Eunice Harrison and Commissioner of Taxation

[2013] AATA 657

Division Taxation Appeals Division

File Numbers

2013/2004

2013/2005

Re

Eunice Harrison

APPLICANT

And

Commissioner of Taxation

RESPONDENT

DECISION

Tribunal
Senior Member Bernard J McCabe

Date 26 August 2013

Date of written reasons 13 September 2013

Place Brisbane
The objection decisions under review are affirmed.
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Senior Member Bernard J McCabe
CATCHWORDS
TAXATION – Pensions – Overseas pension entitlements – Lump sum payments – Ordinary income – Exceptional circumstances – Exception to the general rule – Objection decisions under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) s 6-5
REASONS FOR DECISION
Senior Member Bernard J McCabe
13 September 2013

The applicant was in receipt of a pension paid by the United Kingdom government. The applicant’s pension was connected to the pension paid to her husband, who had been employed by the Colonial Office for many years. After negotiations with his former employer, he became entitled to payment of a lump sum in the 2008/2009 year of income, and a further lump sum in the 2009/2010 year of income. The lump sums reflected an adjustment to the rate of the pension that was backdated. The applicant received similar adjustments to her pension. The Commissioner said the amount of the lump sum payments should be considered ordinary income in the taxpayer’s hands and assessed accordingly. The taxpayer brought that decision to the Tribunal and argued there should be an exception.
I gave oral reasons for my decision to affirm the objection decisions under review at the conclusion of the hearing. The taxpayer has asked for written reasons. These reasons have been distilled from the transcript of the hearing.
The applicant became entitled to two lump sum payments of arrears in exceptional circumstances identified in correspondence from Her Majesty’s Revenue and Customs: see exhibit one at pp 82-83 and 92-93. Because of those exceptional circumstances, or because of other exceptional circumstances, the United Kingdom authorities agreed the tax legislation should be applied in such a way as to effectively exempt the lump sum payments from UK tax if the amounts were paid in the UK. But, given the money was received in Australia, should it be taxed here?
Mr Ryan, for the respondent, explained the starting point: are the lump sum payments income according to ordinary concepts within the meaning of that expression at s 6-5 of the Income Tax Assessment Act 1997 (the Act), or might they be statutory income, which also has its own meaning under the Act? The Commissioner argued the payments are ordinary income. Pensions are always (or almost always) treated as ordinary income. The lump sums were payments of arrears of the pension. One could possibly regard the pension as an annuity, which is more widely defined in the Act than it is in the Oxford English Dictionary, but it is still ordinary income. As such it falls to be assessed in the absence of any exception.
The applicant said there are exceptional circumstances: why shouldn't there be an exception? The applicant’s husband has rightly observed that in many pieces of legislation containing a general rule like this, the Minister or the Secretary has a general discretion to exempt a particular person from the general rule in special circumstances. The respondent pointed out that while this may be true of other legislation, and it may be true of the revenue laws in the UK, it is actually not true of the Income Tax Assessment Act 1997 in Australia.
There are provisions within the Act which create an exception for particular things, but there is no general special circumstances discretion. The Commissioner argued the payments are income under the general rule and there is no specific exception that would take them out of consideration. There is no general discretion to identify special circumstances, so there is no reason why the general rule should not apply. The Commissioner is right as a matter of law.
The applicant said she felt it was harsh and unfortunate, particularly since she was in such an unusual position. Unfortunately for the applicant the rules under the Australian legislation are clear and, in the absence of some specific power that lets me step in and say ‘No, this case is different’, I have to accept the laws as they are. If, under the general rule, the money is income and it should be treated as income in the years it received, my hands are tied.
The objection decisions must be affirmed. I do not have any discretion, and nor does the Commissioner. This outcome is the one the law requires.

I certify that the preceding 8 (eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.
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Associate
Dated 13 September 2013

Date of hearing 26 August 2013

Applicant In person

Solicitors for the Respondent ATO

The applicant, Eunice Harrison, was in receipt of a pension from the United Kingdom government, which was connected to the pension paid to her late husband, who had been employed by the Colonial Office. After negotiations with his former employer, her husband became entitled to lump sum payments in the 2008/2009 and 2009/2010 financial years as a result of an adjustment to the rate of his pension. Similarly, the applicant received lump sum payments as an adjustment to her pension. The Commissioner of Taxation considered these lump sum payments as ordinary income for taxation purposes. The applicant contested this decision, arguing for an exception to the general rule that pensions are treated as ordinary income.

The central legal issue in this case was whether the lump sum payments received by the applicant should be treated as ordinary income under section 6-5 of the Income Tax Assessment Act 1997, or whether there were exceptional circumstances that would allow for an exemption from taxation. The Commissioner argued that there was no general discretion under Australian tax law to exempt income from taxation on the basis of special circumstances, and thus the lump sum payments should be assessed as ordinary income. The applicant contended that the exceptional circumstances surrounding her husband's pension adjustments should lead to an exemption from the general rule.

The Tribunal found that while the lump sum payments were indeed made under exceptional circumstances as recognized by the United Kingdom authorities, Australian tax law does not permit a general exemption from ordinary income taxation based on special circumstances. The Tribunal noted that there are specific exceptions within the Act, but no general discretion to exempt income in special cases. Consequently, the lump sum payments were considered ordinary income under the general rule, and the applicant's argument for an exception was not supported by the law. The Tribunal affirmed the objection decisions under review, meaning the lump sum payments would be taxed as ordinary income.

Given the clear provisions of the Income Tax Assessment Act 1997, the Tribunal had no discretion to exempt the lump sum payments from taxation. The outcome was dictated by the law, and the objection decisions were affirmed. The applicant's request for an exception based on the exceptional circumstances of her husband's pension adjustments was not successful due to the lack of a general discretion in Australian tax law to do so.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established

Division	Taxation Appeals Division
File Numbers	2013/2004 2013/2005
Re	Eunice Harrison
APPLICANT
And	Commissioner of Taxation
RESPONDENT

Tribunal	Senior Member Bernard J McCabe
Date	26 August 2013
Date of written reasons	13 September 2013
Place	Brisbane

Date of hearing	26 August 2013
Applicant	In person
Solicitors for the Respondent	ATO