Macoun v Commissioner of Taxation

• Jurisdiction: Australia Federal only
• Court: High Court
• Judge: French CJ,Bell,Gageler,Nettle,Gordon JJ
• Judgment Date: 02 December 2015
• Neutral Citation: [2015] HCA 44
• Date: 02 December 2015

([2015] HCA 44)

Australia, High Court.

(French CJ; Bell, Gageler, Nettle and Gordon JJ)

Macoun

and

Commissioner of Taxation 1

International organizations — Privileges and immunities — Staff members — Former staff members — Exemption from taxation on salaries and emoluments received — Whether monthly pension payments exempt from Australian income tax — Construction of Section 6(1)(d), International Organisations (Privileges and Immunities) Act 1963 (Cth)

Treaties — Interpretation — Convention on the Privileges and Immunities of the Specialized Agencies, 1947 — Whether Australia required not to tax monthly pension payments received by former officer of specialized agency — State practice and preparatory work — The law of Australia

Summary:2The facts:—Mr Macoun (“the appellant”) was a former sanitary engineer with the International Bank for Reconstruction and Development (“the IBRD”). He received monthly pension payments from its retirement fund during the 2009 and 2010 income years, when he no longer held an office in the IBRD. The Commissioner of Taxation (“the respondent”) included these payments in the appellant's assessable income for those two income years. The appellant claimed that his pension payments were exempt from Australian income tax; the respondent disallowed this objection and the appellant sought review.

The Administrative Appeals Tribunal set aside the respondent's decision, concluding that the monthly pension payments did not form part of the appellant's assessable income. However, a Full Court of the Federal Court of Australia reversed this decision on appeal and affirmed the respondent's assessment decision.

Section 6(1)(d)(i) of the International Organisations (Privileges and Immunities) Act 1963 (Cth) (“the Act”) provided that a person who held an office in an international organization had the privileges and immunities

specified in Part I of the Fourth Schedule to that Act. Section 6(1)(d)(ii) of that Act conferred upon a person who had ceased to hold such an office the immunities specified in Part II of that Schedule. This arrangement was reflected in regulation 8(1) of the Specialized Agencies (Privileges and Immunities) Regulations (Cth) 1986 (“the Regulations”).

Held:—The appeal was dismissed. The respondent's decision was affirmed.

(1) Section 6(1)(d)(i) and the Fourth Schedule to the Act and regulation 8(1) of the Regulations did not confer a taxation exemption with regard to the monthly pension payments the appellant received from the IBRD's retirement fund in the 2009 and 2010 income years because at that time he had ceased to hold an office in that organization (paras. 5, 44 and 60).

(2) The privilege of exemption from taxation whilst an officer of a specialized agency was designed to ensure that an international organization secured the services of an officer who remained independent by reason of not having to submit to the taxation jurisdiction of a State party to the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nations, 1947 (“the Convention”). When the officer ceased to hold office, the interest of the international organization disappeared. The interest of the international organization in respect of the immunity from suit and other legal process for former officers in Part II of the Fourth Schedule to the Act continued after an officer ceased to hold the office, because the independence of officers was served by confidence that they would not face civil liability or criminal prosecution for their official acts (para. 54).

(3) The privileges and immunities granted to an officer were granted in the interests of the specialized agencies only and not for personal benefit of the individuals themselves. It was always possible for an international organization to order its affairs to ensure that any payment of salaries or emoluments to an officer was received by that officer while they continued to hold an office, even if the officer had ceased to perform their usual duties (para. 59).

(4) The appellant had at one time held a relevant office but in the relevant income years he no longer held that office. Thus he did not receive the monthly pension payments whilst he was an officer of the IBRD. Furthermore, the appellant received the payments from a retirement fund established under the Staff Retirement Plan, which was separate from the IBRD (paras. 49 and 51).

(5) The monthly pension payments fell outside the phrase “salaries and emoluments received from the organization” in Part I of the Fourth Schedule to the Act. A pension did not flow from occupation of an office but only on and from cessation of that office (paras. 6, 61–2 and 65).

(6) The Convention, properly construed in accordance with the Vienna Convention on the Law of Treaties, 1969, did not require Australia not to tax the appellant's monthly pension payments (paras. 7, 69 and 82).

(7) The Convention was drafted on the basis that the phrase “salaries and emoluments” did not extend to retirement or death benefits. It did not prohibit States distinguishing between officers and former officers or taxing a pension received by a former officer of a specialized agency. That construction was consistent with the State practice of parties to the Convention as well as the preparatory work3 (paras. 75 and 77).

(8) There was no generally accepted State practice4 with regard to the exemption of retirement pensions from taxation (paras. 80–2).

The following is the text of the judgment of the Court:

INTRODUCTION

1. Section 6(1)(d)(i) of the International Organisations (Privileges and Immunities) Act 1963 (Cth) (“the IOPI Act”) and reg. 8(1) of the Specialized Agencies (Privileges and Immunities) Regulations (Cth) (“the SAPI Regulations”) confer upon a person who holds an office in an international organisation to which the IOPI Act applies1 an exemption from taxation on salaries and emoluments received from the organisation.

2. The International Bank for Reconstruction and Development (“the IBRD”), part of the World Bank, is an international organisation to which the IOPI Act applies. The appellant, Mr Macoun, a former sanitary engineer with the IBRD, received monthly pension payments from a Retirement Fund established under the IBRD's Staff Retirement Plan (“the SRP”) in the 2009 and 2010 income years, when he no longer held an office in the IBRD. The respondent (“the Commissioner”) sought to include the monthly pension payments in Mr Macoun's assessable income for the 2009 and 2010 income years.2

3. The issue was whether that part of the monthly pension payments which was otherwise liable to tax under s. 27H of the Income Tax Assessment Act 1936 (Cth) (“the ITAA 1936”) became exempt income

under s. 6–20(1) of the Income Tax Assessment Act 1997 (Cth) (“the ITAA 1997”) by reason of the IOPI Act and the SAPI Regulations.

4. Three questions were raised on appeal.

5. First, do s. 6(1)(d)(i) and the Fourth Schedule to the IOPI Act and reg. 8(1) of the SAPI Regulations together confer a taxation exemption in respect of that part of the monthly pension payments Mr Macoun received from the Retirement Fund at a time when he had ceased to hold an office in the IBRD? The answer is no.

6. Second, do those monthly pension payments fall outside the phrase “salaries and emoluments received from the organisation” in Item 2 of Pt I of the Fourth Schedule to the IOPI Act? The answer is yes.

7. Third, does the Convention on the Privileges and Immunities of the Specialized Agencies3 (“the Agencies Convention”), properly construed in accordance with the principles under the Vienna Convention on the Law of Treaties4 (“the Vienna Convention”), require Australia not to tax Mr Macoun's monthly pension payments? The answer is no.

8. The second and third of these questions are raised by a notice of contention filed by the Commissioner out of time. The Commissioner should be given leave to raise those questions.

9. These reasons will consider the facts, the decisions below, the statutory framework and the Conventions and then turn to consider each question.

FACTS

10. The facts are not in dispute.

11. Between 1992 and 2007, Mr Macoun worked overseas as a sanitary engineer for the IBRD. During his employment with the IBRD, Mr Macoun participated in the SRP.5 The SRP was a contributory defined benefit plan under which participants were required to make regular contributions equivalent to 7 per cent of their gross salary.6 These contributions were deducted each pay period from the participants' salary.7 During his employment with the IBRD, Mr Macoun contributed US $200,842 to the SRP.

12. Participation in the SRP was optional for employees under the age of 62 on fixed term appointments.8 Participation in the SRP was mandatory for employees who had regular appointment status prior to attaining the age of 62,9 as did Mr Macoun from September 1993 onwards. The IBRD provided the SRP as an “integral part of the total compensation and benefits package offered to staff”.10 After salaries, the IBRD regarded the SRP as “the most valuable element of that package”.11

13. The SRP required the IBRD to make contributions to fund the liabilities of the SRP that were not funded by the participants' contributions,12 to pay the administrative expenses of the SRP13 and to hold the assets of the SRP as a Retirement Fund.14

14. A participant ceased to participate in the SRP upon termination of their service 15 and was thereafter referred to as a “retired participant”. Upon termination at the “normal retirement date” of 62 years, the retired participant was “retired on a normal pension”.16 If the participant retired between the ages of 55 and 62, or after having completed at least three years of eligible service, participation in the SRP was also terminated and they “retired under the Plan on an early retirement pension”.17

15. The early retirement pension became effective on the normal retirement date unless the...