Roger Boyd and and Commissioner of Taxation
[2013] AATA 494
•15 July 2013
Division TAXATION APPEALS DIVISION File Number
2012/2178
Re
Roger Boyd
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DIRECTION
Tribunal Egon Fice, Senior Member
Date 15 July 2013 Place Melbourne The Tribunal made a decision on 12 July 2013. In accordance with s 43AA(1) of the Administrative Appeals Tribunal Act 1975, the Tribunal directs that the text on the cover page of the decision be altered in the following way:
1.Deleting the following words on the cover page:
SMALL TAXATION CLAIMS TRIBUNAL
2.Inserting the following words on the cover page:
TAXATION APPEALS DIVISION
........[sgd Egon Fice]..............................................................
Egon Fice, Senior Member
[2013] AATA 494
Division SMALL TAXATION CLAIMS TRIBUNAL File Number
2012/2178
Re
Roger Boyd
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Egon Fice, Senior Member
Date 12 July 2013 Place Melbourne The Tribunal varies the objection decision of the Commissioner of Taxation made on
30 March 2012 by excluding the amount $91,843 from Mr Boyd's assessable income for the 2007 income year. The Tribunal otherwise affirms the Commissioner's objection decision. The matter is remitted to the Commissioner to amend Mr Boyd's tax assessment for the 2007 income year in accordance with this decision.........[sgd Egon Fice]................................................................
Egon Fice, Senior Member
TAXATION – Assessable income – Employment termination payment – Exempt income – Ordinary Income – Statutory Income – Liability to tax – Eligible Termination Payment – Resident or Resident of Australia – Exempt non-resident foreign termination payment – Termination of employment – Redundancy payment
Legislation
Income Tax Assessment Act 1936 (Cth) ss 6, 23AC, 23AD, 23AG, 27A, 27B
Income Tax Assessment Act 1997 (Cth) ss 6-1, 6-5, 6-10, 83-235Taxation Administration Act 1953 (Cth) ss 14ZW, 14ZZK
Cases
Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation of The Commonwealth of Australia (1981) 147 CLR 297
Federal Commissioner of Taxation v Applegate (1979) 27 ALR 114
Herbert Adams Pty Ltd v Federal Commissioner of Taxation (1932) 47 CLR 222
Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355
The Commissioner of Taxation of The Commonwealth of Australia v Westraders Pty Ltd (1980) 144 CLR 55
Secondary Materials
Australian Taxation Office Interpretive Decision 2002/730, Superannuation, retirement & employment termination – Lump sum payment for unused long service leave: overseas employment
Chambers 21st Century Dictionary (1999, reprinted 2004)
REASONS FOR DECISION
Egon Fice, Senior Member
12 July 2013
Mr Roger Boyd was employed with a company named Fonterra Brands. In a statement lodged with the Tribunal on 8 March 2013 Mr Boyd explained that he had worked for Fonterra all over the world for some 12 years. Mr Boyd began working with Fonterra in New Zealand in January 1995. He then worked in Singapore, Malaysia, the Philippines and Venezuela. From August 2002 to October 2003 Mr Boyd worked for Fonterra Brands out of the Australian office, his salary and employment related expenses being paid by Fonterra Brands Australia. Mr Boyd then moved to work for Fonterra Brands in Taiwan. He was made redundant in his role as General Manager of the Taiwan branch on 15 November 2006.
Mr Boyd travelled with his family for approximately one month before he returned to Australia on 17 December 2006. He received a payment of $353,561.64 from Fonterra Brands Australia in April 2007. This payment was made up of three components described by Fonterra as:
(a)annual leave and long service leave (Lump Sum A) $113,329.49;
(b)taxable severance (Lump Sum C) $196,137.15; and
(c)untaxable severance (Lump Sum D) $44,095.00.
Mr Boyd lodged his 2007 income tax return on 28 May 2008. He included components (a) and (b) above in his assessable income and he treated the $44,095 as tax free. On
4 June 2008 the Commissioner of Taxation (the Commissioner) issued a notice of assessment based on that information.
On 27 May 2011 the Commissioner received a request from Mr Boyd to amend his income tax assessment for the year ended 30 June 2007. On 31 May 2011 the Commissioner refused the request as it was out of time. By letter dated 2 August 2011 and received by the Australian Taxation Office (ATO) on 4 August 2011, Mr Boyd's accountants objected to the decision not to amend the assessment on the grounds that the amendment period had expired. The letter also stated that an amended return was lodged on 27 May 2011 but was rejected by the Commissioner because the amendment was out of time.
In a letter dated 11 November 2011 the Commissioner wrote to Mr Boyd's accountants informing them that the objection lodged on 2 August 2011 was invalid because it was not lodged against an assessment but, rather, against the decision not to amend the 2007 income tax return. The Commissioner also said that if Mr Boyd wanted to object to the assessment for the 2007 income year, he should lodge an objection against that assessment. The Commissioner also noted that, given the time to object may be outside the time prescribed by s. 14ZW of the Taxation Administration Act 1953 (the Administration Act), he should seek an extension of time within which to lodge an objection.
Mr Boyd's accountants subsequently lodged a request for an extension of time to lodge an objection to the 2007 income year assessment. They attached to that letter a formal objection. The objection described the decision being objected to as the 2007 Notice of Assessment dated 4 June 2008. In essence, the reason for the objection was that the employer had incorrectly taxed Mr Boyd's termination payment. The notice of objection also referred to s. 83-235 of the Income Tax Assessment Act 1997 (ITAA 1997) which essentially provides that the termination payment received by a taxpayer was not assessable income if it was received in consequence of the termination of employment in a foreign country. I should also point out that s. 83-235 came into effect on 1 July 2007. This is of course in the year following the income year in question. The objection also referred to the fact that Mr Boyd was stationed in Australia for some 11 months and during that time, he was not an Australian resident and his engagement in Australia was temporary and short term.
On 30 January 2012 the Commissioner wrote to Mr Boyd seeking further information regarding his presence in Australia while working for Fonterra. After receiving that information, on 30 March 2012 the Commissioner, although allowing the extension of time to lodge an objection, disallowed Mr Boyd's objection to the 2007 income year assessment.
Mr Boyd lodged an application with the Tribunal on 29 May 2012 seeking review of the Commissioner's Objection Decision made on 30 March 2012.
There was no dispute about the fact that the Lump Sum D amount ($44,095) (the redundancy component) was tax-free and properly excluded by Mr Boyd in his income tax return. Initially, the Commissioner contended that the annual leave and long service leave component and the eligible termination component ($309,466) was properly included in Mr Boyd's income in the 2007 year.
However, when this matter came on for hearing, Mr A J de Wijn, who appeared on behalf of the Commissioner, said that the Commissioner accepted that $91,843 of the $113,328 (Lump Sum A amount) was exempt income by reason of s. 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Mr de Wijn contended that the remaining $21,486 was assessable to Mr Boyd because it was the portion of the Lump Sum A payment referable to the time Mr Boyd worked in Australia. The Commissioner maintained that the Lump Sum C component ($196,137) was assessable to Mr Boyd's income under s. 27B of ITAA 1936.
LIABILITY TO TAX
Part 1-3 Division 6 of ITAA 1997 deals with assessable and exempt income. Section
6-1(1) provides that assessable income consists of ordinary income and statutory income. Section 6-1(2) provides that some ordinary income and some statutory income is exempt income; and s. 6-1(3) provides that exempt income is not assessable income.
Ordinary income, described as income according to ordinary concepts, may be assessable income. Sections 6-5 of ITAA 1997 provides:
6-5 Income according to ordinary concepts (ordinary income)
(1)…
(2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
(3) If you are a foreign resident, your assessable income includes:
(a)the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and
(b)other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having and *Australian source.
Statutory income is dealt with under s. 6-10 of ITAA 1997. Section 6-10(2) describes statutory income as amounts which are not ordinary income but which are included in assessable income provisions about assessable income. Employment termination payments fall within this category. The assessment of statutory income is found in the following subsections of s. 6-10:
(4) if you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia.
(5) if you are a foreign resident, your assessable income includes:
(a)your *statutory income from all *Australian sources; and
(b)other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source.
It should be apparent from reading the above sections of the ITAA 1997 that liability to tax, whether ordinary income or statutory income, may depend on whether the taxpayer was a resident of Australia when the income was derived; if not a resident, whether the taxpayer received the income from an Australian source; and, if neither of the first two circumstances apply, whether there is a provision in the relevant ITAA which imposes a tax liability in respect of the income.
In Mr Boyd's case, we are only concerned with statutory income because the payments in question were made to him as a consequence of his position with Fonterra becoming redundant.
I need to clarify two matters to begin with. The first is about the time Mr Boyd spent working in Australia for Fonterra. Although Mr Boyd, or at least his accountants, claimed he was in Australia for 11 months, that is incorrect. He was in Australia between August 2002 and October 2003, a period of some 14 months. Furthermore, he was present in Australia working for Fonterra for more than six months in the 2007 income year. The second matter is Mr Boyd's reference to s. 83-235 of ITAA 1997. That section came into effect on 1 July 2007. Given that the 2007 income year ended on 30 June 2007, s. 83-235 has no application to this matter.
The first relevant statutory provision is s. 26AC of ITAA 1936 which deals with amounts received on retirement or termination of employment in lieu of annual leave. Insofar as it is relevant to Mr Boyd's case, it provides:
(1) This section applies to any amount paid after 15 August 1978 (whether voluntarily, by agreement or by compulsion of law) to a taxpayer in a lump sum in consequence of the retirement of the taxpayer after that date from any office or employment or in consequence of the termination after that date of any office or employment of the taxpayer, being an amount that is paid in respect of unused annual leave or in respect of unused annual leave and a bonus, loading or other additional payment relating to that leave.
(2) Where an amount to which this section applies is paid to a taxpayer in a year of income, that amount shall be included in the assessable income of the taxpayer of the year of income.
In addition, s. 26AD applies to amounts received on retirement or termination of employment in lieu of long service leave. Insofar as it is relevant, it provides:
(2) Where:
(a)an amount to which this section applies is paid to a taxpayer in a year of income in respect of unused long service leave; and
(b)the eligible service period in relation to that unused long service leave commenced after 15 August 1978,
the assessable income of the taxpayer of the year of income shall include the amount of the payment.
As Mr de Wijn correctly submitted, s. 26AC(2) and s. 26AD(2) provide that the amounts referred to in those sections are included in assessable income when they are paid, rather than simply derived. Those amounts were paid to Mr Boyd in April 2007.
The third relevant section of ITAA 1936 is s. 27B. It provides:
(1) If an ETP (other than a death benefit ETP) is made in relation to a taxpayer in the year of income, the taxpayer's assessable income of the year of income includes:
(a)the taxed element of the retained amount of the post-June 83 component; and
(b)the untaxed element of the retained amount of the post-June 83 component.
An ETP is defined in s. 27A(1) to mean an eligible termination payment.
The expression eligible termination payment is defined in s. 27A(1) in the following way:
eligible termination payment, in relation to a taxpayer, means any of the following:
(a)any payment made in respect of the taxpayer in consequence of the termination of any employment of the taxpayer, other than a payment:…
(iv) of an amount to which section 26AC or 26AD applies; or…
Clearly, the Lump Sum C component stands apart or is dealt with separately to payments made in respect of accrued annual and long service leave.
I also accept Mr de Wijn's submission that the ETP was a retained amount for the purposes of s. 27B of ITAA 1936. Mr Boyd did not suggest that the sum was rolled over.
In Mr Boyd's case, it appears to me that liability to taxation depends on whether Mr Boyd was a resident of Australia at the time the payments were made and if not, whether those payments had an Australian source. In fact, the Commissioner has accepted that the payments in dispute had a foreign source. Therefore, the only issue is residency and whether those payments in dispute are covered by any exemption.
Residence
Section 6(1) of ITAA 1936 sets out the definition of resident or resident of Australia in the following way:
resident or resident of Australia means:
(a)a person, other than a company, who resides in Australia and includes a person:
(i) whose domicile is in Australia, unless the Commissioner is satisfied that his permanent place of abode is outside Australia;
(ii) who has actually been in Australia, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside Australia and that he does not intend to take up residence in Australia; or…
Section 6(1)(a)(i) of ITAA 1936 appears to treat the expression domicile as equivalent to the expression permanent place of abode. Neither of those expressions is defined in the Act. Therefore, according to the common law rules of statutory construction, they must be given their ordinary meaning in the context in which they appear in the Act. As Starke J said in Herbert Adams Pty Ltd v Federal Commissioner of Taxation (1932) 47 CLR 222 at 225:
Words of common speech are, or are supposed to be, within the judicial knowledge, and should be "interpreted according to their common and ordinary meaning, namely, that which they bear in ordinary colloquial speech" (Falkiner v. Whitton (1)).
The common law principles of statutory construction have been restated on a number of occasions by the High Court of Australia. Gibbs C J in Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation of The Commonwealth of Australia (1981) 147 CLR 297 said, at 304:
It is an elementary and fundamental principle that the object of the court, in interpreting a statute, "is to see what is the intention expressed by the words used": River Wear Commissioners v. Adamson (16). It is only by considering the meaning of the words used by the legislature that the court can ascertain its intention. And it is not unduly pedantic to begin with the assumption that words mean what they say: cf. Cody v J. H. Nelson Pty. Ltd. (17). Of course, no part of a statute can be considered in isolation from its context–the whole must be considered. If, when the section in question is read as part of the whole instrument, its meaning is clear and unambiguous, generally speaking "nothing remains but to give effect to the unqualified, words": Metropolitan Gas Co. v. Federated Gas Employees' Industrial Union (18). …
and further at 305:
... However, if the language of a statutory provision is clear and unambiguous, and is consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may seem inconvenient or unjust. To say this is not to insist on too literal an interpretation, or to deny that the court should seek the real intention of the legislature. ...
The High Court in The Commissioner of Taxation of The Commonwealth of Australia v Westraders Pty Ltd (1980) 144 CLR 55 dealt with the issue of context. Murphy J, who dissented, said at 80:
It is universally accepted that in the general language it is wrong to take a sentence or statement out of context and treat it literally so that it has a meaning not intended by the author. It is just as wrong to take a section of a tax Act out of context, treat it literally and apply it in a way which Parliament could not have intended.…
… In tax cases, the prevailing trend in Australia is now so absolutely literalistic that it has become a disquieting phenomenon. …
Since Murphy J made the above statement, the High Court has moved away from a strict literal construction of statutes. The plurality (McHugh, Gummow, Kirby and Hayne JJ) in Project Blue Sky Inc and Others v Australian Broadcasting Authority (1998) 194 CLR 355 said, at 381:
The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute [Taylor v Public Service Board (NSW) (1976) 137 CLR 208 at 213]. The meaning of the provision must be determined "by reference to the language of the instrument viewed as a whole" [Cooper Brookes case].
According to Chambers 21st Century Dictionary, domicile means: 1 a house. 2 a legally recognised place of permanent residence. It is derived from the Latin domicilium which means dwelling. The word abode means: the house or place where one lives; a dwelling. The word permanent means: 1 lasting, or intended to last, indefinitely; not temporary.
The Full Court of the Federal Court (Franki, Northrop and Fisher JJ) dealt with the expression permanent place of abode in the context of s. 6(1)(a)(i) of ITAA 1936 in Federal Commissioner of Taxation v Applegate (1979) 27 ALR 114. Franki J said, at 116 – 117:
In my opinion the fact that the phrase "permanent place of abode" appears in a context which includes the word "domicile" is of great significance.…
Accordingly, in my opinion, the phrase "permanent place of abode outside Australia" is to be read as something less than a permanent place of abode in which the taxpayer intends to live for the rest of his life.
There is nothing in the sub-section which requires the intent of the taxpayer to be the critical factor even though it is, of course, a relevant factor. Essentially the question is whether, as a matter of fact the taxpayer's permanent place of abode was outside Australia at the relevant time.
As to the meaning of the word permanent in the context in which it appears in s. 6(1) of ITAA 1936, Fisher J said, at 127:
Moreover, the concept of permanency is used in a context in which it does not, and could not, bear its primary meaning of "everlasting". It would amount to a contradiction in terms to suggest that an independent person could be domiciled in Australia but with his permanent residence outside Australia, if permanent bears its ordinary meaning.
But it is clear that the meaning of permanent is far from intractable, and very much takes its colour from its context. As the Master of the Rolls, Lord Evershed said in McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129 at 140; 1 WLR 594 at 609: "The word (permanent) is clearly capable, according to the context, of many shades of meaning."
Northrop J also explained that the issue regarding the permanent place of abode of a taxpayer must be considered in relation to the income year in question. He said, at 123:
… Each year of income must be looked at separately. If in that year a taxpayer does not reside in Australia in the sense in which that word has been interpreted, but has formed the intention to, and in fact has, resided outside Australia, then truly it can be said that his permanent place of abode is outside Australia during that year of income. This is to be contrasted with a temporary or transitory place of abode outside Australia. In any event the extended meaning of "resident" becomes relevant only when, during the year of income under consideration, the taxpayer does not reside in Australia. …
Mr Boyd's evidence was that he commenced work for Fonterra in New Zealand in January 1995. He worked for Fonterra in a number of global locations, including Singapore, Malaysia, the Philippines and Venezuela before moving to Australia on
19 August 2002. Mr Boyd left Australia in October 2003 for the United States of America where he completed an executive development program and from there he went on to Taiwan. Although it is unclear how long Mr Boyd was in Taiwan, he remained there until he was made redundant on 15 November 2006.
During the period of some 14 months when Mr Boyd worked in Australia, he paid Australian income tax on his salary. There was no evidence to suggest otherwise that Mr Boyd, during that period, was regarded as a resident of Australia.
After being made redundant in Taiwan, Mr Boyd travelled to Brazil looking for job opportunities. Finally, he arrived back in Australia on 17 December 2006. He has remained in Australia since that time.
In my opinion, the evidence clearly discloses that Mr Boyd was a resident of Australia during the 14 month period between 2002 and 2003 when he was domiciled in Australia. There was no evidence that he retained a permanent place of abode outside Australia. He returned to Australia in December 2006 when he took up permanent residency. Once again, there was no evidence before me to suggest that since December 2006, Mr Boyd has retained a permanent place of abode outside Australia.
Therefore, I find that when Mr Boyd received the employment termination payment of $353,561 in April 2007, he was a resident of Australia.
It follows that Mr Boyd was correctly assessed as liable to taxation on his ordinary income during the 14 month period commencing in 2002 that he resided in Australia. That is in accordance with s. 6-5(2) of ITAA 1997. Furthermore, subject to any specific statutory provisions to the contrary, his employment termination payment, being statutory income, regardless of its source, was Mr Boyd's assessable income in the 2007 income year and liable to taxation (s. 6-10(4)).
Tax liability on employment termination payments
The Commissioner did not dispute the amount of $44,095 as the tax free redundancy component of his payment. Section 27A(19) of ITAA 1936 provides for a tax-free amount of a bona fide redundancy payment as follows:
For the purposes of this Subdivision, the tax-free amount of a bona fide redundancy payment, or of an approved early retirement scheme payment, made during a year of income is so much of the payment as does not exceed:
(a)if the year of income is the 1994-95 year of income – the amount worked out using the formula:
$4000 + [$2000 x Years of service]…
(b)if the year of income is a later year of income – the amount worked out using that formula subject to the indexation arrangements set out in subsection (20).
Section 27A(20) provides that the formula in subsection (19) applies for the 1995-96 year of income or later year of income as if each indexable amount were replaced by an amount worked out using the formula: indexation factor x previous indexable amount. The amounts for the 2007 income year are $6783 and $3392. Therefore, for 11 years of service, applying those sums to the formula results in the equation $6783 + (3392 x 11) = $44,095.
Accordingly, I find that the Commissioner has correctly allowed this sum as a tax-free amount of bona fide redundancy payment.
The payment of $113,328 to Mr Boyd was made in respect of unused annual leave and long service leave. The specific provisions in ITAA 1936 dealing with this payment are set out above (26AC and 26AD). As Mr de Wijn submitted, those sections apply to amounts paid to the taxpayer which is quite different to the expression used in the taxation of ordinary income which is subject to taxation when it is derived. The total amount comprising unused annual leave and long service leave was paid in April 2007. At that time Mr Boyd was resident in Australia. Therefore, subject to any exemptions, this sum must be included in Mr Boyd's assessable income in the 2007 income year.
Section 23AG deals with the exemption of income earned in overseas employment. Section 23AG(1) provides:
Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from the foreign service is exempt from tax.
Although the Commissioner was of the view initially that the entire amount of $113,328 was liable to taxation, at the hearing of this matter, he amended his contention accepting that $91,843 of that total amount was exempt by reason of s. 23AG(1) of ITAA 1936. As I understood Mr de Wijn's submission, the unused annual and long service leave was referable, in part, to his earnings from foreign service. In recalculating the amount which was assessable to Mr Boyd, the Commissioner apportioned the total amount paid between the time spent working overseas and the time spent working in Australia. There was no evidence that the conditions for non-exemption set out in s. 23AG(2) applied. The Commissioner in fact applied ATO ID 2002/730 which, although now withdrawn, continued to be a precedential view in respect of foreign earnings derived before 1 July 2009 from foreign service performed before 1 July 2009. The decision stated:
The lump sum payment for unused LSL attributable to the service overseas is exempt from income tax pursuant to subsection 23AG(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The income tax payable on the remaining non-exempt income is calculated pursuant to subsection 23AG(3) of the ITAA 1936.
The apportionment resulted in an amount of exempt unused long service leave of $33,066 and exempt unused annual leave of $58,777, being a total of $91,843. Therefore, the total assessable unused annual and long service leave payment was $21,486. Mr Boyd did not disagree with this recalculation and, from the evidence before me, it appears to be correct.
Mr de Wijn also submitted that although the $91,843 should be excluded from Mr Boyd's assessable income for the 2007 income year, it should be taken into account in determining the tax rate which Mr Boyd was required to pay on the remaining income for that year. Respectfully, this submission is also correct. Section 23AG(3) deals with the case where the income of a taxpayer consists of exempt and non-exempt income. The formula is as follows:
Notional gross tax
x Other taxable income
Notional gross taxable income
The expression notional gross tax is a defined term and it means: the number of whole dollars in the amount of income tax that would have been assessed under ITAA 1936 in respect of the taxpayer's taxable income of the year of income if:
(a)the exempt amount were not exempt income; and
(aa)if the exempt amount is an exempt resident foreign termination payment (within the meaning of Subdivision AA of Division 2) – the exempt amount (excluding any part of that amount that represented contributions made by the taxpayer) were assessable income of the taxpayer; and
(b)the taxpayer were not entitled to any rebate of tax.
The ETP amount ($196,137.15) is of course treated differently. As Mr de Wijn submitted, this component is assessable under s. 27B of ITAA 1936. Furthermore, because Mr Boyd was a resident of Australia when this payment was made, the source of the income has no relevance (s. 6-10(4) of ITAA 1997). This is despite the fact that the Commissioner conceded that the payment had a foreign source.
The Commissioner referred to the definition of exempt non-resident foreign termination payment found in s. 27A(1) of ITAA 1936 but submitted that it did not apply to Mr Boyd. The relevant part of the definition provides:
exempt non-resident foreign termination payment, in relation to a taxpayer, means:
(a)a payment made in respect of the taxpayer to which the following subparagraphs apply:
(i) the payment is made otherwise than from a superannuation fund (as defined by subsection 6(1)) in consequence of the termination of the taxpayer's employment;
(ii) the payment would, apart from paragraphs (ka) and (ma) of the definition of "eligible termination payment", be an eligible termination payment;
(iii) the employment service in a foreign country as a holder of an office or in the capacity of an employee;
(iv) the payment related solely to a period of the employment during which the taxpayer was not a resident of Australia;…
Mr de Wijn submitted that although (i) and (ii) were satisfied, (iii) and (iv) were not. That is because Mr Boyd's employment was not wholly service in a foreign country. Between August 2002 and October 2003 his employment was in Australia. In addition, Mr Boyd had not provided evidence of how the ETP component was calculated or what it related to. Without further evidence, Mr de Wijn submitted that I could not be satisfied that no part of it related to the period of employment in Australia.
I accept that submission. Quite plainly, the ETP payment received by Mr Boyd took into account his entire period of employment with Fonterra. I had no evidence which might disclose a separation of the amount attributable to his Australian employment and therefore, because Mr Boyd bears the onus of proving that the assessment is excessive (s. 14ZZK of the Administration Act), I find that he has not discharged that onus in respect of the ETP payment. It follows that the ETP component must be taken to have been correctly included in Mr Boyd's assessable income for the 2007 income year.
CONCLUSION
I have found that Mr Boyd was a resident of Australia at the time he received an employment termination payment from his employer in April 2007. That payment consisted of three components: annual leave and long service leave; a taxable component of a redundancy payment; and a non-taxable component of the redundancy payment.
There was no issue about the non-taxable redundancy payment (Lump Sum D) and I have found that it was correctly calculated.
I have also found that the taxable component of the redundancy payment (Lump Sum C) (or any part of that payment) was not an exempt non-resident foreign termination payment. I did not have any evidence before me which would substantiate that this payment related solely to the period of employment during which Mr Boyd was not a resident of Australia. He received a payment at a time when he was a resident of Australia. Therefore, I find that the Commissioner's assessment of this element of the employment termination payment was correct.
However, I have found that the Commissioner's objection decision regarding the payment for unused annual and long service leave (Lump Sum A) was incorrect. At the hearing of this matter, the Commissioner amended his contention regarding this payment excepting that $91,843 of the total payment of $113,328 was exempt by reason of the application of s. 23AG(1) of ITAA 1936. It does not form part of his assessable income for the 2007 income year. While the exempt part of that payment must be taken into account in determining Mr Boyd's tax rate on his remaining income for the 2007 income year, only the remaining portion, $21,486 is assessable to Mr Boyd.
Therefore, I would vary the Commissioner's objection decision made on 30 March 2012, excluding the amount $91,843 from Mr Boyd's assessable income for the 2007 income year. I would otherwise affirm the Commissioner's objection decision. The matter is remitted to the Commissioner to amend Mr Boyd's tax assessment for the 2007 income year in accordance with this decision.
I certify that the preceding 58 (fifty -eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member Egon Fice ....[sgd]....................................................................
Associate
Dated 12 July 2013
Date of hearing 4 April 2013 Representative for the Applicant Self-represented Counsel for the Respondent Mr A J de Wijn Solicitors for the Respondent Australian Taxation Office, Legal Services Branch
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