The Federal Court has dismissed an application by a taxpayer to re-open his case after the Court at first instance in Blank v FCT [2014] FCA 87 held that a payment of USid=”mce_marker”60m made to him (by way of instalments) following his termination was assessable as “ordinary income” in his hands. The Court arrived at this decision on the basis that the payment was “deferred compensation for services rendered” arising from negotiating a settlement in relation to his right to participate in his employer company’s “profit participation plan”.

The taxpayer sought to re-open the case on the basis that the matter of the application of s 23AG of the ITAA 1936 (the exemption of foreign income) had not been considered in relation to the payment, as much of the payment related to overseas employment with the company, and that the interests of justice required it to be so considered. If successful, some two-thirds of the payment would be exempt from tax in Australia.

However, in dismissing the application the Court found that while the taxpayer had satisfied all the procedural requirements for reopening of the case (such as the oversight was made by accident, the taxpayer made his application promptly and no disadvantage would be suffered by the Commissioner), he nevertheless failed the crucial requirement of having a strong substantive argument that s 23AG applied to exempt a portion of the payment.

In particular, the Court found that the exemption required the foreign earnings to be exclusively derived from foreign service, and not from service which was in part foreign service and part not foreign service (as in this case). Likewise, the Court noted that the amount paid to the taxpayer was not calculated by reference to “days of service”, but rather on the basis of results under the profit plan. Finally, the Court found that s 23AG did not operate on any “apportionment” basis as would be required for the taxpayer to succeed.

(Blank v FCT (No 2) [2014] FCA 517, Federal Court, Edmonds J, 22 May 2014.)

[LTN 97, 22/5/14]