Enoch and Commissioner of Taxation [2002] AATA 949; (2002) 51 ATR 1014; 2002 ATC 2201 (18 October 2002)

Last Updated: 2 October 2009

DECISION AND REASONS FOR DECISION [2002] AATA 949

ADMINISTRATIVE APPEALS TRIBUNAL )

) No QT2001/464-468
TAXATION APPEALS DIVISION )
Re MARK ENOCH
Applicant
And COMMISSIONER OF TAXATION
Respondent

DECISION

Tribunal Mr B J McCabe, Member

Date 18 October 2002

Place Brisbane
Decision The Tribunal affirms the objection decision under review.

....................(Sgd).....................
Mr B J McCabe
Member
CATCHWORDS
TAXATION – income tax – UK Police pension and disability pension - whether pension payments paid by a foreign government are subject to taxation in Australia

Income Tax Assessment Act 1997
Income Tax Assessment Act 1936
Acts Interpretation Act 1901
International Tax Agreements Act 1953
Social Security (International Agreements) Act 1999
Veterans' Entitlements Act 1986
Income and Corporation Taxes Act 1988 (UK)

REASONS FOR DECISION

18 October 2002 Mr B J McCabe, Member

Introduction
1. The applicant, Mr Mark Enoch, has sought review of an objection decision made by the respondent. Mr Enoch retired from the Metropolitan Police in London after being injured in the course of duty. He subsequently moved to Australia and became an Australian resident. He was eligible to receive a standard Police pension from the government of the United Kingdom (the UK). He was also awarded a disability pension to compensate him for the cost of ongoing medical expenses and other costs arising out of his injury. The disability pension is not taxable under laws of the UK. The Commissioner of Taxation says both payments are taxable in Mr Enoch's hands in Australia. Mr Enoch does not dispute that his standard pension is taxable here, but he says the disability payment from the UK government should be exempt from taxation.
2. The applicant has objected to his assessments for the years ended 30 June 1996 through 30 June 2000. He says he is entitled to an exemption from tax in respect of his disability pension in light of the Double Taxation Agreement and the relevant Social Security International Agreement between Australia and the UK. He also says the pension falls into a category of war service-related benefits that are not taxed in Australia when they are paid by other countries in the Commonwealth.
The Material Before the Tribunal
3. The Commissioner provided the Tribunal with the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. It also took oral evidence from Mr Enoch, who was unrepresented at the hearing.
The Facts
4. The facts were not really in dispute. The result in this case turns on the interpretation of the law.
5. Mr Enoch was injured in an accident involving a drunk driver while on duty with the Metropolitan Police. He was discharged from the Police Service in 1994 because of his injuries. He was awarded a standard police pension and also received a disability support pension as compensation for losses arising out of his injuries.
6. Mr Enoch subsequently moved to Australia. He is now an Australian resident.
7. The applicant is not eligible to receive a disability support pension through Centrelink because he is in receipt of the disability support payment from the British government.
8. The respondent acknowledged the applicant would not be liable to pay tax on his disability support pension if he had received it from the Australian government. But the Commissioner says a disability support pension received from the UK authorities is taxable in the hands of an Australian resident.
The Law and Legal Arguments
9. Mr Enoch's disability support pension is not taxable in the UK as a result of Extra-Statutory Concession A62. Information about ESC62 was included in a facsimile transmission from the Inland Revenue Commission to the Metropolitan Police. The applicant provided a copy of the fax to the Tribunal. The respondent did not dispute that the disability support pension was not taxable in the UK in the hands of a UK resident. But the Commissioner says a disability support pension like that paid to Mr Enoch is income within the meaning of s 6-5 of the Income Tax Assessment Act 1997 (ITAA97). I agree. It also forms part of the applicant's income within the meaning of s 25(1) of the Income Tax Assessment Act 1936 (ITAA36). In those circumstances, the pension will be taxable in the applicant's hands in Australia unless there is another provision of the Act or some other law that has the effect of creating an exemption: s 6-20(1) ITAA97.
10. Mr Enoch said the fact that the disability pension was exempt from tax under UK law should mean it was also exempt under the Australian legislation because that legislation referred to exemptions conferred by another Commonwealth law. The applicant says laws of the UK ought to be regarded as laws of the Commonwealth as the UK is a member of the Commonwealth. In other words, he argued the reference in the legislation to a law of the Commonwealth ought to be treated as a reference to the laws of any member of the Commonwealth of nations.
11. The argument is understandable, but it is wrong. Although the expression "Commonwealth country" is defined in s 6 of ITAA36 to include members of the Commonwealth of nations, including the UK, a reference to a law of the Commonwealth is clearly a reference to a law of the Commonwealth of Australia. That much is clear from the terms of the Acts Interpretation Act 1901. The Act provides at s 17:

"In any Act, unless the contrary intention appears:

(a) Australia or the Commonwealth means the Commonwealth of Australia and, when used in a geographical sense, includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands, but does not include any other external Territory;"

12. Another of the claims for exemption lies in the terms of the Double Taxation Agreement between Australia and the United Kingdom. The Agreement is set out in schedule one of the International Tax Agreements Act 1953. The Agreement is designed to avoid the consequences of double taxation. Article 14 deals with income in the form of pensions derived by a resident of one country from another country. Article 14(1) provides:

"Any pension or annuity derived from sources within one of the territories by an individual who is a resident of the other territory shall be exempt from tax in the first-mentioned territory."

13. It follows that a pension provided by the UK government to an Australian resident is exempt from tax in the UK – but not necessarily in Australia. The whole of the applicant's pension, including the disability support component, is potentially taxable in Australia. The terms of the double tax agreement do not assist the applicant.
14. The agreement between Australia and the UK on social security does not assist the applicant either. The agreement is found in Schedule 1 to the Social Security (International Agreements) Act 1999. Article 13 of the Agreement, which deals with sickness and invalidity benefits, does not refer to the tax treatment of the payments by either government. It is principally concerned with the calculation of entitlements.
15. What of exemptions within the taxation legislation? The applicant says the payments are similar to veterans' pensions. Part III Div 1AA of ITAA36 exempts certain payments made under the Veterans' Entitlements Act 1986 from income tax. A similar exemption is found in Part 2-15 Subdivision 52-B of ITAA97. But the payment in this case is not made under the Veterans' Entitlement Act 1986. It is made under UK legislation. The applicant says the similarities between his payments and those paid by the Commonwealth government under the Veterans' Entitlement Act 1986 are such that he ought to be able to take advantage of the exemption. He relies on ss 53-10 and 53-20 of ITAA97. Section 53-10 says a pension that is exempt under the terms of s 315(2) of the Income and Corporation Taxes Act 1988 in the UK, which is also similar to the payments made under the Veterans' Entitlement Act 1986, is exempt from Australian income tax. Section 24AH of ITAA36 (the equivalent provision in the ITAA36) does not mention s 315 of the Income and Corporation Taxes Act 1988. It says that payments made by the UK government which are similar to those paid under the Veterans' Entitlement Act 1986 are exempt.

16. Section 315 of the Income and Corporation Taxes Act 1988 provides:

"(1) Income from wounds and disability pensions to which this subsection applies shall be exempt from income tax and shall not be reckoned in computing income for any purposes of the Income Tax Acts.

(2) Subsection (1) above applies to—

(a) wounds pensions granted to members of the naval, military or air forces of the Crown;

(b) retired pay of disabled officers granted on account of medical unfitness attributable to or aggravated by naval, military or air-force service;

(c) disablement or disability pensions granted to members, other than commissioned officers, of the naval, military or air forces of the Crown on account of medical unfitness attributable to or aggravated by naval, military or air-force service;

(d) disablement pensions granted to persons who have been employed in the nursing services of any of the naval, military or air forces of the Crown on account of medical unfitness attributable to or aggravated by naval, military or air-force service; and

(e) injury and disablement pensions payable under any scheme made under the Injuries in War (Compensation) Act 1914, the Injuries in War Compensation Act 1914 (Session 2) and the Injuries in War (Compensation) Act 1915 or under any War Risks Compensation Scheme for the Mercantile Marine.

(3) Where the amount of any retired pay or pensions to which subsection (1) above applies is not solely attributable to disablement or disability, the relief conferred by that subsection shall extend only to such part as is certified by the Secretary of State for Social Services, after consultation with the appropriate government department, to be attributable to disablement or disability."

17. The section refers to entitlements arising out of service in various branches of the armed forces. The applicant says his service with the Metropolitan Police is similar to service in the armed forces of the Crown, and payments compensating for injuries arising out of that service are similar to the payments made to members of the army, navy and air force in the UK and in Australia under the Veterans' Entitlement Act 1986.
18. Police work is often difficult and dangerous. There are many similarities between the work of soldiers and police officers. Both serve the crown. But I do not accept the legislation (either the Income and Corporation Taxes Act 1988 or the Veterans' Entitlements Act 1986) extends to retired police officers. The language of the UK legislation clearly refers to members of the naval, military or air-force services (s 315, Income and Corporation Taxes Act 1988). While the Veterans' Entitlement Act 1986 definition of a Commonwealth veteran in s 5C extends to members of army, navy and air force auxiliary services, it is also clearly concerned with payments to retired members of the defence forces and related services – which do not include the police. It follows the applicant cannot claim the benefit of the exemption in either ITAA36 or ITAA97 in respect of payments that are similar to payments made under the Australian veterans' legislation.
Conclusion
19. The applicant in unable to identify any basis for exempting the payments he receives from the UK government from Australian income tax. That is a hard result for him: if he had received the equivalent payments from the Commonwealth government, they would be exempt. But the Commissioner does not have any discretion in these matters. His job is to enforce the revenue laws parliament has enacted according to their terms.
20. The objection decision is affirmed.

I certify that the 20 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B J McCabe, Member

Signed: Sarah Oliver

Associate

Date of Hearing 11 July 2002

Date of Decision 18 October 2002

The Applicant Appeared in Person

Solicitor for the Respondent Mr Aftanas, ATO Legal Practice