Macoun v Commissioner of Taxation

The High Court has dismissed an appeal against a decision of the Full Federal Court on income tax on pensions from foreign retirement plans. The appellant worked as a sanitary engineer for the International Bank for Reconstruction and Development, a sub-organisation of the World Bank, during which time he participated in the World Bank’s Staff Retirement Plan. Following his retirement, he received monthly payments from this plan which he initially declared as assessable income for tax purposes, though he later amended those assessments to exclude them. The Administrative Appeals Tribunal set aside the Commissioner’s decision to object to these amendments, concluding that the payments were exempt from taxation under the Fourth Schedule to the International Organisations (Privileges and Immunities) Act 1963 (Cth), as being ’emoluments’ received by an officer of an international organisation. The Full Federal Court allowed the Commissioner’s appeal, holding that the Tribunal erred in adopting a ‘bottom-up’ approach to construing the IOPI Act by reference to the terms of the relevant regulations (at [40]) and by focusing on ‘entitlement’ as opposed to ‘receipt’: the IOPI Act and its regulations only cover privileges conferred on current office holders which, at the time the pensions were paid, the appellant was not (at [41]–[44]).

In a unanimous judgment (French CJ, Bell, Gageler, Nettle and Gordon JJ), the Court dismissed the appeal, dealing with three separate questions. First, the Court held that IOPI Act and its regulations do not confer a tax exemption on the appellant’s pension payments when he ceased to hold an office in the IBRD: contrary to the requirements in the text of these provisions, the appellant did not receive the pension payments while he was still an officer of the IBRD, and he did not receive them from the IBRD itself, but rather a separate retirement fund body (see [46]–[52]). The Court also rejected the appellant’s arguments that the pension was a vested, inchoate right, or that the requirements could be met by considering the receipt date an ‘accident of timing’ (see at [55]–[56] and [57]–[60]). Secondly, the Court held that the payments fell outside the requirement of ‘salaries and emoluments received from the organisation’ in the IOPI Act regulations for the reasons above (it was not received while he was an officer of the IBRD, and not received from the IBRD), but also because monthly pensions are not ‘salaries and emoluments’: they are not advantages flowing from the occupation of an office, but rather flow ‘only on and from cessation of that office’ (see [61]–[65]). Finally, the Court held that the Convention on the Privileges and Immunities of the Specialized Agencies [1988] ATS 41 did not require that Australia not tax monthly pension payments: the language of the Agencies Convention does not prohibit states from distinguishing between officials and former officials ([75]), and there is no generally accepted state practice that suggests an obligation on Australia to exempt these pensions from taxation exists (see at [76]–[82]).

High Court Judgment [2015] HCA 44 2 December 2015
Result Appeal dismissed
High Court Documents Macoun
Full Court Hearing [2015] HCATrans 257  9 October 2015
Special Leave Hearing [2015] HCATrans 112 19 May 2015
Appeal from FCAFC [2014] FCAFC 162 4 December 2014
AAT Decision
[2014] AATA 155 20 March 2014
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About Martin Clark

Martin Clark is a PhD Candidate and Judge Dame Rosalyn Higgins Scholar at the London School of Economics and Political Science and Research Fellow at Melbourne Law School. He holds honours degrees in law, history and philosophy from the University of Melbourne, and an MPhil in Law from MLS. While at MLS, he worked as a researcher for several senior faculty members, was a 2012 Editor of the Melbourne Journal of International Law, tutor at MLS and various colleges, a Jessie Legatt Scholar, and attended the Center for Transnational Legal Studies Program.