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Accident Compensation Cases

TRA No 87/060 (TRA, 23/02/88)

Judgment Text

Judgment of Judge Keane 
Judge Keane
This is another of those concerning cases in which an objector seeks to retain, uneroded, the benefit of a retrospective lump sum ACC earnings-related compensation payment. He asks that, for taxation purposes, it be spread back across the 1980-85 years to which it relates. The Commissioner has determined that it must be taxed as a single sum in 1985, the year in which it was received. 
The gross payment was $66,552.80. The objector's adviser, Mr Bolt, maintains that tax payable in the 1980-85 years, accepting the objector's approach to be proper, is $21,329.06. On the Commissioner's assessment, he says, further tax of $21,189.83 becomes payable. He contends that it is both correct and fair for the objector to be taxed one-third of the lump sum (PAYE deducted by the Accident Compensation Commission was of that order). He submits that it is unconscionable to ask the objector to give up two-thirds of the payment, merely because of the circumstances in which he received it. 
On 28 November 1976, the objector suffered injuries to the head, neck and shoulders at the hands of intruders, who broke into his home. Accident compensation payments were commenced and continued until 1980. These were discontinued when the objector was considered fit for work. The decision was confirmed by a review officer. An appeal was lodged, which was not heard until 23 May 1984 despite the objector's natural wish that it come to a hearing earlier. It was successful. The Commission made a retrospective payment to the objector of $42,520, having deducted PAYE. The objector was not advised by the corporation or by his solicitor that his tax liability could be greater than the sum deducted. He applied $38,000 to pay off mortgages and other debts. His tax adviser's attempt to hold the objector's liability at the PAYE level by spreading the payments has resulted in the present appeal. 
The objector's adviser, in meticulously prepared papers, makes two submissions: 
The Legislature cannot have intended that the objector should pay double the tax to which he would otherwise be liable, when the increase can be attributed to a failure by the Accident Compensation Commission both to make a correct assessment of the objector's medical condition, and to bring the appeal to a hearing promptly; and 
the income was derived, when the right to receive it accrued to the objector during the 1980-85 years, and not when it was ultimately received. 
The decision of the Accident Compensation Appeal Authority discloses that, at the time when payments were discontinued, any suggestion of physical injury had long since vanished. The issue was whether the objector's post-traumatic neurotic reaction was such that he was still unfit for work. The Commission had him examined by a psychiatrist, and concluded that he was able to resume work in 1980. Later, I think in 1983, this decision was upheld by a review officer faced with diverging psychiatric assessments. In 1984 the Appeal Authority held that the review officer had been wrong to ignore the most recent of the assessments, which he considered to be the most complete and authoritative. 
There is no indication in the decision that there was any undue delay on the part of the Commission, though it must be said that the years taken to bring the appeal to a hearing do seem inordinate. Whether or not that is so, there is no principle of law of which I am aware, which would entitle me to give to the objector relief from liability to tax on the ground of alleged maladministration by an independent statutory corporation. 
The second submission rests on the incontestable fact that the retrospective payment made to the objector was the aggregate of the earnings-related compensation, which would have been paid to him from the date when payments were discontinued to the date of the Appeal Authority's decision. Had the payments been made during that period the objector would have been taxed progressively. Then there would have been no difficulty as the income would have accrued and been received in each year. But the payment was retrospective, and there can be no debate that it was received in 1985. 
Can it be said that, therefore, the right to payment enured throughout the period of hiatus in the sums represented in the calculation? Or did it accrue when the Authority made his decision? The Accident Compensation Act 1982 does not supply an unequivocal answer. It provides rights to compensation, which involve the exercise of discretion by the corporation's officers. Their decisions are liable to review and appeal; and, when the Appeal Authority reverses a decision of the corporation, s 109(9), obliges the corporation to "forthwith take all necessary steps to carry that decision into effect." Nowhere is it stated in the Act that a decision by the Appeal Authority is to be deemed to be a retrospective statement of rights which had remained extant, if unrecognised, during the period since the corporation's decision. A question must remain, therefore, about when the right to payment accrued. 
Be that as it may, the issue as to receipt cannot be ignored. Section 38(2) of the Income Tax Act 1976 states that "income tax shall be payable by every person on all income derived ... during the year for which the tax is payable". In CIR v Farmers Trading Company Limited (1982) 5 NZTC 61,231; (1982) 5 TRNZ 894Has Cases Citing which are not known to be negative[Green]  (CA), Richardson J described the term "income" as "elusive", but as the cases show it involves the notions of accrual and receipt. When the two coincide, as had been the case for the objector before and after the period of hiatus, there is no difficulty. When they do not coincide, the usual rule in the case of taxpayers in the position of the objector is that receipt is determinative. An individual to whom a right to income has accrued, but who has not received the income, is protected. By contrast an individual taxpayer to whom a right to income may have accrued, but who receives a delayed payment, is usually to be taxed in the year of receipt despite any hardship which that may involve. The only taxpayers for whom accrual is a source of liability are those who offset against the right to income in the year when it arises liabilities incurred in that year. 
The one decision, which could be cited in favour of the objector was Case E34 (1981) 5 NZTC 59,238, also reported as Case 21 (1981) 5 TRNZ 226; TRA No 81/26Has Cases Citing which are not known to be negative[Green] . It has not been followed in later decisions of this Authority. In Case F156 (1984) 6 NZTC 60,343, also reported as Case 37 (1984) 8 TRNZ 276; TRA No 83/170Has Cases Citing which are not known to be negative[Green]  Bathgate DJ declined to follow it after making a careful review of a wide range of authorities with which I agree. In Case F157 (1984) 6 NZTC 60,350Has Cases Citing which are not known to be negative[Green]  and Case H24 (1986) 8 NZTC 246Has Cases Citing which are not known to be negative[Green]  he held, applying the principles which he had gathered in Case F157, that retrospective ACC payments must be taxed in the year of receipt despite clear hardship to the objectors in those cases. In Case J46 (1987) 9 NZTC 1,262Has Cases Citing which are not known to be negative[Green]  Barber DJ, who had decided Case E34, followed Case F156 and decided that compensation paid must be taxable in the year of receipt. I can find no reason, despite a very considerable sympathy which I feel for the objector, for departing from the reasons contained in those cases. 
The hardship which the objector faces as a result of this decision scarcely needs emphasising. In fairness he ought not to have to pay the increased tax; and he does not seem to have means to pay it, having spent the compensation to meet liabilities incurred during the period of hiatus. I would hope that the Commissioner would exercise his discretion under s 414(2) to relieve the objector of the liability now imposed on him. 

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