The Taxpayer and Commissioner of Taxation

[2000] AATA 123

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2000] AATA 123

ADMINISTRATIVE APPEALS TRIBUNAL      )

)     No QT1996/322

TAXATION APPEALS  DIVISION )

Re THE TAXPAYER

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Mr K L Beddoe (Senior Member)

Date22 February 2000

PlaceBrisbane

Decision The Tribunal decides that the objection decision under review is affirmed.

Decision No  (Sgd)     K L Beddoe
  Senior Member

CATCHWORDS

TAXATION: Superannuation – Assessable income – Eligible termination payment – Approved early retirement scheme – Restraint of trade

Income Tax Assessment Act 1936 ss 27A(1), 27A(19), 27AA, 27AB, 27B, 27C, 27CB(1), 27E

REASONS FOR DECISION

22 February 2000 Mr K L Beddoe (Senior Member) 

1.      By notice dated 28 February 1996 the applicant objected to an assessment of income tax for the year of income ended 30 June 1995.  The objection decision was to disallow the objection as notified by the respondent by a notice dated 2 September 1996.  On 8 November 1996 the applicant lodged an application for review in this Tribunal.

2. Section 27B of the Income Tax Assessment Act 1936 (“the Act”) includes in a taxpayer’s assessable income an ETP to the extent of:

(a)the element of the retained amount of the post June 1983 component; and

(b)the untaxed element of the retained amount of the post June 1983 component.

The taxed and untaxed elements of a post June 1983 component are determined by s 27AB of the Act but need not be pursued here.

3. Section 27C of the Act provides that where an ETP is made in relation to a taxpayer the taxpayer’s assessable income includes 5% of the retained amount of the pre July 1983 component.

4. “ETP” is extensively defined in s 27A of the Act. For present purposes it means an eligible termination payment. In relation to a taxpayer it means any payment made in consequence of the termination of any employment. The definition specifically excludes consideration of a capital nature for, or in respect of, a legally enforceable contract in restraint of trade by the taxpayer, to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner, reasonable having regard to the nature and extent of the restraint (para m).

5. Section 27E provides for an Approved Early Retirement Scheme and payments. Where an eligible termination payment is made in relation to a taxpayer in consequence of termination of employment at the termination time and in accordance with the scheme then any amount exceeding the “termination amount” is an approved early retirement scheme payment except that it does not include an amount in respect of foregone superannuation benefits. An approved early retirement scheme payment made after June 1994 is exempt from tax and excluded from a taxpayer’s assessable income up to the “tax free amount” (ss 27CB(1) and 27A(19)).

6. At the hearing the applicant conducted his own case and an officer of the Australian Taxation Office represented the respondent Commissioner. The documents lodged in the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal and each party put further documents into evidence. No oral evidence was given. Both parties made detailed submissions.

7.      After holding the posts of senior lecturer and reader at Monash University the applicant transferred to the University of Queensland in 1979 as a senior lecturer and subsequently became a reader at that university.

8.      In 1993 the applicant wrote to the Lord Chancellor’s Department in London, England, seeking access to records of cases of petitions to the Crown as Visitor at various Universities.  In that connection the applicant proposed conducting research in England while he was on study leave in the second semester of 1994.  The study leave had been approved in 1993.

9.      In October 1993 blood tests revealed that the applicant was suffering formaldehyde and toluene poisoning.  Faced with the poisoning and the likely onset of lethargy together with other health problems the applicant approached the Vice Chancellor, University of Queensland with a view to early retirement.  He says, in his statement of evidence, and I accept, that he was told that it was a term of every agreement for early retirement that the retiree had to agree not to be employed by the University for two years.

10.     The applicant entered into negotiations for an early retirement package.  One of the elements of the package was an offer in writing on behalf of the Vice‑Chancellor of a termination payment equivalent to six months salary (Exhibit A(H)).  The applicant responded that the Vice‑Chancellor had failed to take into account that the applicant would forego six months of study leave.  That response provoked a further offer from the Vice‑Chancellor offering 12 months salary as the termination payment.

11.     Following further negotiations the applicant received a letter from the Vice‑Chancellor dated 26 April 1994.  That letter (Exhibit A(L)) included the following:

“On receipt of your resignation at the end of first Semester 1994 (ie 2.7.94) the University will provide you with a termination payment equal to 15 months salary.”

12.     The applicant did not immediately accept the offer but sought to ensure that his previous employment at Monash University would be included in calculation of retirement benefit.  On 3 May 1994 the Vice‑Chancellor responded to the effect that the employment at Monash University would be taken into account for superannuation purposes.  The Vice‑Chancellor went on to say:

“I am sure you recognise that significant changes to the superannuation regulations come into effect on 1 July 1994.  If you find advantage in a termination date of June 30^th rather than the end of ‘first semester’ (July 2^nd 1994), I would be pleased to facilitate that change.”  (Exhibit A(N))

13.     By letter dated 18 May 1994 (Exhibit A(R)) the applicant accepted the University’s offer of retirement on 30 June 1994 (and also offered to retire on that date) in consideration for the payment of 15 months salary payable on 30 June 1994.  That acceptance (? offer) was confirmed (? accepted) by the Vice‑Chancellor on 19 May 1994.

14.     In anticipation of the execution of the agreement for the termination payment the applicant went to the Taxation Office to ascertain the amount of tax payable on the agreed amount.  Exhibit A(T) shows that an officer of the Taxation Office attributed 11/28 of the payment to post 1983 service and 17/28 to pre 1983 service.  I am satisfied nothing turns on the calculations made at that time because they were based on future actions and cannot, in any case, bind this Tribunal in any way as to the application of the law to the facts.

15.     On 30 June 1994 the University of Queensland paid the applicant an amount of $108,257.68 made up of:

Long Service Leave entitlements  $23,499.53

Leave Loading  311.15

Termination Payment     84,447.00

$108,257.68

The applicant “rolled over” the amount of $84,447.00 into the Tertiary Education Superannuation Scheme (Exhibit A).  That amount was subsequently withdrawn.  The applicant also received a payout of his interest in a superannuation fund administered by Uni Super Ltd.

16.     The University of Queensland apportioned the termination payment on the basis of the University of Queensland employment only and did not take into account the Monash University employment.

17.     Subsequent to his retirement from the University the applicant became aware of the existence of an approved early retirement scheme administered by the University.  I accept the applicant's assertion that he was not aware of this scheme prior to his retirement.  Following the applicant's enquiries the Taxation Office wrote to him on 16 April 1997 advising in effect that the University had an early retirement scheme approved by the Taxation Office on 4 February 1994.  The scheme was said to apply to academic staff at least age 55 and under age 63 at 31 December 1994 and was said to apply to early retirements effective between 1 July 1994 and 31 December 1994 (Exhibit A (UK)).

18.     The applicant was told that he was not within the ambit of the scheme because he was 64 years of age at 31 December 1994 and the University had paid him before 1 July 1994.

19.     Enquiries by the Human Rights and Equal Opportunity Commission revealed that the Taxation Office advice was factually wrong in one aspect.  The scheme in fact was effective from 1 June 1994 following an amendment apparently sought by the University.  The material before the Tribunal satisfies me that the University of Queensland has conducted approved early retirement schemes from time to time since 1989.  Those schemes may result in an employee being eligible for concessional tax treatment on an ETP paid under the scheme.  It is apparent from the material that the University deliberately restricted the operation of the scheme so as not to place undue burdens on the University.

20.     I am satisfied that there is nothing in the material pointing to the applicant being retired under the approved early retirement scheme in operation at the time of his retirement.  My reasons are:

(a)the applicant did not come within the age group eligible under the scheme;

(b)no mention of the scheme being applied to the applicant was made in the negotiations for the applicant's retirement; and

(c)the payout received by the applicant was more generous than the amount payable under the approved early retirement scheme which was capped at 12 months salary.

21.     While it is of the essence of an approved early retirement scheme (eg Exhibit 1) that there be no agreement for re‑employment of a person offered retirement under the scheme it is not apparent that such a rule was applied to the applicant.  The applicant applied for early retirement because of ill‑health and it might be reasonable to infer that the University did not see the question of re‑employment as an issue in the applicant's case.  In any event there is nothing before me that shows as a fact that the University had imposed a condition that in any sense prevented the applicant from obtaining work with other employers.  Whether the University  would have re‑employed the applicant is a different question.  I have assumed that the University would not have expected to re‑employ the applicant, except perhaps on a casual basis, but that would not be because it had entered into a covenant not to do so.

Consideration

22.     While the applicant asserts that he should have the benefit of retirement under the approved early retirement scheme there is no basis in fact for that assertion.  The Vice‑Chancellor did not refer to that scheme during negotiations, the applicant was not qualified to participate in the scheme because of age and the termination payment by the University was more generous than could be paid under the terms of the scheme.  I am satisfied the termination payment was not paid to the applicant under the approved early retirement scheme.

23. As to the apportionment for pre/post 1983 service the applicant asserts that this should be apportioned on the same basis as his payment from the Universities Superannuation Scheme. Once again the issue here is essentially a factual one. The calculation of the pre July 1983 component is governed by s 27AA of the Act. While the calculation takes many possible factors into account the only relevant factor in this case is the number of days in the eligible service period that occurred before 1July 1983. In so far as is relevant the definition of “eligible service period” in s 27A(1) fixed the eligible service period as the period, or the aggregate of the periods, of the employment to which the relevant eligible termination payment relates.

24.     The correspondence between the applicant (letter 26 April 1994 - Exhibit A(M)) and the Vice‑Chancellor (letter 3 May 1994 – Exhibit A(N)) satisfies me that the termination payment in issue here was paid by the University of Queensland upon termination of the applicant's employment with that University.  The Vice‑Chancellor distinguished the superannuation payment on the grounds that the applicant's employment at Monash University would be taken into account for that payment.

25.     There is nothing before me that satisfies me that the University of Queensland termination payment somehow also related to the period of employment at Monash University.  In so far as the applicant asserted that University lecturers are employees of the Commonwealth of Australia I am not satisfied that is the case.  In that regard I have considered the Australian Universities Academic Staff (Conditions of Employment) Award 1988 (Exhibit 1).  The Award lists the respondents to that Award in Schedule 1.  In the light of that schedule there does not appear to be any basis for saying that the Commonwealth of Australia was the applicant's employer.  I am satisfied that Monash University was his employer until 1979 and the University of Queensland was his employer from 1979 to 1994.

26.     I am satisfied that the relevant eligible service period was 3 September 1979 to 30 June 1994.  It follows that I do not accept that the employment at Monash University should be taken into account for the purpose of calculating the pre July 1983 component.

27.     More difficult is the applicant's submission that the termination payment was paid in respect of a legally enforceable contract in restraint of trade by the applicant to the extent to which the amount or value of the consideration is, in the opinion of the Commissioner (and therefore this Tribunal) reasonable having regard to the nature and extent of the restraint.

28.     The negotiations between the applicant and the Vice‑Chancellor as evidenced by their correspondence, were such as to satisfy me that the applicant was seeking to leave his employment and the University was offering an inducement for him to do so. As the Vice‑Chancellor pointed out in his letter of 3 May 1994 the “ex‑gratia benefit  .  .  . exceeds the amount you would earn subject to full tax, if you stayed until you reach age 65”.  On that basis it is reasonable to infer that the Vice‑Chancellor thought the offer of 15 months salary was an inducement to retire from employment.  Certainly it was more generous than would have been paid under the approved early retirement scheme.

29.     But in making that inducement, if it was such, the Vice‑Chancellor only sought the applicant's retirement from the University.  There is nothing in the material to suggest that the applicant was required to enter into any form of undertaking, informal or formal, that he would not seek employment at another University, that he would not practice his profession nor enter into any commercial activity.  The inducement was for him to elect to retire from the employment by the University of Queensland.  There was no other undertaking.

30.     I am satisfied therefore that the applicant did not enter a legally enforceable restraint of trade because he made no such contract.  The essential character of his agreement with the Vice‑Chancellor was that in consideration for the payment of an amount equivalent to 15 months salary he would retire from his tenured position as Reader at the University.  The contract effectively terminated his tenure at the University.  It did not have any other purpose that is apparent on the material.

31.     For these reasons I am satisfied that the applicant has not established that the assessment is excessive and the objection decision under review will be affirmed.

I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)

Signed:         
  T G Lowther
  Associate

Date/s of Hearing  1 June 1999
Date of Decision  22 February 2000
Applicant  In Person
Advocate for the Respondent   Ms Gilligan