Smith v SBP Employment Solutions Pty Ltd and Ors (No.3)

In Smith v SBP Employment Solutions Pty Ltd and Ors (No.3), Judge Egan of the Federal Court of Australia considered the compensation payable to the applicant consequent upon the termination of his employment. The dispute centred on how to account for future taxation liabilities when calculating the compensation award, as well as the appropriate treatment of interest on past economic loss and superannuation loss.

The primary legal issue before the Court was to determine what constituted fair compensation in light of the future tax liability arising from the awarded compensation. This involved considering whether the compensation should be "grossed up" to account for the tax the applicant would have to pay on the award, and how to calculate this grossing up. The Court also had to determine the quantum of superannuation loss and the entitlement to interest on past economic loss.

Judge Egan, relying on the reasoning in *Construction, Forestry, Mining and Energy Union v Hail Creek Coal* [2016] FCA 1032, adopted the principle that it would be unfair to assess compensation without taking relevant tax implications into account. The Court reviewed authorities, including *Davinski Nominees Pty Ltd v I & A Bowler Holdings Pty Ltd* [2011] VSC 220, which established that where an award of damages is liable to taxation, and this can be calculated with reasonable certainty, it is unfair to ignore these tax implications. The Court rejected the proposition of a further grossing up to account for the tax on the initial grossing up, as seen in *Westpac Banking Corporation v Jamieson* [2015] QCA 50, but affirmed the necessity of an initial grossing up. Applying these principles, the Court found that the applicant's broad brush calculation for grossing up should be utilised in calculating his award of compensation, as the award would be taxed as assessable income and paid in a lump sum in the current financial year, potentially attracting higher marginal tax rates.