Gabites v Accident Rehabilitation and Compensation Insurance Corporation

IN THE DISTRICT COURT AT PALMERSTON NORTH Decision No. 218 /97 IN THE MATTER of The Accident Rehabilitation and Compensation Insurance Act 1992 AND IN THE MATTER of an Appeal pursuant to Section 91 of the Act BETWEEN SELWYN ROSS GABITES DCA 101/97 Appellant AND ACCIDENT REHABILIATION AND COMPENSATION INSURANCE CORPORATION a body corporate duly constituted under the provisions of the said Act Respondent HEARD on the 6th day of October 1997 APPEARANCES Mr J R Handley for appellant Mr A D Barnett for respondent DECISION OF JUDGE M J BEATTIE There are two issues for determination in this appeal: 2 1. Whether the Corporation's decision not to backdate the appellant's independence allowance to a date earlier than the date on which written application for same was made by the appellant was correct. 2. Whether the Corporation's decision to decline to accept that the appellant's earnings from employment in Australia qualified as earnings as an employee for the purposes of eligibility for weekly compensation under section 40 of the Act was correct. Background Facts The appellant had worked with earth moving machinery for some 35 years both in New Zealand and in Australia. Between 1979 and June 1991 the appellant worked wholly in Australia in such employment. The appellant returned to New Zealand in early 1992 after having ceased work in Australia in June 1991 as a consequence of the onset of industrial deafness. The appellant stated at the review hearing that on his return to New Zealand he made enquiries at the ACC office in Wanganui about entitlement to compensation for his industrial deafness but was advised that because his employment had been in Australia he was not so entitled. On the 21 February 1995 the appellant lodged a claim form with the Corporation seeking cover for his deafness. This claim for cover was accepted by the Corporation on 15 November 1995. 3 On 11 March 1996 the appellant applied for an independence allowance. The appellant's entitlement was assessed at $55.77 and this was backdated to the date of application. The appellant also applied for weekly compensation. In a decision dated 24 October 1996 the Corporation advised that the appellant did not come within the requirements of section 40 of the Act in that for the 12 months immediately preceding the commencement of the period of incapacity he did not have earnings as an employee. In that letter it was contended by the Corporation that the period of incapacity commenced on 13 February 1995, being the date when the appellant first sought a consultation with a health professional in New Zealand but subsequent correspondence determined that the Corporation's decision was in fact maintained on the basis that the appellant did not have earnings or was an earner within the meaning of those words in the Act in the period immediately preceding the commencement of the incapacity. It became common ground that the appellant's commencement of incapacity as that meaning is determined by the Act, was 1 June 1991, when he ceased his employment in Australia. Appellant's Submissions On Issue (1) Counsel for the appellant contends there are three dates to which the appellant's independence allowance could be backdated: (i) 1 July 1992 being the date of the coming into force of the Act (ii) 21 February 1995 - being the date when the appellant made application for cover under the Act 4 (iii) 15 November 1995 being the date when the Corporation accepted cover. Counsel relies upon the provisions of section 54(6) of the Act which was then in force, but which has now been repealed, and the decision of His Honour Judge Middleton in Boyle v ARCIC (131/96). The relevant provisions of section 54 so relied on as follows: "(2) Any entitlement to the independence allowance shall commence not earlier than 13 weeks after the date on which the personal injury causing that disability was suffered. ... (5) The Corporation shall not pay any independence allowance unless the assessment of the degree of disability of the person in respect of whom it is to be paid has been made in accordance with - (a) Scales prescribed under this Act which may be based on impairment or disability or a combination of impairment and disability; or ( 6 ) In the absence of the scales referred to in paragraph (a) of this subsection, the American Medical Association Guides to the Evaluation of Permanent Impairment (Second Edition) - and any such allowance shall be payable from the date of the assessment or the date determined under subsection (2) of this section, whichever is the later. (6) Notwithstanding anything in subsection (5) of this section, if the assessment has not been made within 13 weeks after the date on which 5 the personal injury causing that disability was suffered, but the Corporation is satisfied that - ( a ) The assessment has not been completed (whether or not it has been commenced) for reasons beyond the control or responsibility of the injured person; and (6 ) If the assessment had been completed the degree of disability of the injury would have entitled the person to an independence allowance - the Corporation shall pay an independence allowance as if the injured person's degree of disability had been assessed at a percentage estimated by the Corporation." Counsel submitted that despite several decisions notably Hart (100/95), Palmer (11/96), Ancell (52/96) and Mouat (122/96) being all decisions of His Honour Judge Middleton preceding the Boyle decision and in which His Honour variously held that there was no discretion in the legislation which enabled the Court to go beyond the requirements of the Act and backdate the commencement of any independence allowance beyond a date not earlier than 13 weeks after the date of the injury or the date of the assessment, whichever was the later, the Boyle decision indicated a change from that previous position. He submitted that where delay can be established as being beyond the control or responsibility of the injured person there was a discretion to backdate the commencement date. Counsel further contends that section 54(6) does not necessarily restrict backdating to a date when the application for assessment was lodged but it may equally apply to a date earlier if it could be shown that there was some fault or error on the part of the Corporation in their manner of dealing with 6 the claimant, such as in this case advising him in 1992 that he was not eligible for compensation. Counsel For The Respondent's Submissions On Issue (1) Counsel for the respondent submitted that the provisions of section 54 of the Act were quite clear and that this Court in its decisions of Palmer, Ancell, Mouat and Boyle have authoritively determined that there is no discretion or no general discretion to back date commencement of the payment date for independence allowances Counsel For Appellant's Submissions On Issue (2) Counsel for the appellant contends that the appellant did have "earnings" for the purposes of section 40 of the Act. In effect counsel resubmits the arguments that were submitted on behalf of the appellant in the decision of this Court in Blowers v ARCIC decision 70/95. Counsel further submits that the decision of the Privy Council in AMP Society V Inland Revenue Commissioner [1961] 3 ALL ER 1051 is authority for the statement that income earned overseas is not "exempt income" for the purposes of exclusion from the definition of "salary and wages" in the Income Tax Act 1976. Counsel contends that it follows that the appellant's earnings in Australia are "salary and wages" for the purposes of the Income Tax Act 1976. Counsel then contends that this reasoning entitles the appellant's earnings to be regarded as source deduction payments under the Income Tax Act and thereby are "earnings as an employee" for the purposes of the Earnings Definition Regulations 1992 and "earnings" under section 40 of the ARCI Act.. 7 As the appellant had earnings for the purposes of section 40 of the Act, he is entitled to a calculation of weekly earnings under the provisions of the Act. Counsel For Respondent's Submission On Issue (2) Counsel submitted that for remuneration to fall within the definition of earnings as an "employee" it must be a source deduction payment as defined for the purposes of the 1976 Income Tax Act or the 1994 Act and, all income which is deemed to be income derived otherwise than from source deduction payments under sections 6(2)(3) of the 1976 Act or section OB 1 and OB(2)(1) of the 1994 Act. The definition of "earnings as an employee" as contained in the Accident Rehabilitation and Compensation Insurance (Earnings Definitions) Regulations 1992 is stated to mean all source deduction payments as defined for the purposes of the Income Tax Act 1976 and all income which is deemed to be income derived otherwise than from source deduction payments under section 6(2)(3) of the Income Tax Act 1976. Thus, the Earnings Definitions Regulations are reliant on the definition of "source deduction payment" in the Income Tax Act. For the purposes of the Income Tax Act the definition of salary or wages does not include payment of exempt income. The respondent relies on the decision of this Court in Blowers as correctly interpreting the law. In addition, the respondent puts forward what is described as the common sense approach, being argument founded upon common principles of statutory interpretation. 8 Counsel submits that a "source deduction payment" is given the meaning in the Earnings Definitions Regulations 1992 as "any source deduction payment for the purposes of the Income Tax Act 1976, other than any withholding payment as defined in section 2 of the Income Tax Act 1976". The expression "source deduction payment" in the Income Tax Act 1976 and the Income Tax Act 1994 has the meaning "... for the purposes of this Act the terms source deduction payment means a payment by way of salary or wages an extra emolument or a withholding payment" Counsel then submits that any meaning then given to the term "source deduction payment" or "salary and wages" in the income tax legislation has the over riding qualification that it is a meaning "for the purposes of this Act". Salary and wages then which are defined for the purposes of the Act are salary and wages upon which tax is payable and recoverable by the Commissioner of Inland Revenue/ the Crown. Counsel contends that it is common ground that the salary and wages earned by the appellant in Australia are not taxable or recoverable in New Zealand as specifically section 242 (c) of that Act provides "no income which is neither derived from New Zealand nor derived by a person then resident in New Zealand shall be assessable for Income Tax". Thus, as the appellant's income derived in Australia is not assessable, it is not salary and wages for the purposes of the Income Tax Act thus, it is not earnings as an employee in terms of the ARCI (Earnings Definition) Regulations 1992. 9 Decision Dealing with the first issue, I find that there is no support in the decision of Boyle for the interpretation that counsel for the appellant would have the Court accept for the backdating of payment of an independence allowance. The previous decisions of this Court have made it quite clear that the statutory provision then in being namely section 54(6), gives no power or discretion to backdate the grant, beyond the times stipulated in Section 54(5). The terms of the section are clear and unequivocal and require that the independence allowance commence not earlier then thirteen weeks after the date on which the personal injury causing the disability was suffered or the date of the assessment whichever is the latest. There is nothing in the section which would enable the Court to seize upon a discretion which would enable it to go beyond those limitations. The Boyle decision was simply a decision applying the provisions of subsection 6. In that case the Learned Judge simply made use of the provisions of regulation 3 of the Accident Rehabilitation and Compensation Insurance (Independent Allowance Assessment) Regulation 1993 by backdating the payment to a date 14 days after the receipt of the application, the Learned Judge being satisfied that the circumstances of that case came within section 54(6)(a) in that there was delay in completing the assessment which was beyond the control of the applicant. In the present case the allowance has been paid from the date of application, a more than generous interpretation of the Act and regulations. 10 For completeness I rule that there is simply no authority in Boyle which would suggest that the provisions of Section 54 enable the backdating of payment beyond the date of the assessment (or the date by which such assessment ought to have taken place) or the date which is 13 weeks after the date on which the personal injury causing the disability was suffered, whichever is the later. Boyle simply stated that where the assessment has not been completed within the time stipulated in the Regulations for reasons beyond the control of the injured person, section 54(6) may allow payment to commence 14 days after the application is received where that date is more than 13 weeks from the date of the injury. Accordingly, the decision of the Review Officer on the first issue is upheld. Second Issue The point in issue is whether the appellant's Australian earnings for the 52 weeks prior to 1 June 1991 are weekly earnings as an employee within the meaning of section 40 of the Act. For entitlement to weekly compensation under the Act an injured person must be an "earner" immediately before the commencement of the incapacity. "Earner" is defined in section 3 as "any natural person who engages in employment whether or not as an employee". "Employee" is defined as a person who receives or is entitled to receive any amount that is treated as income from employment, as defined in paragraph 11 (a) of the definition of "employee" in section OB 1 of the Income Tax Act 1994, and any salary wages or other gross income to which section OB 2(2) or Section OB2(3) of the Income Tax Act 1994 applies. "Earnings, earnings as an employee" in the interpretation section of ARCI Act have the meaning assigned to it in Regulations made under the 1992 Act. "Earnings as an employee" is defined in the Earnings Definitions Regulations as meaning: (A) All source deduction payments of the person for the income year and (B) All income of the person which is deemed to be income derived otherwise then from source deductions payments under section 6(2) or section 6(3) of the Income Tax Act 1976 and which is deemed to be derived by the person in the income year in accordance with sub clause (3) of this regulation. "Source Deduction Payment" means any source deduction payment for the purposes of the Income Tax Act 1976 other than any withholding payment as defined in section 2 of the Income Tax Act 1976. The definition of source deduction payment in the 1976 Income Tax Act provides inter alia "Source Deduction Payment means a payment by way of salary or wages or an extra emolument or a withholding payment". The 1976 Act and 1994 Act provide a definition of salary or wages as follows: "In relation to any person means salary wages or allowances in respect of or in relation to the employment of that person". 12 The definition further says inter alia that it does not include "a payment of exempt income or an extra emolument or a withholding payment". There is no dispute that the appellant's income from his Australian employment was not taxable in New Zealand. This is so by virtue of section 242 (C) of the Income Tax Act 1976 which states "no income which is neither derived from New Zealand nor derived by a person then resident in New Zealand shall be assessable for income tax". Counsel for the appellant contends that whilst it is accepted that the appellant's earnings are not subjected to tax in New Zealand it does not follow that such earnings are exempt income for the purposes of the Income Tax Act 1976. Counsel for the appellant relies on the Privy Council decision of the AMP Society v Inland Revenue Commissioner (Supra). In that case the Court had to consider the meaning of the words "exempt from taxation". At page 1057 Lord Devlin delivering the judgement stated : "What the commissioner contends, and what the Stipendiary Magistrate and the Supreme Court have held, is that the words "exempt from taxation" do not cover income which is not within the reach of the New Zealand Tax Laws. The point is succinctly put by the Stipendiary Magistrate when he says "a company cannot be exempt unless but for the exemptions it would have been liable". The appellants on the other hand contend that "exempt from taxation" means the same as not subject to taxation and that as the New Zealand Act does not touch the income of English and Australian companies which is not derived from New Zealand, such income is exempt. This is as much as to say that the 13 salary of an Englishman for example earned and paid in England is properly described as exempt from New Zealand taxation. Their Lordships do not consider that that is the natural and primary meaning of the word 'exempt'. No doubt it can sensibly bear that meaning in some context ... but they consider that where, as here there is nothing in the context to suggest otherwise, the word naturally bears the meaning given to it by the Courts below". Section 242(c) of the Income Tax Act 1976, establishes that the appellant's earnings are not assessable for Income Tax rather than being exempt from Income Tax. As they are not assessable they cannot be exempt. Adopting the wording accepted by the Privy Council, Mr Gabites' earnings cannot be exempt unless but for the exemption it would have been liable for tax. That cannot be the case for Mr Gabites' earnings under the New Zealand Income Tax Act. However, the mere fact that the appellant's earnings cannot be regarded as exempt income and therefore not excluded from the definition of salary and wages by that fact in my view does not thereby positively bring it within the definition as it is wholly outside the operation of the New Zealand Income Tax legislation. I accept the reasoning of Her Honour in the Blower's case and the submissions of counsel for the respondent herein. The whole thrust of the inter-relationship between the ARCI Act and the Income Tax Acts is that only earnings and income that are subject to the latter are to be considered as relevant or applicable to the former. If that were not the case the appellant's Australian employer would be an "employer" for the purposes of the ARCI Act. This would then lead to the 14 Australian employer being liable to pay employee premiums under section 101 of the Act. That such is plainly not the case, nor intended to be, reinforces the view that it is only income or earnings which are subject to New Zealand Income Tax Law which can be considered as determining entitlement to weekly compensation under the ARCI Act. It follows that the appellant was not an earner and did not have earnings which would give an entitlement to weekly compensation under section 40 of the Act. For the foregoing reasons this appeal is dismissed DATED at WELLINGTON on this b day of November 1997 M J Beattie District Court Judge Gabites.doc(gm)