The Taxpayer and Commissioner of Taxation [2011] AATA 499 (20 July 2011)

Last Updated: 20 July 2011

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 499

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2010/5287

TAXATION APPEALS DIVISION		)
	Re		THE TAXPAYER

Applicant

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal

Senior Member Bernard J McCabe

Date 20 July 2011

Place Brisbane

Decision

The Tribunal affirms the decision under review.

..............................................
Senior Member

CATCHWORDS

TAXATION — genuine redundancy payment — voluntary redundancy — decision affirmed

Income Tax Assessment Act 1997, s 83-175

R v Industrial Commission; ex parte Adelaide Milk Supply Cooperative Ltd (1977) 16 SASR 6

Dibb v Commissioner of Taxation [2004] FCAFC 126 at [33]- [44]

REASONS FOR DECISION

20 July 2011

Senior Member Bernard J McCabe

1. The taxpayer was formerly an employee of the Australian Taxation Office (“the ATO”). She received a payment when she terminated her employment in March 2010. I have been asked to decide whether that payment was a genuine redundancy payment for the purposes of s 83-175 of the Income Tax Assessment Act 1997 (“ITAA97”). The question is important because genuine redundancy payments within the meaning of that section are taxed more favourably than other payments that might be made to a person when they terminate their employment.

THE FACTS

2. The taxpayer took up her appointment as a senior public servant within the ATO in 1999. She has legal qualifications and experience which appear to have equipped her particularly well to carry out a number of important technical roles. In her statement, she said she worked on the implementation of the GST soon after she commenced employment at the ATO and she subsequently worked on a variety of projects dealing with excise and other matters. She was graded as an Executive Level 2.1 officer (an “EL2.1”) within the ATO hierarchy. She was originally based in Canberra but transferred to Brisbane in 2005.
3. The taxpayer was one of three EL2.1 officers (also known as ‘directors’) reporting to a national director who oversaw a particular business unit within the ATO. The national director in turn reported to an assistant commissioner. One of the other EL2.1’s in the business unit was located in Melbourne, while the third was located in Adelaide. The arrangements were described by the taxpayer in her statement and in her evidence, and by the national director who also gave evidence at the hearing. I understand the national director was responsible for a portfolio of responsibilities. He managed by delegating tasks to his three EL2.1 directors according to their capacity and aptitude. He made it clear during his evidence that he had a measure of flexibility in the way in which he allocated the work. If one EL2.1 was unavailable or was better equipped to perform particular tasks, he could assign jobs accordingly.
4. When the taxpayer moved to Brisbane, she was asked to take charge of litigation services in the business line in addition to her other roles because of her strong legal background. That meant managing a team of two experienced litigation coordinators based in Adelaide. She was also required to perform functions in relation to other employees in other cities. The national director said in his statement that it was not unusual for executives to manage staff remotely by email and telephone. Her office was located with other staff in the same business line in the Brisbane office.
5. The taxpayer was obviously good at her job. She received a positive performance appraisal from her national manager in the mid-year review in March 2009 and in the annual review on 29 August 2009. She had also been asked to act as national director – an EL2.2 position – from late April 2009 while the national director undertook other duties. She ran into difficulties in that role when one of the directors who reported to her in the acting position disagreed with a recommendation she had made to the assistant commissioner and the assistant commissioner sided with the director. She said the way in which the assistant commissioner dealt with the matter undermined her and she refused to continue in the acting position. Her email of 21 May 2009 advising or her intention to cease acting in the EL2.2 position is included at p 66 of exhibit 2.
6. The taxpayer experienced particular difficulties in the relationship with members of the team in Adelaide. She said the two Adelaide team members formally reported to her but appeared to disregard her authority. She said she was not being kept informed about litigation that was being conducted by the team, and about other matters. The fact she was located in Brisbane undoubtedly made it harder to communicate with her Adelaide charges. The national director said in his statement that the officers in Adelaide were experienced and did not require close supervision but the taxpayer was unhappy with the quality of her interaction with them.
7. Matters came to a head in June 2009 when the taxpayer was asked to formally approve leave requests lodged by the staff in Adelaide. In her statement, she described the process as a charade. She wrote an email to the national director on 25 June 2009 which said:

As previously discussed, the Litigation team ceased to meaningfully communicate me with quite some time ago and my position as team leader proved untenable. Consequently I do not propose to perform any further duties in that capacity.
Would you please make alternative arrangements for approval of this leave?

8. At about the same time the taxpayer was experiencing difficulties with other staff in Brisbane. She had been involved in an incident involving another staff member from the same business line in Brisbane at an after-work function in March 2009. Those staff worked with the taxpayer but did not report to her. One staff member is said to have recounted a story at the function which the taxpayer found particularly offensive. There was a breakdown in the relationship that caused the taxpayer to move to a new location within the Brisbane office. The incident and its aftermath obviously left a deep impression on the taxpayer. It was clear from her evidence that she felt she became a target over what had occurred.
9. The national director arranged for a reallocation of responsibilities in light of the changing circumstances in mid 2009. He said in his evidence that he had plenty of other tasks which he could delegate to her in light of her skills and experience. He insisted these new responsibilities were all things that were appropriate for an EL2.1 officer. Supervision of the Adelaide staff was handed to someone else. The taxpayer appeared to doubt she had enough real work to be going on with.
10. The taxpayer said in her statement that she had enquired about a transfer as early as 2008. She said she wanted a new challenge. She said the head of the business line (the assistant commissioner) refused to agree because he was concerned he would lose funding for her position. In his evidence, the assistant commissioner said he was not opposed to the taxpayer securing a transfer. He expressly denied that he had suggested he was opposed because he would lose funding for the position. He said the funding arrangements were not an issue. He said he had approached other colleagues in the Brisbane office to ask if they were interested in accepting the taxpayer on transfer but he was unsuccessful. There was also a discussion about her working on a special project which did not eventuate. The national director also said in his statement that he was open to the possibility of transferring the taxpayer to another city if she wished. He said there was no particular reason why she had to remain in Brisbane.
11. By mid-2009, the taxpayer said she felt under pressure to resign. She said she thought her superiors wanted her to leave. I have already noted the national director had given her a positive appraisal in August 2009. In his evidence, he spoke highly of her technical skills. While he appeared to have been nonplussed by the taxpayer’s difficulties in dealing with the Adelaide staff and the events in Brisbane and accepted that it would become necessary to review the allocation of roles and responsibilities amongst his EL2.1 directors in the medium term, I accept his evidence that he remained well-disposed towards the taxpayer and saw her as continuing to play a valuable role given her particular skills. I do not accept he wanted her to resign, much less that he pressured her to do so. The assistant commissioner was less enthusiastic about the taxpayer. He expressed the view that the difficulties in the relationship with the Adelaide team might have be at least partly attributable to a failure on the taxpayer’s part to communicate effectively – although he made it clear that he did not think the taxpayer’s approach amounted to a performance issue. I formed the impression that the assistant commissioner was indifferent to whether the taxpayer stayed or left. He did not appear sympathetic to her complaints that he had undermined her. I have no doubt that he thought she was replaceable. But I did not form the impression that he was in favour of pushing her out.
12. The taxpayer had already considered retiring. She was 59 years old in 2009. The national director said in his statement that the taxpayer had foreshadowed her intention to retire sooner rather than later in a meeting with him in May following her decision to relinquish the acting national director’s role. He was under the impression she was considering retirement once she had become entitled to long service leave. The taxpayer’s evidence on this point was subtly different. She agreed she had considered retirement in the recent past but decided her financial and personal circumstances were such that she was not in a position to retire in the short term even though she was increasingly unhappy. I am satisfied the possibility of retirement was discussed between the taxpayer and her national director, but I accept they may have had a different understanding of the timeframe.
13. The taxpayer took recreational leave commencing on 6 July 2009. She returned to work for a week after 13 August. The national director said he did not allocate her any fresh tasks upon her return to work because he knew she was scheduled to go on long service leave commencing on 21 August until 30 November 2009. He said she was not replaced during the period of her absence. The work the taxpayer would otherwise have done was allocated amongst the other staff at the national director’s disposal while she was away.
14. In the meantime, the ATO advertised its intention to appoint another EL2.1 officer in its Melbourne office reporting to the national director. The national director indicated there was no connection between the taxpayer’s absence and the decision to advertise the position in August 2009. He said the ATO was taking steps to create the post in Melbourne in anticipation of the retirement of the other EL2.1 officer in the Melbourne office. The national director said he was hoping an appointment would be made so that the appointee would have the opportunity to work alongside the existing officer for a time before that officer retired. An appointment was made in December 2009 although the existing EL2.1 officer did not ultimately retire until November 2010.
15. This appointment (and the taxpayer’s negotiations, which I will come to shortly) occurred in the shadow of a plan to reorganise the ATO that saw the amalgamation of the taxpayer’s business line with another office during 2010. That new business line currently has two EL2.1 directors: the newly appointed director in Melbourne and a director in Adelaide. The litigation coordinators in Adelaide that were the source of conflict with the taxpayer now report to one of the other directors.
16. The national director insisted in his evidence that the taxpayer would have been able to return to work as an EL2.1 officer in Brisbane notwithstanding the reorganisation and the other difficulties. He said there was plenty of appropriate work available for an EL2.1 officer that the taxpayer was well-equipped to do. The position had not disappeared or been reorganised out of existence. The assistant commissioner made the same point in his evidence. He insisted that the taxpayer would have retained her job and would have been doing the same or similar work to that which she had been discharging before she went on leave. He said he did not anticipate there being any redundancies as a result of the reorganisation. He agreed that the position number assigned to the taxpayer’s job disappeared in February 2011, but nothing turned on that. He said the substantive job remained after that date and needed to be filled; the functions that she had left behind were absorbed by others on a temporary basis.
17. While she was on leave, the taxpayer considered her options. She said in her statement that she felt she had become redundant at work. She says she consulted the terms of the ATO (Executive Level 2) Agency Agreement 2009 under which she was employed. Clause 97 of the agreement referred to EL2 officers “whose services can no longer be effectively used in their current job because of changes in technology or work methods or changes in the nature, extent or organisation of the ATO...”. The agreement contemplated retraining or redeployment (or reclassification) of an officer in those circumstances. The taxpayer said she did not think the ATO would want to retrain her given her age, and she said the assistant commissioner had already made it clear to her that redeployment was not an option. In her statement, she suggested she would consider reclassification but decided the best outcome for her was redundancy. She said she calculated that a voluntary redundancy payment would enable her to clear her mortgage and leave her in a position to retire. She formally raised the possibility of a voluntary redundancy in an email to the national director dated 23 October 2009. The email said:

Naturally retirement would presently be an attractive option for me, if it were financially feasible. However, I recently received my 2009 PSS superannuation statement and learned that I have taken a hit in relation to transfer values (the amounts I transferred into PSS on joining ATO in 1999), because of the economic downturn.
Consequently I have concluded that for financial reasons I must return to work at the end of my leave, which means that I will be back on 1 December 2009.
I thought I should advise you immediately of this as it raises a number of practical management issues to be addressed prior to my return, including identifying appropriate work at the EL2 level, linking me up to a team, arranging for skilling in Siebel, finding me a permanent desk and computer, and so on.
However, I believe there is an alternative which would be in everyone’s interest. I consider that recent events and circumstances demonstrate that my EL2 services can no longer be effectively used. As you are aware I am geographically remote from Excise IA, have no team in Brisbane and no direct relationship with the other Excise officers in Terrica Place. Due to personnel issues, it is not viable for me to interact with the Excise compliance team in Brisbane. The situation is largely due to the evolution of the Excise organisational structure as the ATO has responded to external and internal changes.
My considered assessment is that my circumstances fall within Clause 97 of the current EL2 Agency Agreement relating to employees whose service cannot be effectively utilised.
Would you therefore please treat this email as a request for a voluntary redundancy and refer the matter to the relevant HR area for consideration?
If a redundancy cannot be negotiated, I will of course report for duty on 1 December at Terrica Place.
I look forward to hearing from you in this regard.

18. The national director discussed the proposal with the assistant commissioner but told the taxpayer in an email dated 4 November 2009 that the ATO did not agree there was a redundancy. The email concluded:

We would like you to return to your EL2.1 position in the litigation and legal support area as well as taking a greater leadership responsibility in some additional areas that will ensure a full job at the EL2.1 level.

19. The taxpayer subsequently filed a Notice of Dispute in relation to the request which was dealt with in a separate process. The taxpayer decided to remain on leave without pay after her long service leave concluded until after Christmas. As it happened, her leave without pay extended to March 2010.
20. The assistant commissioner agreed to revisit the question of a voluntary redundancy. He discussed the proposal with the taxpayer in the course of a telephone conversation on 22 December. He agreed to put together a business case seeking to justify a voluntary redundancy under clause 97 of the agency agreement. In the business case, the assistant commissioner raised concerns about whether the taxpayer would be able to adjust to SIEBEL, a new information management system. I understand there was also a reference to performance issues although the assistant commissioner acknowledges that was not reflected in the taxpayer’s appraisal. In any event, the business case was accepted and approval was given on 25 January 2010 to make a formal offer of redundancy under clause 97. The first step in that process was contained in a letter dated 18 February 2010 (exhibit one at p 16). The letter from the assistant commissioner notes:

I am now satisfied that, under the provisions of Clause 97 of the ATO (Executive Level 2) Agreement 2009, you can no longer be gainfully employed in the ATO.

21. It was followed by another letter from the assistant commissioner dated
    11 March 2010 which contained the formal offer. The letter reiterated that “your services cannot effectively be utilised by the ATO in your current position and that alternative employment for you within the ATO is not available” and proceeded to make an offer of redundancy in accordance with the provisions of Clause 97 of the agency agreement.
22. The final step in the process can be found in exhibit one at p 18. It is another letter from the assistant commissioner to the taxpayer. It says:

I,...delegate of the Commissioner of Taxation:
(1) being satisfied that you are, within the meaning of Clause 97 of the ATO (Executive Level 2) Agreement 2009, an employee whose services can no longer be effectively utilised;
(2) having fully considered all possible options for redeployment or retraining that could allow you to be retained in gainful employment and whether it is in the interests of the efficient administration of the Office to assign new duties to you under s 25 of the Public Service Act 1999; and
(3) having received your acceptance of an offer of voluntary redundancy;
Given notice to you, ... EL2.1, that your employment as an APS employee in the ATO is terminated on the grounds that you are excess to the requirements of the ATO (s 29(3)(a) of the Public Service Act 1999).

23. The taxpayer subsequently sought a private ruling to the effect that the voluntary redundancy payment she received was tax free on the basis that it was a genuine redundancy payment. The Commissioner’s ruling concluded there had not been a genuine redundancy payment.

THE LAW

24. I have already pointed out that s 83-175(1) refers to genuine redundancy payments. The section deals with situations where an employee “is dismissed from employment because the employee’s position is genuinely redundant...”. In such a case, the difference between what the employee is paid and what he or she could otherwise expect to receive if the termination had been voluntary is a genuine redundancy payment. A genuine redundancy payment within the meaning of this provision is tax-free in the hands of the (former) employee.
25. I am satisfied the taxpayer was dismissed from employment. The fact she effectively sought the dismissal is irrelevant as it was ultimately her employer’s decision to make the offer. The more important question for present purposes is whether she was genuinely redundant.
26. The letters from the assistant commissioner from which I have quoted appear to put that question beyond doubt. The correspondence expressly referred to a “voluntary redundancy” on the basis that the taxpayer’s services could no longer be utilised. But the Commissioner says a closer reading of clause 97 of the agency agreement and the letters tells a different story.
27. Clause 97.2 says a redundancy under clause 97 was only appropriate:

where an individual employee’s job is still required and the EL2 employee will be replaced subsequent to action under this clause. Where the job is no longer required, the arrangements under clause 98 must be used.

28. The evidence from the assistant commissioner and the national director make it clear that the taxpayer’s job remained and would need to be performed by an EL2.1 officer. They expected that would be her if she returned: after hearing the evidence of the national director in particular, I am satisfied the taxpayer was not being pushed out, and that she was genuinely welcome to return to her role or something that closely approximated it. As the national director explained, her work had to be done by somebody at her level. If she was not available, he said he would eventually need to replace her with someone who possessed the same technical skills. I do not think the fact that the office has managed to operate for a while with only two officers at the EL2.1 level is inconsistent with that view.
29. The distinction embodied in clause 97.2 proceeds from the understanding of the concept of redundancy which has emerged from the case law. Cases like R v Industrial Commission; ex parte Adelaide Milk Supply Cooperative Ltd (1977) 16 SASR 6 and Dibb v Commissioner of Taxation [2004] FCAFC 126 at [33]- [44] make it clear that a redundancy occurs where an employer no longer requires that a job be done by anyone. That situation – where a job effectively disappears – must be distinguished from the situation in which the employer no longer wants a job done by the (former) employee in question.
30. The job in this case has not disappeared, even if the position number had changed. A range of functions in the area still had to be performed by someone at the EL2.1 level. It follows the employee’s position is not redundant, even if the particular employee is no longer able to be utilised in that role. Given my findings of fact, it seems to me that is the end of the matter. The objection decision must be affirmed.

I certify that the 30 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe

Signed: .....................................................................................

Associate

Date of Hearing 23 May 2011

Date of Decision 20 July 2011

Applicant Self-Represented

Counsel for the Respondent Mr B G Cronin

Solicitor for the Respondent Ms D Hopton, ATO Legal Services Branch