1), which provides that the trustee may regard the bankrupt as receiving, or having received, reasonable remuneration in certain circumstances. In particular, it provides that:
"(1) If:
(a)the bankrupt is engaging or has engaged during a contribution assessment period in employment or other work or in activities that resemble employment or other work; and
(b)the bankrupt does not receive or did not receive any remuneration in respect of the employment, work or activities or receives or received remuneration that is less than the remuneration (in this subsection called the 'reasonable remuneration') that:
(i)in the case of employment where an industrial award or agreement prescribes rates or minimum rates of salary or wages for the employment – might reasonably be expected to be or to have been received by the bankrupt in respect of the employment by virtue of that award or agreement; or
(ii)in any other case – might reasonably be expected to be or to have been received by a person who engaged in similar employment, work or activities where there was no relationship or other connection between that person and the person for whom the employment, work or activities were carried out;
then, for the purpose of making an assessment, the trustee may determine that the bankrupt receives or received the reasonable remuneration in respect of the employment, work or activities."
What is the ordinary meaning of "income"?
This question arises in the first instance as s. 139L provides that the word "income" has its ordinary meaning subject only to the qualifications set out in ss. 139L(a) and (b). The word "income" was considered by the Full Court of the Federal Court in Federal Commissioner of Taxation v Cooke and Sherden (1980) 10 ATR 696 (Brennan, Deane and Toohey JJ). It did so in the context of the Income Tax Assessment Act 1936 ("Tax Act") where the word is used but not defined. The Court then said "Whether a receipt is to be treated as income or not is determined according to 'the ordinary concepts and usages of mankind' (per Jordan CJ in Scott v Federal Commissioner of Taxation (NSW) (1935) 35 SR (NSW) 215 at 219), except where [the] statute sweeps in particular receipts or amounts which would not ordinarily be taken to fall within the concept." (page 702)
The manner in which the word "income" is used in the Act itself gives some indication of its meaning. Taking the definition of "income from personal exertion" in s. 6, the Court referred to the comment of Dixon CJ and Williams J in Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540; 5 AITR 443 at 447 that the:
"… definition is concerned only or chiefly with the difference, for the purposes of the rates of tax, between income from property and income from personal exertion, but, where any of the expressions contained in the definition are relevant, it is logical enough to use them as an indication that a given receipt is income.'
But the definition does not bring into the statutory concept of income what would not be found within the concept according to ordinary notions. As Windeyer J pointed out in Scott v FC of T (1966) 117 CLR 514 at 524; 10 AITR 367 at 374:-
'The definition does not I think bring anything into charge as income. It refers to what is already by its nature income … By describing what "income from personal exertion" is, the definition is indirectly indicative of what income is. That is all: but otherwise it is irrelevant.'" (page 703)
After further considering the operation of the Act, their Honours concluded:
"… So the Act sufficiently shows that the items of income are to be money or to be reckoned as money. Consistently with this notion, the Act makes particular provision for some non-pecuniary receipts by including within assessable income the value to the taxpayer of those receipts (see s 26(e) and s 26(ea)), and thus brings a pecuniary amount to tax. The notion that the items of income are money or are to be reckoned as money accords with the ordinary concepts of income as 'what comes into [the] pocket' to adapt Lord Macnaghten's phrase in Tennant v Smith [1892] AC 150 at 164. That is not to say the income must be received as money; it is sufficient if what is received is in the form of money's worth: Cross v London & Provisional Trust Ltd [1938] 1 All ER 428 per Greene MR at 430. Nor is it necessary that an item of income be paid over to the taxpayer: it is sufficient, according to ordinary concepts and usages, that it be dealt with on his behalf or as he directs, as s 19 of the Act recognizes." (page 703)
They continued by developing the concept that income may be received not in money but in money's worth:
"The conversion of an item into money may occur, of course, in a variety of ways. It is not desirable (even if it be possible) to define in advance the ways in which conversion may possibly occur in order that a non-pecuniary item of receipt might be treated as an item of income. However, it will not often occur that a benefit to be enjoyed by a taxpayer cannot be turned to pecuniary account if the benefit be given up, or if it be employed in the acquisition of some other right or commodity." (page 704)
The word "income" as it is used in s. 139L was considered by the Full Court of the Federal Court in Bond v Trustee of Property of Bond (a bankrupt) (1994) 34 ALD 385 (Cooper and Carr JJ, French J dissenting). The majority held that the object of the Act was to require a bankrupt, who derived income, to pay contributions to his or her estate. As Cooper J said:
"Where a bankrupt is engaged in employment, the object of Div 4B is to ensure that income (including 'fringe benefits' as defined), whether derived by the bankrupt in cash or in kind or whether received directly or by some third party, together with any other benefits received in relation to that employment which, if they were supplied by the bankrupt's employer, would attract fringe benefits tax, as a whole are treated as income for the purpose of assessing whether a contribution is payable by the bankrupt out of that income. If the statutory income threshold is exceeded, then a contribution is payable; otherwise no contribution is payable." (page 403)
Carr J noted that the draftsman of the Act appears to have followed the principles reflected in the Tax Act. The expression "derived" is "… wide enough to include income derived in accordance with ordinary usages and concepts whether such income is from personal exertion or from dividends, interests or the like." (page 410) The word "income" is itself defined in terms of the amount derived by the bankrupt where that amount is income according to ordinary usages and concepts.
Returning to the facts of the case I must consider, Ms Mann has entered a salary sacrifice package in relation to each of CAP1 and CAP2. She has done so voluntarily and within the Guidelines established by the University. In doing so, she has effectively converted her entitlement to an annual salary of an amount of money from the University to an entitlement to an annual salary of a lesser amount of money from the University and certain benefits that are paid for by a third party, the Remunerator, out of money provided by the University. The benefits are certainly derived by Ms Mann as a result of her personal exertions. Are those benefits also income in accordance with the ordinary usages and concepts of that word? They are capable of being returned to a pecuniary form once Ms Mann entered the salary sacrifice agreement but only if she pays any pecuniary penalty incurred under the agreement.
It seems to me, though, that the benefits are not the correct starting point at which to consider the matter. Had she not entered a salary sacrifice agreement, the income to which Ms Mann would have been entitled would have been a gross annual salary paid by the University each year. Although she does not receive that amount of money, less the appropriate tax deductions, once she has entered the salary sacrifice agreement, the amount of that gross salary remains the extent of the University's liability to pay her for the services she rendered. The fact that Ms Mann chooses to have her salary paid to her in another form, and the University agrees to facilitate her doing so, to enable her to make "better use", as it were, of the money by reducing her tax liability (and so increasing the money available to her to use for her own expenses rather than paying tax), does not detract from the overall monetary value of what she is receiving. The benefits have a monetary value reflected in Remunerator's calculations as does the salary she receives. When the monetary value of each is added, the total equals the amount of what would have been her gross annual salary had she not entered the salary sacrifice agreement.
In effect, Ms Mann's situation is a variation on that in Federal Commissioner of Taxation v Cooke and Sherden. Rather than receiving benefits that she either could or could not have turned to pecuniary account, she has turned part of her entitlement to receive a pecuniary amount in the form of salary to an entitlement to receive a benefit that she cannot, without financial penalty, alter for the duration of the salary sacrifice agreement. Whether salary or benefits, both are derived by Ms Mann. It seems to me that her choosing to receive a pecuniary entitlement in a form that is partly pecuniary and partly non-pecuniary, cannot lead to the conclusion that the non-pecuniary part is no longer to be regarded as income. It can be turned to pecuniary account, albeit subject to any penalties that may apply, as the amount not already paid for the benefits would be returned to Ms Mann as salary and subject to tax as salary. That would mean that it is income according to ordinary usages and concepts.
What is the amount to which the benefits could be turned to pecuniary account? On one view, it could be said that it would be the amount that would be returned if there were an early termination of the agreement. On another view, the amount is the amount allocated to the payment of Ms Mann's salary and the acquisition of her benefits for that is the amount that she would have received had she not entered the salary sacrifice agreement. That is the amount that could be turned to pecuniary account. In my view, this is the view that reflects the realities of Ms Mann's situation. The amount that could be turned to pecuniary account in each contribution assessment period was the amount of what would have been her gross salary in each period.
Ms Mann contended that the amount of the FBT paid by the University should not be regarded as part of her income. As I have approached the main issue in this case, the payment of FBT is not relevant. If it is indeed paid out of the amount retained by the University (and that could be so as the overall package is not to cost it more than if she had not entered a salary sacrifice agreement), that does not alter the amount of what is in fact the income she derives from the University. The same conclusion can be reached regarding the additional superannuation that Ms Mann paid.
If I am incorrect in this analysis, the sums paid from what would otherwise be paid to Ms Mann in respect of work she had done or services she has performed and used to acquire the benefits and pay the fees under the salary sacrifice agreement are amounts that are dealt with on her behalf and at her direction. As such, they are income taken to be derived by Ms Mann for the purposes of Division 4B even though that money is not actually received by her. That is the effect of s. 139M(1)(c). Those amounts are added to her salary making the total of her income the gross salary she would have received had she not entered the salary sacrifice agreement.
Unlike the superannuation contributions considered by the Tribunal in Sweeney and Inspector-General in Bankruptcy [2000] AATA 109 (16 February, 2000, Senior Member Purcell), the contributions are not compulsory unless a salary sacrifice agreement is entered by an employee. An employee has control over his or her decision to enter such an agreement and so control as to whether he or she must pay the additional 1.25% in superannuation contributions. The same can be said of any FBT paid from the salary she has sacrificed. It is compulsory that it be paid but that only comes about as a result of her direction as to the manner in which she is to be paid the income she is entitled to receive for her work and services for the University.
The amounts of Ms Mann's gross salary are the amounts adopted by the Inspector-General in relation to each of CAP1 and CAP2. As there were no further issues raised regarding the calculations he had undertaken and for the reasons I have given, I affirm the decision of the respondent dated 30 August, 2000.
I certify that the forty three preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)
Signed: .......................................................
C Hutchins AssociateDate/of Hearing 26 June, 2001
Date of Decision 24 September, 2001
Applicant In person
Counsel for the Respondent Mr Lenczner
Solicitor for the Respondent Australian Government Solicitor
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