FEDERAL COURT OF AUSTRALIA
Stark v Commissioner of Taxation [2023] FCA 1523
Appeal from: Stark and Commissioner of Taxation (Taxation) [2021] AATA 2583 (29 July 2021) File number: QUD 42 of 2023 Judgment of: DERRINGTON J Date of judgment: 19 December 2023 Catchwords: TAXATION – income tax – employment termination payment – payment received by taxpayer in settlement of claims for breach of employment agreement and misleading or deceptive conduct – whether payment was exempt capital gain under s 118-37(1)(a)(i) of the Income Tax Assessment Act 1997 (Cth) (ITAA97) – whether payment was an employment termination payment under s 82-130 of the ITAA97 – appeal dismissed Legislation: Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
Termination Payments Tax (Assessment and Collection) Act 1997 (Cth)
Trade Practices Act 1974 (Cth)
Federal Court Rules 2011 (Cth)
Fair Trading Act 1985 (Vic)
Cases cited: Ahamed v Secretary, Department of Human Services [2022] FCA 1207
Ascic v Secretary, Department of Social Services [2016] FCA 1122
Australian Telecommunications Corporation v Lambroglou (1990) 12 AAR 515
Avetmiss Easy Pty Ltd v Australian Skills Qualifications Authority [2014] FCA 314
Berry v Commissioner of Taxation (2015) 149 ALD 270
Bond v Federal Commissioner of Taxation (2015) 101 ATR 85
Bornecrantz v Secretary, Department of Social Services (2017) 169 ALD 453
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280
Dibb v Federal Commissioner of Taxation (2003) 53 ATR 290
Director of Public Prosecutions for the Commonwealth of Australia v JM (2013) 250 CLR 135
Ellis v Secretary, Department of Social Services [2016] FCA 1469
Federal Commissioner of Taxation v Crown Insurance Services Ltd (2012) 207 FCR 247
Federal Commissioner of Taxation v Scully (2000) 201 CLR 148
Federal Commissioner of Taxation v Sydney Refractive Surgery Centre PtyLtd (2008) 172 FCR 557
Graham v Robinson [1992] 1 VR 279
Haritos v Federal Commissioner of Taxation (2015) 233 FCR 315
Harris v Director-General of Society Security (1985) 59 ALJR 194
Ibarcena v Secretary, Department of Family and Community Services [2003] FCA 1354
Jamal v Secretary, Department of Social Services [2017] FCA 916
Kowalski v Chief Executive Officer of Medicare Australia (2010) 185 FCR 42
Luck v Secretary, Department of Human Services (2015) 233 FCR 494
McIntosh v Federal Commissioner of Taxation (1979) 25 ALR 557
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Details
- AGLC
- Stark v Commissioner of Taxation [2023] FCA 1523
- Case
- [2023] FCA 1523
- Decision Date
CaseChat Overview and Summary
The matter of Stark v Commissioner of Taxation involved Mr Stark appealing a decision of the Administrative Appeals Tribunal (AAT) that determined the $505,500 payment he received from the Indigenous Business Consulting Services division of the Indigenous Business Australia (IBA) was an employment termination payment (ETP) for the purposes of the Income Tax Assessment Act 1997 (Cth). The central issue before the court was whether this payment constituted an ETP and, if so, whether it was exempt from capital gains tax under s 118-37(1)(a)(i) of the ITAA97. Mr Stark argued that the payment was not an ETP and should be exempt from capital gains tax as it was compensation for misleading or deceptive conduct by IBA.
The court examined the statutory definition of an ETP under s 82-130 of the ITAA97 and determined that the payment satisfied all the necessary criteria. It found that the payment was received in consequence of the termination of Mr Stark's employment, was not of a kind mentioned in s 82-135, and was not exempt under s 118-37(1)(a)(i). The court further held that the ATO’s decision to classify the payment as an ETP was correct and that the Tribunal's decision to dismiss Mr Stark’s application for review was also justified. The court concluded that Mr Stark's claims about the validity of the settlement and the tax treatment of the payment were not substantiated, leading to the dismissal of his appeal.
The final orders of the court were that the appeal be dismissed and that Mr Stark pay the respondent's costs. The dismissal of the appeal affirmed the AAT’s decision that the payment constituted an ETP and was subject to income tax rather than being exempt from capital gains tax.
The court examined the statutory definition of an ETP under s 82-130 of the ITAA97 and determined that the payment satisfied all the necessary criteria. It found that the payment was received in consequence of the termination of Mr Stark's employment, was not of a kind mentioned in s 82-135, and was not exempt under s 118-37(1)(a)(i). The court further held that the ATO’s decision to classify the payment as an ETP was correct and that the Tribunal's decision to dismiss Mr Stark’s application for review was also justified. The court concluded that Mr Stark's claims about the validity of the settlement and the tax treatment of the payment were not substantiated, leading to the dismissal of his appeal.
The final orders of the court were that the appeal be dismissed and that Mr Stark pay the respondent's costs. The dismissal of the appeal affirmed the AAT’s decision that the payment constituted an ETP and was subject to income tax rather than being exempt from capital gains tax.
Orders
Orders of the court
1. The appeal is dismissed
2. The applicant pay the respondent’s costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Despite the fact that Mr Stark’s written material was voluminous, and raised a wide range of matters of varying relevance to this proceeding, it was apparent that the Commissioner’s legal representatives were aware of the principal issues requiring determination. Those were distilled and addressed in the Commissioner’s written submissions. To his credit, Mr Stark made oral submissions at the hearing of the appeal that also addressed the principal issues. Unfortunately, however, his oral address strayed periodically from these more relevant points and dealt instead with the extraneous matters that had been the subject of much of his written material. In connection with several issues, he effectively invited the Court to make findings of fact as if the matter was being heard de novo. The effect of s 44 of the AAT Act is such that the Court cannot properly take up that invitation. As the ensuing reasons explain, this conclusion has significant consequences for the outcome of Mr Stark’s appeal.Factual background Whilst it is unnecessary to set out in full the factual background against which the issues before the Tribunal arose, it is appropriate to contextualise those issues to some extent in order to give meaning to the decision. The account that follows is constructed principally from facts that were not in dispute. Those facts are supplemented at certain points with Mr Stark’s own claims and assertions to the extent that they assist in explaining his broader grievances with IBA and with the Commissioner, which seem to have motivated certain aspects of his overall approach to this appeal. Mr Stark’s employment with IBA In 2000, Mr Stark was seeking employment. He was 55 years of age at the time. In September of that year, he received an offer of employment from an entity known as “GPS Online Ltd” (GPS). He now claims that, if he had accepted that offer when it was made, his employment with that entity would have continued for a number of years and left him “financially comfortable” in retirement. In October 2000, however, he received a competing offer of employment in a division of IBA known as “Indigenous Business Consulting Services” (IBCS). He accepted that offer on 16 October 2000 and rejected the prior offer from GPS. He has since claimed, including in the context of this appeal, that:(a)the offer from IBA was accompanied by assurances that the work to develop IBCS had been “independently assessed as viable” and that, if the division did not continue, there would be other work for him within IBA; and(b)the offer should not have been made, as IBCS was at that time being considered for closure. In December 2001, he was terminated from his position of employment with IBA. Mr Stark asserts that, on this date, all of the staff in IBCS were terminated because the division was considered by IBA to be unprofitable and not financially viable.The proceedings in the Supreme Court of Queensland and the Deed of Settlement In October 2003, Mr Stark commenced proceedings against IBA in the Supreme Court of Queensland, seeking damages for breach of the terms of his employment and for misleading or deceptive conduct. According to him, the latter of these aspects of the proceedings ultimately assumed foremost importance. The thrust of his claim, as can be discerned from his written submissions in the present appeal, was essentially that:(a)he had been induced by an offer of stable employment with IBA to abandon his prospective employment with GPS;(b)the offer from IBA was deceptive, in that his employment proved to be unstable (and he had been terminated as a result);(c)he had been unable to find alternative employment after his termination due to his age and outdated skillset; and(d)accordingly, IBA’s deceptive offer had destroyed his earning capacity.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Finally, it found that the $505,500 payment was not of a kind mentioned in s 82-135 of the ITAA97, thereby satisfying the third requirement for an ETP, stated in s 82-130(1)(c). It also found, in response to a particular contention made by Mr Stark, that the payment was not a capital gain made from a capital gains tax (CGT) event relating directly to “compensation or damages you receive for any wrong or injury you suffer in your occupation” within the ambit of s 118-37(1)(a)(i). That provision is set out and addressed later in these reasons.The objection to the private ruling, the objection decision, and the first application for review On 24 August 2010, Mr Stark objected to the private ruling. In that objection, he made complaints about (amongst other things) the validity of the Deed of Settlement, the ATO’s reliance on the “anti-overlap provision”, s 118-20 of the ITAA97, and the finding that the settlement was in consequence of termination of his employment. The ATO disallowed this objection on 14 October 2010, effectively reaffirming its prior decision that the $505,500 payment was an ETP. It concluded, again, that the payment was received in consequence of the termination of Mr Stark’s employment in accordance with s 82-130(1)(a)(i), having considered a number of authorities that had interpreted and applied the relevant statutory language. It also noted that the Commissioner had determined under s 82-130(5) that the requirement in s 82-130(1)(b) was to be waived. Finally, it determined that the $505,500 payment was not a payment mentioned in s 82-135, as required by s 82-130(1)(c), and that the CGT provisions of the ITAA97 did not apply on account of ss 118-20 and 118-22. Mr Stark was dissatisfied with the ATO’s conclusion. On 13 December 2010, he filed an application for review with the Tribunal in relation to both the private ruling and the ATO’s disallowance of his objection. During the course of that Tribunal proceeding, it was identified that the ATO’s original private ruling had incorrectly been issued in respect of the financial year ended 30 June 2010. As a result, the parties agreed that the private ruling did not apply to the $505,500 payment. They consented to an order by Senior Member McCabe that the application should be dismissed. That order was before the Court, and provides as follows:The parties to the proceedings for review have notified the Tribunal that they consent to the dismissal of the application.The Tribunal dismisses the application pursuant to section 42A(1) of the Administrative Appeals Tribunal Act 1975. Mr Stark contended, in the context of this appeal, that the parties at that time reached an agreement that the best way forward was for him to file his tax return for the financial year ended 30 June 2009 and then raise an objection if he was dissatisfied with the ATO’s assessment of that return.Mr Stark’s tax return for the financial year ended 30 June 2009 Mr Stark did not lodge his tax return for the financial year ended 30 June 2009 until 9 June 2017. The Commissioner thereafter issued a notice of assessment on 29 June 2017, in which Mr Stark’s taxable income for that year was found to be $515,182. He objected to that notice of assessment on 15 October 2018.
Ratio Decidendi
Legal Principle Established
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