HI3042 Taxation Law of Weeks v Federal Commissioner

Weeks v. Federal Commissioner of Taxation

Case Introduction

In this case, the individual appealing was former employee of the Australian tax office. She did not made any formal plans for retirement but was considering the options. She took a recreational leave and then following that, she took a long service leave. As the tenure of leave was long during the period of leave, her work was reallocated. It appeared to her that as the responsibilities has been reallocated her role has become redundant. In an email to the national director, she raised the issue whether it is possible to apply for voluntary redundancy. The Australian taxation office initially was not in agreement with view that her role has been made redundant (Weeks 2014). The Australian taxation office after initial disagreement revisited the question and eventually approved for providing a formal offer of redundancy. Then after making the offer of redundancy, the appellant was dismissed. The matter of contention is that the appellant argued that the tax payable on the amount of residency payment is Nil. However, the Commissioner note that the tax that is properly payable on the redundancy payment is $7825.

Analysis of the section breached

The central provision of Income Tax Assessment Act 1997 that deals with genuine redundancy payment is provided in section 83-175 of the act. The section 83-175 provides that a genuine redundancy payment represent that amount of payment that is received by an employee because of dismissal from employment as the position has become genuinely redundant. The genuine redundancy payment should be more than that is reasonable expected from the voluntary termination of employment (Weeks 2014).  The starting point for the argument is to decide whether the appellant was dismissed because of genuine redundancy of employment. The Public Service Act 1999 provides that an employee can be terminated only on the ground that there is excess employee available to the agency than its requirement and as in accordance with the provisions of the agency agreement. In this case, the Agency Agreement in clause 97.1 provided that if due to change in technology or nature of job the service of employee cannot be effectively utilized for the current job (Flynn 2015). Then in such case, the agency should support the employee in considering other career options or should provide the employee with an option to leave the agency with respect and dignity for the service that have been rendered in the past. In the clause 97.2, it is provided that the above mentioned procedure is required to be followed if the job of employee replaced is required. On the other hand, if the job of employee replace is not required then the arrangement under clause 98 should be followed (Stack et al. 2015).

Analysis of the decision

Facts finding of the tribunal

On analyzing the decision of the tribunal it can be seen that at Para 25 of the decision the tribunal stated that the appellant was dismissed from employment. In Para 26 of the decision the tribunal found that the service of appellant could not be utilized effectively. In Para 28 of the Tribunal found that for the performance of the job an EL2.1 officer is required and the job of the appellant is still remaining. It was held by the tribunal that the job of the appellant is to be performed by somebody of her level. In the para 30 the Tribunal states that there is no disappearance of job only the number of the position has changed (Fullarton 2014). The function associated with that level is still to be performed by an officer of EL2.1 level. The Tribunal in its decision in para 29 argued that there is a need to distinguish from the situation where the job has disappeared and the situation where the employee is not required to perform the job by the employer. In this case by applying the law on the facts the Tribunal found under the provision of section 83-175(1) of the Income Tax Assessment Act 1997 that the position of the employee cannot be considered as redundant even though a particular employee cannot be used in that particular role (Degeling and Legg 2014).

Proceeding before the judge

The question of law that are been considered before the court for judgment are discussed below:

• It was considered whether any payment made to an Australian public service officer by a statutory agency in relation to termination of employment should be considered as employee termination payment under section 83-175 of the Income Tax Assessment Act 1997. The employment is terminated .under the para 29 (3) of the Public Service Act 1999on the ground that the officer is in excess of its requirement.
• It was also considered whether the clause 97.2 of the agency agreement should be regarded as invalid. The main reason for considering it as invalid is its inconsistency with clause 97.1and the power is beyond the Public Service Act.
• It is to be considered whether payment for redundancy for the termination of employment under clause 97.1 of the agency agreement should be regarded as Employment Termination Payment under section 83-175 of the Income Tax Assessment Act 1997. It is important to consider whether the fact that the ATO is unable to utilize the officer appropriately is a valid ground for receiving employment termination payment (Mellor 2016).
• It is to be considered whether the agency has the authority to make payment to the officer from the consolidated reserve fund if it is considered by the agency that the officer was not redundant genuinely.

In the judgment primary judge held that, the Tribunal did not raise the topic 2 and 3 as discussed earlier. The judge held that this question in the appeal was misconceived and could not be stated as a question of law. In addition to this, the primary Judge held that question one and question three has not raised the critical question whether the payment made to the employee is a genuine redundancy payment as per section 83-175 of the Income Tax Assessment Act 1997. In the judgment, the question of law identified by the primary judge is to determine if a payment is regarded as genuine redundancy payment under section 83-175(1) of the Income Tax Assessment Act 1997. The employee is terminated under section 29(3) (a) of the Public Service Act 1999 or under clause 97.1 of the agency agreement. The reason for the termination is that the employee is in excess to the requirement of the employer. In this case, the primary judge held that the payment made to the employee could not be regarded as the genuine redundancy payment (Leeser et al. 2015).

Considerations for the decision

The appellant argued that the Tribunal has made errand in law while providing the decision. The appellant in the oral submission before the full federal court said that the Tribunal was distracted by the terms of the agency agreement in the clause number 97.2. On analysis, it can be seen that the clause served the purpose of introduction to the finding of facts by the tribunal. These findings were not legally impeachable that could give rise to the question of law as per section 44 of the AAT Act. It can be seen that the concept of clause 97.2 is similar to that of section 83-175(1) of the Income Tax Assessment Act 1997 (French 2014). The Tribunal by referring to the clause 97.2 was considering the distinction between the generally understood concept of redundancy and the narrower concept of redundancy as dealt in section 83-175(1). In addition to this the appellant in its oral submission argued that the Tribunal has failed to conduct the detail finding of facts about the position of the appellant and it was in contrary to the approach taken in the full court in Dibb. Therefore it was argued by the appellant that the tribunal has made an erred of law as per the meaning of Section 44 of the AAT Act. It can be said that it is a criticism on the manner of fact finding by the Tribunal. The Tribunal has followed the procedure of gathering fats by obtaining written statement from the offices and has conducted cross-examination of the evidences.   In the case of Dibb, the case related to the tax appeal came to the court first so the full Court was appropriate (). In this case, the case was first referred to the Tribunal so it was not an error of law to find the facts in the manner in which the tribunal finds it necessary. It was further argued by the applicant that the Tribunal misconstrued the clause 97.2 of the agency agreement. However on analysis it can be seen that it does not appear that the Tribunal has been misconstrued the section 83-175(1) or the clause 97.1 of the agency agreement. The appellant argued that for the purpose of clause 97.1 of the agency agreement the Commissioner stated that she was not required for the job. However, the respondent Commissioner for the purpose of tax stated that this was not a real redundancy and imposed tax on the redundancy payment (Hobbs et al. 2017). Therefore, it was seen that there was a factual issue before the tribunal to determine genuine redundancy as per section 83-175(1) that can only arise out of the position of employee becoming genuinely redundant. On analyzing, it is found that there is no inconsistency between the employee's position becoming redundant and the employee in an excess of the requirement of the agency (Colton 2015). Therefore, it can be said that there is no difference between the finding of the Tribunal and the language stated in section 83-175(1). In this case, it can be said that there is a coincidence between the termination of employee under section 29(3) of the Public Service Act and the redundancy provided under section 83-175(1). However, it cannot be said that there is any inconsistency that could give rise to the error of law in the finding of facts by the tribunal. The court in its judgment held that as the appellant has not been able to established that the erred of law by the tribunal therefore the appeal should be dismissed.

Summary and Conclusion of the case

Based on the above discussion it is seen that the payment received on termination was taxed as an employment termination payment. The taxpayer argued that the payment received was genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 so it should be made tax-free. The taxpayer initially went for a private ruling and was not successful. Then she appealed in AAT but was not successful. Then she went to the federal court for appeal.

The argument provided by the AAT was that, as the position of the taxpayer has not disappeared in the ATO so termination amount paid cannot be considered as genuine redundancy payment. The court was in agreement with the decision of the AAT. The court stated that it was clear from the evidence that it was the case of voluntary redundancy, as the service could not be utilized effectively by the ATO (Jogarajan 2016). The court held that for the payment to be genuinely redundant it is necessary that the position of the employee becomes redundant, as it is clear from the language of the section 83-175 of the act. The court stated that the Tribunal has correctly identified the distinction between where the employer does not require the service of an employee and where the position of the employee has become genuinely redundant. In the former case, the payment is not a genuine redundancy payment but employment termination payment and it is taxable. On the other hand, in the second case the amount paid should be regarded as genuine redundancy payment and hence not taxable.

The decision of the court was that the full Court has unanimously rejected the appeal of the taxpayer. The court held that the payment made by the taxpayer is not a tax-free as the payment is not genuine redundancy payment. Therefore, it can be concluded that the taxpayer has to make payment of tax on the amount received on the termination of employment.

Reference

Alarie, B., Datt, K.H., Sawyer, A.J. and Weeks, G., 2014. Advance tax rulings in perspective: a theoretical and comparative analysis.

Colton, C., 2015. Professional misconduct: the case of the medical board of Australia v Tausif (Occupational Discipline).

Degeling, S. and Legg, M., 2014. Fiduciary obligations of lawyers in Australian class actions: Conflicts between duties. UNSWLJ, 37, p.914.

Flynn, M., 2015. Disputing a tax assessment: From objection to hearing: Part two. Brief, 42(1), p.16.

French, R., 2014. Interpreting the constitution-words, history and change. Monash UL Rev., 40, p.29.

French, R., 2014. Singapore Academy of Law Annual Lecture 2013-The Rule of Law as a Many Coloured Dream Coat. SAcLJ, 26, p.1.

Fullarton, L., 2014. Heat, Dust, and Taxes: A Story of Tax Schemes in Australia's Outback. Columbia University Press.

Hobbs, H., Lynch, A. and Williams, G., 2017. The High Court Under Chief Justice Robert French.

Jain, S.N., Loghani, U. and Nahar, N.S., 2016. 41_Table of Cases.

Jogarajan, S., 2016. Regulating the Regulator: Assessing the Effectiveness of the ATO's External Scrutiny Arrangements. J. Austl. Tax'n, 18, p.23.

Leeser, J., Craven, G., Twomey, A., Authorisation, P., Kendall, K., Tax, C.F.I., Paul, J.B., McAllister, I., Mackerras, M. and Del Villar, G., 2015. Upholding the Australian Constitution Volume Twenty-five.

Mellor, P.W., 2016. A Model for a State Income Tax in Australia: Historical Considerations, Key Design Issues and Recommendations (Doctoral dissertation, Monash University).

Stack, E.M., Grenville, D., Poole, R., Harnett, H. and Horn, E., 2015. Commissioner for Inland Revenue v Lever Brothers and Unilever Ltd: a practical problem of source. Southern African Business Review, 19(Special Edition 1), pp.161-182.

Villios, S., 2016. Director penalty notices–promoting a culture of good corporate governance and of successful corporate rescue post insolvency.

Weeks, G., 2014. The public law of restitution. Melb. UL Rev., 38, p.198.

Weeks, G., 2014. The use and enforcement of soft law by Australian public authorities. Fed. L. Rev., 42, p.181.