OSs JUDGMENT No. oes J woepecseres® CATCHWORDS BANKRUPTCY - after acquired income - assessment for contribution by trustee in bankruptcy - basis of assessment - payment by family members to bankrupt - in respect of legal representation, secretarial, office, telephone services and travel - whether notional fringe benefits to be treated as income for purposes of contribution provisions - whether required to be "in respect of employment" - statutory construction - extrinsic materials - Second Reading Speech - Explanatory Memorandum - remedial statute - broad construction. Pearce, Statutory Interpretation 2nd Ed. Bankruptcy Act 1966 Division 4B, s.139L Administrative Appeals Tribunal Act s.37 Fringe Benefits Tax Assessment Act 1986 Bankruptcy Amendment Act 1992 Social Security Act 1991 Bankruptcy Amendment Bill 1991 Pattison and Inspector-General_of Bankruptcy and Robert Graham _ Ansett (unreported Administrative Appeals Tribunal, 15/2/94 No. 9307) Federal Commissioner of Taxation v. Official Receiver (1956) 95 CLR 300 Re Weiss; Ex parte Official Trustee in Bankruptcy (1985) 7 FCR 121 Weissova v. Official Trustee in Bankruptcy (1986) 12 FCR 106 Edelsten's Trustee v. Commissioner of Taxation (1987) 16 FCR 386 Re Gillies; Ex part parte Official Trustee in Bankruptcy (1993) 115 ALR 631 Cooper Brookes (Wollongong) Pty Ltd v. Federal Commissioner of Taxation (1981) 147 CLR 297 The Commonwealth v. Baume (1905) 2 CLR 405 Saraswati v. The Queen (1991) 172 CLR 1 ALAN BOND v. THE TRUSTEE OF THE PROPERTY OF ALAN BOND, A BANKRUPT No. WAG 126 of 1993 FRENCH, COOPER and CARR JJ PERTH 20 OCTOBER 1994 LL COURT OF Heo ETE TRAU A 'PRINCIPAL IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA } DISTRICT REGISTRY ) GENERAL DIVISION ) No. WAG 126 of 1993 ON APPEAL from the General Administrative Division of the Administrative Appeals Tribunal constituted by Deputy President Mr B.J. McMahon, Senior Member, Mr T.E. Barnett, and Member, Associate Professor R.D. Fayle BETWEEN: ALAN BOND Applicant and THE TRUSTEE OF THE PROPERTY OF ALAN BOND, A BANKRUPT Respondent MINUTE OF ORDER JUDGES MAKING ORDER: FRENCH, COOPER and CARR JJ DATE OF ORDER: 20 October 1994 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The applicant's appeal against the decision of the Administrative Appeals Tribunal given at Perth on 10 September, 1993 be allowed. 2. The decision of the Administrative Appeals Tribunal be set aside and in lieu thereof it be ordered that the appeal to that Tribunal be allowed and the decisions of the respondent made on 11 December 1992 to make an amended assessment of income of the applicant for the purposes of Division 4B of Part VI of the Bankruptcy Act 1966 (Cwth) and to give a notice of contribution to the applicant m consequence of the said assessment be set aside. 3. The respondent pay the applicant's costs of and incidental to this application to be taxed if not agreed. 2. NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION ) No. WAG 126 of 1993 ON APPEAL from the General Administrative Division of the Administrative Appeals Tribunal constituted by Deputy President Mr B.J. McMahon, Senior Member, Mr T.E. Barnett, and Member Associate Professor R.D. Fayie © BETWEEN: ALAN BOND Applicant and THE TRUSTEE OF THE PROPERTY OF ALAN BOND, A BANKRUPT Respondent CORAM: FRENCH, COOPER AND CARR JJ. PLACE: PERTH DATE: 20 OCTOBER 1994 FRENCH J REASONS FOR JUDGMENT Introduction In 1992 and 1993, Alan Bond, a bankrupt, received payments exceeding $700,000 from members of his family and associated entities. The payments related to the cost of providing him with legal advice and representation, accommodation, office space, secretarial and telephone facilities and travel costs. They were by way of gift. Bond's trustee in bankruptcy assessed the payments as income for the purposes of Part VI Division 4B of the Bankruptcy Act 1966 and required a contribution from Bond in accordance with the provisions of the Act. Bond appealed to the 2. Administrative Appeals Tribunal, but that appeal was unsuccessful. He now appeals to this Court against the decision of the Tribunal. The case raises an important question of the application of the provisions of Division 4B of the Bankruptcy Act 1966 and, in particular, the definition of "income" under those provisions. Factual Background Alan Bond was made bankrupt on 14 April 1992 by order of this Court. In October 1992, his trustee in bankruptcy, who is the respondent to this appeal, made an assessment under the provisions of Division 4B of the Bankruptcy Act 1966, of income he considered likely to be derived by Bond for the period 1 July 1992 to 30 June 1993. On 11 December 1992 he made a fresh assessment of income likely to be derived or derived during that period. The amount so assessed was $440,964 broken up into the following items, as set out in a notice dated 11 December 1992 which was sent to Bond: "Fringe Benefits Housing 9,900 Use of Armoy office 750 Secretarial services 3,333 Tejephone 1,600 Travel 37,312 Legal expenses paid by gift 388,069" He determined an actual income threshold amount, pursuant to the provisions of the Act, at $23,232 and a contribution payable under a statutory formula provided for in the Act of $208,866. Bond appealed against the assessment to the Admunistrative Appeals Tribunal, but the appeal was unsuccessful. By the time the appeal came on 3. for hearing it was not disputed that payments received by Bond in the various categories which had been assessed by the trustee now amounted to $713,390.56. These were broken up as follows: "Housing $ 8,525.00 Use of office $ 49100 Use of secretarial services $ 2,878.04 Use of telephone facilities S 1,600 00 Travel Expenses $ 32,654.50 Legal Expenses $667,242.02" To give effect to that agreed variation in the payments received, the Tribunal set aside the decision under review and the matter was remitted to the trustee with a direction that a fresh assessment of Bond's income be made upon the basis that in the contribution period commencing 1 July 1992 he had derived income of $713,390.56. An agreed statement of facts was before the Tribunal and there it was acknowledged that the following benefits were provided to Bond by his son, John Bond, and by Topsfield Pty Ltd on behalf of John Bond: Accommodation 8,525 00 Use of office space 491 82 Use of secretarial services 2,878 04 Use of telephone facilities 1,600.00 Travel 32,654 50 It was common ground on the statement of agreed facts the benefits provided were by way of gift and that none of them was provided in relation to any employment or work done or any services rendered by Bond or John Bond or any other person or entity. It was agreed that certain additional amounts were paid by Topsfield Pty Ltd, 4. a company of which John Bond is a director and the only beneficial shareholder, for legal advice and representation for Bond: 27 July 1992 53,303.39 17 August 1992 50,000 00 21 September 1992 50,000 00 15 October 1992 50,000 00 22 October 1992 6,668 63 5 November 1992 50,000 00 2 February 1993 2,285 00 Amounts paid by Bond's daughter, Jody, for legal advice and representation were as follows: 25 November 1992 5,000.00 10 December 1992 49,990 00 23 December 1992 50,000 00 2 February 1993 50,000 00 2 March 1993 50,000.00 In addition, an amount of $199,995 was paid on 17 May 1993 to Bond by a company called Hemisphere Management for the provision of legal advice and representation. It is common ground that none of the payments was made in relation to any employment of or work done or services rendered by Bond. In the agreed statement of facts there was said to be a factual issue whether the payments for legal advice and representation were made by way of loans to be repaid on demand if and when Bond were able to do so with a commercial rate of interest, being the cost of the funds if borrowed from a bank or were made by way of gift. The Court was informed at the commencement of the argument on the appeal however, that there 5. was no issue now in respect of that matter. Thus the Court proceeds on the basis that all of the payments were made by way of gift. The sums paid for legal advice and representation were paid to Bond's solicitors, Parker & Parker, during the contribution assessment penod. The status of the firm, Hemisphere Management, was uncertain. The Tnbunal said that it was assumed in the course of the hearing that it was a firm of which one Graham Ferguson Lacey was sole proprietor. Cross- examination however, suggested there was no such firm. In a letter dated 14 June 1993 and addressed to Bond, Lacey advised that he had been pleased to facilitate the transfer of $200,000 to Bond's lawyers to meet legal expenses. The letter also sought an undertaking by return that upon discharge from bankruptcy and when circumstances permitted, Bond would repay that amount with interest at the rate of 7% per annum. The letter was found by the Tribunal to have been addressed from a post office box in Bermuda. Subsequently, counsel for Bond before the Tribunal, abandoned the suggestion that moneys advanced by Lacey had been by way of loan. Working papers provided to the Tribunal pursuant to s.37 of the Administrative Appeals Tribunal Act indicated that the legal expenses were incurred for a variety of purposes, including a defamation action, appearances before a Royal Commission, defence of criminal proceedings and unspecified litigation. When the matter went on for hearing there was no further exploration of the nature of the legal expenses and the Tribunal was simply asked to assume that all payments were made by way of gift. This included the payments made by Hemisphere Management or Lacey. 6. The Tribunal found, in para.13 of its reasons, that all the payments comprising the assessment under review were made without consideration and were gifts. In a statement of facts and contentions which had been lodged with the Tribunal, it was contended that any benefits received by Bond were received by him in an ordinary family setting as normal! incidents of family relationships and that consequently none of them constituted income within the meaning of sub-s.139L(e) of the Act. That argument, however, was not pursued at the hearing and the Tribunal added that there was no evidence to suggest that the payments could be described as payments in an ordinary family setting. It had also been asserted in the statement of facts and contentions that Bond was not obliged by s.139P of the Act to pay a contribution when he did not have the means to make any such payment. That contention was not pursued at the hearmg. There was no examination of any means available to Bond and the legal proposition was not defended. The Tribunal observed: "If the applicant has such ready sources of credit or beneficence that have been disclosed in the evidence before us, it is understandable why this argument was not pursued." In its reasons for decision, the Tribunal referred to the definition of income under s.139L of the Bankruptcy Act. 1966 and noted that there was no dispute between the parties as to the value to be attributed to the alleged benefits as fringe benefits if they were found to fall within the terms of the Fringe Benefits Tax Assessment Act 1986. The Tribunal observed that under the Fringe Benetits Tax Assessment 7. Act 1986, not all fringe benefits are taxable benefits. The Act, it was pointed out, is structured to provide for particular types of benefits which attract taxation. Reference was made to Division 13 of Part III of the Act which was described as a "miscellany of exempt benefits" which, because they do not have taxable values are excluded from the fringe benefits taxable amount upon which tax is imposed. They observed that para.139L(e) provides that there is to be included in the bankrupt's income "the value of a benefit..as worked out in accordance with the provisions of that Act...". Given that no taxable value attached to exempt benefits there could be no "income" derived in relation to exempt benefits under the FBT Act. The Tribunal found, however, that none of the payments made by the John Bond interests, Jody Bond or Lacey would, if they had been Bond's employer, qualify as exempt benefits under the Fringe Benefits Tax Assessment Act. At para.23 the Tnbunal held that the gifts which Bond had received, if granted to him by an employer, would have been benefits under the FBT Act in the following categories: "The provision of housing accommodation - s.25 Housing Benefit The use of office facilities, telephone and staff - s.45 Residual Benefit The payment of travel expenses - s.20 Expense Payment Benefit. The payment of legal expenses - s 20 Expense Payment Benefit" Bond argued before the Tribunal that in order for a benefit to be a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act it must be one provided to an employee "In respect of the employment of the employee". The inclusion in para.139L(e) of the phrase "if provided by an employer would be", on Bond's submission, merely eliminated the requirement that the benefit be paid by an employer. It did not remove the requirement that the benefit must still be provided 8. "in respect of the employment of the employee". The Tribunal rejected this interpretation. It held that the definition of "fringe benefit" encompasses a benefit provided to an employee by a person other than the employer or an associate of the employer. If Parliament had merely wished to incorporate in para.139L(e), only those benefits which had employment related connotations, it would not have been necessary to include the phrase "or if it were provided by an employer would be". Those words, in the view of the Tribunal, served to include as "income" of the bankrupt benefits provided regardless of their source and regardless of the employment context. Notwithstanding that there was a ground of appeal relating to the Tribunal's finding about the ordinary family settmg argument, the matter as argued before the Full Court focussed entirely on the question of construction under para.139L(e) of the Bankruptcy Act 1966. Statutory Framework Part VI of Division 4B of the Bankruptcy Act. 1966 came into force on 1 July 1992 by virtue of the Bankruptcy Amendment Act 1992. Section 51(1) of the amending Act provided that the amendments which it effects (other than an amendment to s.19 of the pmncipal Act) apply to persons who were bankrupt at the commencement of the amendment. The objects of the new Division are set out in s.139J: "(a) [T]o require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and 9. (b) [T]o enable the recovery of certain money and property for the benefit of the bankrupt's estate " In general terms the Division provides for the trustee to assess the amount of a bankrupt's income in each successive year of the bankruptcy. It establishes a liability on the part of the bankrupt pursuant to an assessment to make a contribution out of the excess of the assessed income over a specitied threshold. The threshold amount is defined in terms of the maximum basic rate of pension payable under the Social Security Act 1991. Section 139K of the Act defines a "contribution assessment period", in relation to a bankrupt, as a period that: "(a) begins on: (i) the commencement of the bankruptcy or the commencement of this Division, whichever is the later; or (it) an anniversary of that commencement, being an anniversary that occurs during the bankruptcy; and (b) ends one year after that commencement or that anniversary, as the case requires, or if the bankrupt ts discharged within that year, ends upon the discharge " By s.139W(1) the trustee is obliged to undertake an assessment process for which that sub-section provides as follows: 10. "139W(1) As soon as practicable after the start of each contribution assessment period in relation to a bankrupt and before the bankrupt 1s discharged, the trustee 1s to make an assessment of the income that 1s likely to be derived by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment 1s made and of the contribution (if any) that the bankrupt is liable to pay im respect of that period under section 1398." An assessment made pursuant to s.139W(1) is designated, by virtue of a definition in s.139K, as an "original assessment" in relation to the relevant contribution assessment period. There is then provision for subsequent assessments to be made under s.139W(2) which provides: "139W(2) If at any time, whether during or after a contribution assessment period but before the bankrupt 1s discharged, any one or more of the following paragraphs applies or apply: (a) the trustee 1s satisfied that the imcome that 1s likely to be derived, or was derived, by the bankrupt during that period is or was greater or less than the amount of that income as assessed by the last preceding assessment in respect of that period; (b) the base imcome threshold amount increased after the making of the last preceding assessment in respect of that period and before the end of that period; , (c} the trustee 1s satisfied that the number of the bankrupt's dependants who were wholly or partly dependent on the bankrupt for economic support increased or decreased after the making of the last preceding assessment and before the end of that period, the trustee 1s to make a fresh assessment of the income that is likely to be derived, or was derived, by the bankrupt during that penod, of the actual tmcome threshoid amount that 1s applicable in relation to the bankrupt when the assessment 1s made and of the contribution (if any) that the bankrupt 1s liable to pay in respect of that period" 11. An assessment made under s.139W(2) is designated, pursuant to s.139K, as a "subsequent assessment" in relation to that contribution assessment period. The power of the trustee to make a subsequent assessment may be exercised on the trustee's own initiative or at the bankrupt's request (s.139W(3)). The trustee is required by sub-s.139W(4) to give the bankrupt written notice setting out particulars of an assessment as soon as practicable after it has been made. Where, during a contribution assessment period the bankrupt engages or has engaged in employment or other work or in activities that resemble employment or other work and does not or did not receive remuneration in respect of the employment, work or activities, or receives remuneration that is less than a reasonable remuneration (defined, inter alia, by reference to industnal award rates or on an arms' length assessment), then for the purpose of making an assessment the trustee may determine that the bankrupt receives or received reasonable remuneration in respect of the employment, work or activities (s.139Y(1)). And if during a contribution assessment period the bankrupt enters into a transaction that might reasonably be expected to produce income and derives either no income or less than a "reasonable income", defined by reference to an arms' length assessment of the transaction, then the trustee may determine that the bankrupt has derived the "reasonable income" from the transaction (s.139Y(2)). And by virtue of s.139Z, where a bankrupt does not provide information about his or her income during a contribution assessment period or claims not to be hkely to derive or to have derived any income or a particular class of income during a contribution assessment period but the trustee has reasonable ground for believing otherwise, then for the purpose of making an assessment the trustee may determine that the bankrupt is likely to derive or has derived income or income of that class during that period 12. and may also determine the amount. And without limitation to the matters that may be taken into account for the purpose of such an assessment, the trustee may have regard to employment or other work or other income producing activities engaged in by the bankrupt before that period and may determine whether the bankrupt is likely to engage or to have engaged in similar employment, work or other income producing activities during that period. The liability of a bankrupt to pay a contribution pursuant to the trustee's assessment is imposed by s.139P(1) which provides: "139P(1) Subject to section 139Q, if the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the trustee under an onginal assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made, the bankrupt is liable to pay the trustee a contribution in respect of that period." Sub-section 139P(2) provides for voluntary contributions where the assessed income falls below the threshold amount. Section 139Q imposes liability to pay a contribution in respect of a contribution assessment period where the trustee has made a "subsequent assessment" which exceeds the actual mcome threshold amount. The liability of a bankrupt imposed by s.139P or s.139Q is not affected by discharge after the making of the assessment that gave rise to the liability (s.139R). The contribution payable by a bankrupt pursuant to the assessment process is defined in s.139S: 13. "1398S. The contribution that a bankrupt is habie to pay in respect of a contribution assessment penod is the amount worked out in accordance with the formula- Assessed income - Actual income threshold amount where: "Assessed income" means the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period, "Actual income threshold amount" means the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment 1s made." "Actual income threshold amount" is further defined in s.139K on a sliding scale increased according to the number of dependants that the bankrupt has and the extent of their dependency. The "base income threshold amount" is defined in s.139K for a particular time as the amount that, "at that time, is specified in column 3, item 2, Table B, point 1064-B1, Pension Rate Calculator A, in the Social Security Act 1991, multiplied by 3.5". There is provision in s.139T for the official receiver to vary a contribution if the bankrupt considers that if required to pay the contribution he or she will suffer hardship for a reason or reasons set out in sub-s.139T(2). The reasons are limited in their scope. In summary, they relate to illness or disability on the part of a bankrupt or dependant of the bankrupt which involves meeting ongoing medical costs, a requirement on the bankrupt to make payments from his or her income to meet the cost of chiid day-care to enable the bankrupt to continue in employment or other work, where the bankrupt 1s living in rented accommodation and 1s required to 14. pay the cost of that accommodation wholly or mainly from hus or her income, where the bankrupt incurs substantial expense in travelling to and from the place of employment or other work and where the spouse of the bankrupt or another person residing with the bankrupt who ordinarily contributes to the cost of maintaining the household has become unable to contnbute to those costs because of unemployment, illness or injury. Sub-section 139T(2) also refers to "any other prescribed reason". The Bankruptcy Rules as they presently stand, however, do not prescribe any other reason which would support a claim of hardship. There is also provision in sub- division G for review of a trustee's assessment. This may be undertaken by the Inspector-General pursuant to s.139ZA. On review of a decision the Inspector- General has all the powers of the trustee and may either confirm the trustee's decision or set it aside and make a fresh assessment (s.139ZD). There is provision in s.139ZF for an application to be made to the Administrative Appeals Tribunal for the review of a decision by a trustee to make an assessment or a decision of the Inspector-General on the review of such a decision or a decision of the Inspector- General refusing a request to review such a decision. Central to the present case is the definition of "income" in s.139L of the Act which provides: *139L. In this Dinsion: "income"", in relation to a bankrupt, means any amount derived by the bankrupt that is income according to any ordinary usages and concepts, and includes: (a) a payment to the bankrupt from a_ provident, benefit, superannuation, retirement or approved deposit fund, and 15. (b) a payment of the bankrupt in consequence of a termination of any office or employment; and (c) an amount received by the bankrupt under a policy of life insurance or endowment insurance, and (a) an amount received by the bankrupt as a beneficiary under a trust to the extent to which the amount was paid out of income of the trust, and (e) the value of a benefit that 1s, or if 1t were provided by an employer would be, a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986, being that value as worked out i accordance with the provisions of that Act but subyect to any modifications of those provisions made by the rules; and (f) the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessarily incurred by the first-mentioned person in connection with the work or services, but does not include an amount that ts not income for the purposes of the Social Secuntty Act 1991 because of subsection 8(8) of that Act (other than paragraph (a), (b), (h), (ha), (J), (k), (ka), (m), (z), (za) or (zb) of that subsection) * Section 139L was amended by s.8 of the Superannuation Industry (Supervision) Consequential Amendments Act 1993 which inserted the words "an annuity or pension paid" in lieu of "a payment" in para.(a) and amended paragraph (c) to read "an amount of annuity or pension received by the bankrupt under a policy of life insurance or endowment insurance". This should be read in conjunction with s.139M which provides: "139M(1) Income is taken to be derived by a bankrupt for the purposes of this Division even though it 1s not actually received by the bankrupt because: 16. (a) an amount is deducted from it, or it 1s wholly or partly otherwise applied, under a law of the Commonwealth, of a State or of a Termtory; or (b) it 1s reinvested, accumulated or capitalised; or (c) it is dealt with on behalf of the bankrupt or as the bankrupt directs. (2) A reference in this Division to the income that a bankrupt is likely to derive during a contribution assessment period includes a reference to income that the bankrupt has derived during that period. (3) A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period." It 1s necessary now to turn to the provisions of the Fringe Benefits Tax Assessment Act 1986 to identify those provisions which define the range of benefits which, if provided by an employer, would be fringe benefits for the purposes of that Act. e Fri Benefits Tax ssment Act Section 136(1) of the Fringe Benefits Tax Assessment Act 1986 defines "benefit" as follows: "benefit" includes any mght (including a right in relation to, and an imterest in, real or personal property), privilege, service or facility and, without limsung the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or ts to be, provided under- (a) an arrangement for or in relation to - (i) the performance of work (including work of a professional nature), whether with or without the provision of property, 17. (ii) the provision of, or of the use of facilites for, entertainment, recreation Or instruction; or (iii) the conferring of rmghts, benefits or privileges for which remuneration ts payable in the form of a royalty, tribute, levy or similar exaction; (b) a contract of insurance, or (c) an arrangement for or in relation to the lending of money." The term "fringe benefit" is defined in the same section thus: "fringe benefit", in relation to an employee, m relation to the employer of the employee, in relation to a year of tax, means a benefit - (a) provided at any time during the year of tax, or (b) provided in respect of the year of tax, being a benefit provided to the employee or to an associate of the employee by - (c) the employer; (d) an associate of the employer, or (e) a person (in this paragraph referred to as "the arranger") other than the employer or an associate of , the employer under an arrangement between - (i) the employer or an associate of the employer; and (11) the arranger or another person, in respect of the employment of the employee, but does not include- ..." There follow various categones of payment excepted from the definition, none of which is material for present purposes. 18. The Contentions The applicant submits that for a benefit to be a fringe benefit as defined in sub-s.136(1) of the Fringe Benefits Tax Assessment Act 1986 it must be provided to an employee or an associate of the employee by the employer or an associate of the employer or an arranger "in respect of the employment of the employee". Benefits provided to a bankrupt will only be "income" within the meaning of para.139L(e) of the Bankruptcy Act 1966 if they are provided in respect of the employment of the bankrupt. Otherwise it is said para.139L(e) would relevantly read: "The value of a benefit that is, or if it were provided by an employer in respect of the employment of the employee would be a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986..." That is to say, on the applicant's submission, the requirement, for the purposes of the Fringe Benefits Tax Assessment Act 1986, that a benefit be provided in respect of the employment of an employee is only negatived for the purposes of the definition of income in para.139L{e) if expressly negatived. Absent an express exclusion of that condition, the condition must stand. Reliance was placed upon a decision of the Administrative Appeals Tnbunal comprising Olney J, Mr D.L. Elsum and Mr W. McLean, delivered on 15 February 1994 in which the decision currently under review was considered. The case was Pattison v. Inspector-General_of Bankruptcy and Robert Graham Ansett (unreported Administrative Appeals Tribunal, 15/2/94 No. 9307). At para.35 of the reasons for decision it was said by the Tribunal: "If 1t had been the intention of the legislature to include benefits which had no relevant relationship to the employment of or work done by the bankrupt Parliament could have made its imtention clear by 19. referring in s 139L(e) to a benefit which "If tt were provided by an employer to an employee in cespect_of the employment of the employee, would be taxable as a fringe benefit" " The Tribunal went on to say on that basis that a literal construction of para.139L(e) suggested a conclusion contrary to that arrived at in Bond's case. Nevertheless, having regard to the general thrust of the provisions of Pt 4B of the Bankruptcy Act 1966 and the commercial context in which they were introduced, Olney J, as presiding member, was of the view that the earlier decision of the Tribunal in Bond's case should be followed. The applicant submitted that the construction of para.139L(e) for which it contended did not render otiose the express exclusion in para.139L(e) of the condition in s.136 of the Erynge Benefits Tax Assessment Act 1986 that the payment be provided by an employer. That exclusion, it was said, extended the reach of para.139L(e) to benefits provided to the bankrupt in respect of his or her employment other than by an employer, an associate of the employer or an arranger as defined and further obviated the necessity for proof that the provider was an employer or associate of the employer of the bankrupt or an arranger. It was argued that the applicant's construction of para.139L(e) is consistent with the purposes of Division 4B of the Act which is to require a bankrupt to make contnbutions to the creditors of his or her estate from benefits received during the bankruptcy having the character of income as opposed to benefits having the character of capital which would, in any event, be available to creditors as after 20. acquired property. There was nothing in the Act or the Explanatory Memorandum to indicate that Parliament intended to depart from the general philosophy behind the repealed s.131 of the Act which was to require contributions from the income of bankrupts. It was also submitted that the Tribunal's construction of para.139L(e) rendered paras.(a) and (c) otiose and would lead to absurd results. Thus where a bankrupt's legal fees were paid by his family and the bankrupt had no resources to make a contribution to creditors as a result of an assessment based on the amount of those fees, payment of that contribution by a third person would result in a further assessment based on the amount paid and so on ad infinitum. A failure to pay the amount of any assessed contribution would have serious consequences to the bankrupt and therefore any ambiguity should be resolved in his favour. The respondent referred to the legislative scheme and the definition of income and submitted that the words of s.139L of the Bankruptcy Act served to include as "income" of the bankrupt benefits provided regardless of their source and regardless of the employment context. The exclusion of the requirement that the benefits be provided by the employer has the effect, it was said, of extendmg the concept of income to benefits received from a source other than from an employer, associate or arranger. This suggested Parliament had in mind that para.139L(e) might apply to a situation in which the bankrupt was not employed and thus the benefit would not be in relation to his employment. Otherwise the words would add nothing to the operation of s.139L(e). The respondent submitted that regard had to be had to the purpose or object of the Act and referred to and relied upon the explanatory memorandum to the Bankruptcy Amendment Bill 1991 and the relevant Second 21. Reading Speech. Hardship was ameliorated because not all income 1s taken by the trustee and the actual income threshold amount can vary according to the number of dependents and whether they are wholly or partly supported. It was submitted that the applicant's interpretation of para.139L(e) would defeat its expressed purpose. Further, paras. (a) and (c) would not be rendered otiose having regard to the definition of "eligible termination payment" in sub-paras (b) and (c) of s.27A of the Income Tax Assessment Act and the definition of "superannuation fund" in s.27A. In any event it was not uncommon that a subject matter is covered by both its general and specific provision. The Requirement to Contribute from After Acquired Income The assumption of control over after acquired property of the bankrupt has always been an important part of bankruptcy law in the United Kingdom and Australia. Provisions relating to the vesting of after acquired property were to be found in s.i41 of the Bankruptcy Act 1849 (Imp) and s.15 of the Bankruptcy Act 1869 (Imp). Section 90 of the latter Act provided that where a bankrupt was in receipt of a salary or income (subject to exceptions relating to Crown employees) the court, upon the application of the trustee, could make such order as it thought just "for the payment of such salary or income, or of any part thereof, to the trustee during the bankruptcy, and to the Registrar if necessary atter the close of the bankruptcy...". The provisions of the 1869 Act were translated to ss.44 and 53(2) of the Bankruptcy Act 1883 (Imp) and ss.38 and 51 of the Bankruptcy Act 1914 (UK). The first Commonwealth bankruptcy legislation, The Bankruptcy Act 22. 1924 (Cth), provided in s.60 for the vesting ot the bankrupt's property in the official receiver upon the making of a sequestration order and extended that vesting to after acquired property by s.91(i). Under s.101 provision was made for the trustee to apply to the court for directions as to the amount to be taken out of any pay, pension, salary, emoluments, profits, wages, earnings or income of a bankrupt for distribution amongst the creditors. The requirement of the Commonwealth Act that the trustee apply for a court order led to the view that unless and until such an order was made the bankrupt was free to dispose of the whole of his or her earnings - Federal Commissioner of Taxation v. Official Receiver (1956) 95 CLR 300 at 315 (Williams J, Dixon J agreeing), 320 (Fullagar J), 331 (Katto J), 340 (Taylor J). The 1962 Report of the Committee established to review the bankruptcy law of the Commonwealth, and headed by Sir Thomas Clyne, included a recommendation that the section be recast to give effect to the view that after acquired personal earnings did not vest in the official trustee. This was reflected in the enactment of s.131 of the Bankruptcy Act 1966. The word "income" was not defined for the purposes of that section, but it was accepted in judicial exposition as "a word of large meaning": Re Weiss: Ex parte Official Trustee in Bankruptcy (1985) 7 FCR 121 at 123-4, Although not necessarily connoting regular periodicity in payment, the concept of a bankrupt "in receipt of income" suggested recurrence as an actual or expected characteristic - Weissova v. Official Trustee in Bankruptcy (1986) 12 FCR 106 at 110; Edelsten's Trustee v. Commissioner of Taxation (1987) 16 FCR 386 at 393. For a review of the history of these provisions see Re Gillies: Ex parte Official Trustee in Bankruptcy (1993) 115 ALR 631. 23. In 1988 the Australian Law Reform Commission published a report of an inquiry into the law and practice relating to the insolvency of individuals and bodies corporate under the title "General Insolvency Inquiry". In that Report it recommended, inter alia, that as a matter of policy income from personal exertion was all that should be reserved to the bankrupt while income from other sources ought to be available for distribution among creditors. The latter would generally occur as a result of the vesting in the trustee of property from which income is derived. The Commission however adverted to the possibility that the word "income" may be capable of interpretation in a wider sense or include income from property not vested in the bankrupt as, for example, the assets of a discretionary trust. The Commission therefore recommended that "income" be defined as "the proceeds from personal earnings either in a profession or business or from wages or salary" but that the definition be subject to the current exclusion of pension entitlements from the operation of the provision. It also recommended the amendment of s.131 to direct a court in making orders for contribution from income to have regard to reasonable domestic needs, the occupation of the bankrupt and the property and financial resources available to the bankrupt or the bankrupt's dependents. As it happened however s.131 was repealed and the more far reaching provisions introduced by the Bankruptcy Amendment Act 1991 came into force on 1 July 1992. The statutory statement of the objects of Part VI of Division 4B which was introduced by the amending legislation, has already been set out (s.139J). Those objects are not limited to the recovery of income demved during bankruptcy but extend to the recovery of money and property tor the benetit of the bankrupt's estate. 24. In the Second Reading Speech on the Bankruptcy Amendment Bill it was said that the two main purposes of the Bill were to establish a more efficient and effective means of securing contributions from the income of a bankrupt and to enhance the opportunities of bankrupts with high levels ot debt to return to full participation in the community after a suitable penod of financial rehabilitation. In relation to income contribution it was said that s.131 had not been a particularly useful instrument for trustees in bankruptcy to employ. Relevantly for present purposes, the Second Reading Speech went on: "Many bankrupts earn quite large mcomes but, for the reasons I have mentioned, they are not required to make any repayment to creditors from that income. In a case where the bankrupt has few, if any, divisible assets, the creditors will get nothing out of the process notwithstanding that the bankrupt may have a considerable capacity to pay. Furthermore some bankrupts manage to put their assets out of the reach of creditors and channel income away from themselves while still retaining a benefit, through the use of associated individuals, companies, partnerships or trusts, which are referred to in the Act as "associated entities" of the bankrupt. These associated entities may, and usually do, provide the bankrupt with substantial non-cash benefits, such as free or low cost housing, motor vehicles, boats, and payment of expenses Very often the entity employs the bankrupt and by virtue of that employment, the entity 1s able to generate substantial income. If the bankrupt ceased to be in the employment of the entity, its capacity to derive income would be lost." (Senate Deb. 14/11/91 p.3129) It is to be noted that the last limb of the reference to the definition of "income" adverted to money received by any person or entity as the result of work done or services performed by the bankrupt. The above propositions were also stated in the Explanatory Memorandum. In commenting on the provisions of s.139L the Explanatory 25. Memorandum indicated that s.139L detines "income" for the purposes of Part VI of Division 4B inclusively "to encompass income according to ordinary usages and concepts, and a number of other matters" (Explanatory Memorandum to the Bankruptcy Amendment Bill 1991 para.25.3). At para.25.4 it was said: "254 The Fringe Benefits Tax Assessment Act 1986 provides a regime for the assessment of the value of non-cash benefits provided by employers to employees, and the levying of tax on the employer in respect of the benefits so provided. It is not uncommon for a bankrupt to be provided with non-cash benefits by third parties, not necessarily the employer of the bankrupt. The value of non-cash benefits of a kind which would be taxable under the Fringe Benefits Tax Assessment Act 1986 if provided by an employer to an employee will be regarded in the bankruptcy context as part of the bankrupt's income, for the purpose of assessing the bankrupt's liability to make contributions to his or her estate." It was further noted that only particular types of non-cash benefit would be taxable under the Act. Those referred to in the Act as exempt benefits were not taxable. Examples of taxable benefits which would be regarded as constituting income for bankruptcy purposes included: * Prowsion of a motor car for private use, * Debt waiver; * The taxable value of free or low interest loans; * Expense payments; * The provision of free or low cost housing; * The provision of free or discounted air travel. There is nothing in the Explanatory Memorandum or indeed the Second Reading Speech to indicate that the range of payments treated as income for the purposes of para.139L(e) was limited to benefits provided in respect of employment. 26. The Construction of Paragraph 139L(e) of the Bankruptcy Act_1966 The fundamental object of statutory construction is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. In performing that task the Court looks to the operation of the statute according to its terms and to legitimate aids to construction - Cooper Brookes (Wollongong) Pty Ltd v. Federal Commissioner of Taxation (1981) 147 CLR 297. In looking to the operation of the statute it is appropriate to take into account the need to avoid absurd or improbable results which are unlikely to have been intended by the legislature. The extent to which parliamentary debates and other extrinsic materials have been used to construe statutes has varied from time to time and between various courts and judges - Pearce, Statutory Interpretation 2nd Ed. paras. 70-79. However, the provisions of s.15AB of the Acts Interpretation Act (Cwth) permit resort to extrinsic material to confirm that the meaning of a provision is the ordinary meaning of its text taking into account its context in the Act and the purpose or object underlying the Act. Further, such material may be considered to determine the meaning of an ambiguous or obscure provision or where the ordinary meaning leads to a result that is manifestly absurd or unreasonable. Section 15AA requires that in the interpretation of a provision of an Act, a construction that would promote its purpose or object is to be preferred to a construction that would not. It follows that where the legislature has declared the purpose of a provision in explicit terms, the purpose so declared is to be taken as its purpose or object. 27. The relevant purpose of Division 4B is disclosed in s.139J, namely, to require a bankrupt who derives income during bankruptcy to pay contributions towards his estate. The second limb of the declared purpose relates to the recovery of certain property and money and appears to refer to subdivisions I and J of Division 4B which deal with the collection of money or property by the official receiver from persons other than the bankrupt and from parties to transactions that are void against the trustee. The critical issue in this case is whether or not the word "income" as defined in s.139L and specifically in para.139L(e) extends to payments of the kind received by Bond from members of his family and associated entities. A threshold question is whether or not the various categories of payment listed in paras. (a) to (f) are limited by a requirement that they constitute mcome according to ordinary usages and concepts. Whatever the limits of income according to common usage, it is not necessary that they be explored for present purposes. For the language of s.139L makes clear that the classes of payment defined in paras.(a) to (f) are assumed to be income. The income designation is not framed so as to limit those classes. If anything they extend the concept for the purposes of the Division 4B. That is the ordinary meaning of the section. It is not limited by the statutorily declared purpose of Division 4B. That purpose, which 1s to require contributions from the income of bankrupts, is itself given content by the definition. To the extent that there is any ambiguity in that respect, the Explanatory Memorandum at para.25.3 speaks of the definition in s.139L as encompassing "income according to ordinary usages and concepts and a number of other matters". Each class of payment referred to in 28. s.139L is to be taken as defining a class of income for the purposes of that section. The remaining question is whether the class of benefit caught by para.139L(e) covers benefits not provided in respect of the employment of the bankrupt. The paragraph applies to benefits that are, or would under certain conditions be, fringe benefits as defined by s.136 of the Fringe Benefits Tax Assessment Act 1986. That section defines as fringe benefits, benefits provided by an employer or associate or an arranger "in respect of the employment of the employee". The latter condition assumes that the beneficiary has the status of an employee of the employer who provides, or whose associate or arranger provides, the benefit. The existence of an employer linked directly or indirectly to the provision of a benefit is the condition from which the phrase "in respect of the employment of the employee" takes its sense. The first limb of the class of benefits defined in para.139L(e) of the Bankruptcy Act 1966 applies to the case in which the benefit 1s provided by an employer. The second limb of the class of benefits defined in that paragraph applies to the case in which the income benefit is not provided by an employer but says that, where it would be a fringe benefit if so provided, then it is income for the purposes of the Bankruptcy Act 1966. There is on that basis no warrant for reading into the second limb of the definition a limitmg condition that the benefit be provided in respect of employment. The characterisation of the benefit as income on the assumption that it is provided by an employer carries with it the assumption that it 1s provided in respect of employment. There is no real dispute that if provided by an employer the payments 29. made in this case would be fringe benefits. It is suggested that paras.(a) and (c) of the definition m s.139L are rendered otiose by this construction. That is a reference to those paragraphs prior to their amendment by the Superannuation Industry (Supervision) Consequential Amendments Act 1993. But even in its previous form, it cannot be assumed that they are completely subsumed by para.(e). Even if they were, that is not an answer to the proposed construction. It is apparent that it was intended by Division 4B to cast a wide net to catch a range of payments to bankrupts. Division 4B is remedial of a public mischief which has allowed some bankrupts to enjoy lifestyles of undiminished splendour while their creditors, large and small, are left lamenting. It is to be construed broadly. Contrary to the applicant's submission, Division 4B 1s to be seen as legislation protective of the interests of creditors and not punitive of the bankrupt. The definition of "income" in s.139L 1s not to be construed as though it were a penal provision. The point is made by the apphcant that the respondent's construction leads to absurdity because it initiates a process of infinite regression. Thus payments made to the bankrupt by family members to enable him to meet contributions required by the trustee could themselves be treated as fringe benefits and therefore as income for the purposes of Division 4B. Such payments would in turn engender an obligation on the trustee to make a further assessment and levy a further contribution and so on. But as was pointed out in the respondent's submission, if that contention be correct, a similar difficulty could also apply to the more restrictive construction of para.139L(e) for which the applicant contends. 30. It was also said that the provision, on a regular basis, of meals or accommodation by a family member to a bankrupt would be treated as a fringe benefit and income on the wide construction of para.(é). Whether or not such benefits would so qualify, the contribution provisions of Division 4B only apply to half the difference between assessed income and the actual income threshold amount according to the formula established by s.139S. The broad construction of para.139L(e) does not impinge about the ability of the bankrupt to receive, without liability for contribution, an amount up to the actual income threshold. The benefits making up such amount may, of course, include the provision of meals and accommodation by family and friends. If the construction for which the applicant contends is open, then that for which the respondent contends 1s further supported by the Second Reading Speech which, on the face of it, 1s directed but not limited to benefits provided in relation to the employment of the bankrupt. For these reasons the Tribunal was right to hold that the payments received by Bond were in the nature of income within the definition of para.139L(e) of the Bankruptcy Act 1966. The application should be dismissed with costs. I certify that this and the preceding twenty nine (29) pages are a true copy of the Reasons for Judgment of his Honour Justice French. te, 7 - Associa' ae Date: 27; 9jo2 Associate Professor RD Fayle BETWEEN: ALAN BOND Appellant AND THE TRUSTEE OF THE PROPERTY OF ALAN BOND, A BANKRUPT Respondent CORAM: French, Cooper and Carr JJ. PLACE: Perth DATE: 20 October, 1994 REASONS FOR JUDGMENT Cooper J. The applicant is a bankrupt. Pursuant to section 139W of the Bankruptcy Act 1966 ("the Act") the trustee of his bankrupt estate made both an assessment and a fresh assessment of the bankrupt's likely income during the assessment period commencing 1 July, 1992, and, of the contnbution that the bankrupt was liable to pay towards the bankrupt's estate in respect of that period under section 139S of the Act. The bankrupt applied to the Administrat've Appeals Tribunal ("AAT") for review of the decision of the trustee to make an assessment. The issue before the AAT was whether the value of six items could be brought to account as income as defined in section 139L of the Act. The items consisted of the provision of housing, use of office space, use of secretarial services, use of 2. telephone facilities, the payment of travel expenses and the payment of legal expenses for the bankrupt's benefit by others. By the time of the hearing before the AAT the amounts involved were :- Housing $ 8,525.00 Use of Office $ 491.00 Use of secretarial services $ 2,878.04 Use of telephone facilities $ 1,600.00 Travel expenses $ 32,654.50 Legal expenses $667,242.02 $713,390.56 The proceedings before the AAT were conducted on the basis that it was agreed that the benefits were provided by way of gift. The bankrupt's son or a company, Topsfield Pty. Ltd. owned and controlled by the son, provided the benefits by way of accommodation, use of office space, use of secretarial services, use of telephone facilities and travel together with the payment of some legal fees. The bankrupt's daughter also paid some of the legal fees as did Mr. Graham Lacey or his firm "Hemisphere Management". It was further agreed that none of the benefits were. provided to the bankrupt in relation to any employment or work done or services rendered by the bankrupt. The AAT held that the benefits by way of gift fell within the definition of "income" in section 139L(e) of the Act and directed the trustee to make a fresh assessment of the applicant's income on the basis that the bankrupt derived income, as defined, of $713,390.56. The bankrupt appeals from the decision of the AAT to this Court. The question of law argued on the appeal was whether the value of benefits provided to a bankrupt by members of his family and others, none of which benefits were provided to the bankrupt in relation to any employment of the bankrupt by the providers of the benefits or any of them or any other person or entity, 1s "income" within the definition of 3. section 139L of the Act. Section 139L is contained in Division 4B of Part VI of the Act. objects of the division are contained in section 139J which provides :- "The objects of this Division are: (a) (b) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and to enable the recovery of certain money and property for the benefit of the bankrupt's estate". "Income" for the purpose of the division is defined in section 139L as :- "In this Division: 'income', in relation to a bankrupt, means any amount derived by the bankrupt that is income according to ordinary usages and concepts, and includes: (a) (b) (c) an annuity or pension paid to the bankrupt from a provident, benefit, superannuation, retirement or approved deposit fund; and @ payment to the bankrupt in consequence of a termination of any office or employment; and an amount of annuity or pension received by the bankrupt under a policy of life msurance or endowment insurance; and 4. (dq) an amount received by the bankrupt as a beneficiary under a trust to the extent to which the amount was paid out of income of the trust; and (e) the value of a benefit that is, or if it were provided by an employer would be, a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986, being that value as worked out in accordance with the provisions of that Act but subject to any modifications of those provisions made by the rules; and (p the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessarily incurred by the first-mentioned person in connection with the work or services; but does not include any amount that is not income for the purposes of the Social Security Act 1991 because of subsection 8(8) of that Act (other than paragraph (a), (b), (h), (ha), (j), (k), (ka), (m), (2), (2a) or (zb) of that subsection)." For present purposes it is paragraph (e) of the section which is relevant. The paragraph deals with two particular situations :- (a) The value of a benefit that is a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 ("EBTA Act"); ) (b) The value of a benefit, that if it were provided by an employer would be a fringe benefit for the purposes of the FBTA Act. A benefit which falls into the second category is by defimtion not a fringe benefit for the purposes of the FBTA Act. 5. A "fringe benefit" for the purposes of the FBTA Act is defined by section 136(1) as follows :- "fringe benefit', in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit - (a) __ provided at any time during the year of tax; or (6) provided in respect of the year of tax, being a benefit provided to the employee or to an associate of the employee by - (c) the employer; (d) an associate of the employer; or (e) @ person (in this paragraph referred to as the 'arranger') other than the employer or an associate of the employer under an arrangement between - (i) the employer or an associate of the employer; and (ii) the arranger or another person, in respect of the employment of the employee, but does not include..." The term "in respect of" is also defined :- "'in respect of', in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment". The first category of paragraph (e) of section 139L of the Act covers benefits of the type dealt with by the FBTA Act provided to an employee or to an associate of the employee by any of the persons or entities descnbed in paragraphs (c), (d) or (e) of section 136(1) of the FBTA Act provided two conditions are satisfied. The 6. first condition is that it is in respect of the employment of the employee. The second condition is that it is not an exempt benefit. In the present case, the benefits received by the bankrupt were not fringe benefits for the purposes of the FBTA Act; on the agreed facts they did not satisfy the definition. The definition was not satisfied because :- (a) The benefits were not provided by an employer or other specified person or entity as required by section 136(1)(c)(d) or (e); (b) On the agreed facts, the benefits were not provided in respect of employment of the bankrupt. Therefore if the benefits which the bankrupt received are to be brought to account as "income" for bankruptcy purposes, the benefits must fall within the second category of benefit defined in section 139L(e). On the agreed facts the benefits were gifts made as acts of altruistic benefaction involving money or property in the ownership and control of the respective donors. Consequently, the provision of any benefit to the bankrupt was not a payment or use of property of the bankrupt or property controlled by or subject to the direction of the bankrupt and was not provided in respect of any employment of the bankrupt, and, the respondent did not seek to argue otherwise. The second category of paragraph (e) of section 139L of the Act is concerned with an hypothetical situation. The hypothesis is that the benefits were supplied by an employer. However, every benefit provided by an employer 1s not necessarily a fringe benefit. If a benefit is provided as a bona fide act of benefaction and 7. not in respect of the employment of the employee, irrespective of the generic type of the benefit, the FBTA Act definition would not be satisfied. For example, the provision of benefits to Tiny Tim Cratchit by Scrooge in Dickens' "A Christmas Carol" would not in my view, in the circumstances in which they were provided, have been fringe benefits provided to his father Bob Cratchit as an employee of Scrooge. The respondent submitted that section 139L(e) required that the benefit received by the bankrupt be treated as if the relationship of employer and employee existed and that the benefit was provided by the provider as employer. It was submitted that the benefit is notionally provided and received because of the relationship of employer/employee. A benefit provided in those circumstances would be one within the definition of a benefit provided by an employer to an employee "in respect of" (as defined) the employment of the employee. Once a benefit generically falls within the category of benefits covered by the FBTA Act, it was submitted, the only remaining question is whether the benefit is of a type excluded by paragraphs (f), (g), (h) and (j) of the definition of "fringe benefit" in section 136 of the FBTA Act. Unless such a construction is adopted it was submitted that the words "or if it were provided by an employer would be" added nothing to the operation of section 139L(e). 'tt was submitted that such a result is to be avoided and the respondent relied on observations of Giffith CJ. in The Commonwealth v. Baume (1905) 2 CLR 405 at 414 - 415 to support such an approach to the construction of the section. In Cooper Brookes (Wollongong) Pty. ltd. v. Federal Commissioner of Taxation (1981) 147 CLR 297, Gibbs CJ. said (at 304 - 305) :- 8. "It is an elementary and fundamental principle that the object of the court, in interpreting a statute, '1s to see what ts the intention expressed by the words used'. River Wear Commissioners vy. Adamson (1877) 2 App. Cas. 743, at p. 763. It is only by considering the meaning of the words used by the legislature that the court can ascertain its intention. And it is not unduly pedantic to begin wuh the assumption that words mean what they say: cf Cody v. J.H. Nelson Pty. Lid. (1947) 74 C.L.R. 629, at p. 648. Of course, no part of @ Statute can be considered in isolation from its context - the whole must be considered. If, when the section in question is read as part of the whole instrument, its meaning is clear and unambiguous, generally speaking 'nothing remains but to give effect to the unqualified, words': Metropolitan Gas Co. v. Federated Gas Employees' Industrial Union (1925) 35 C.L.R. 449, at p. 455. There are cases where the result of giving words their ordinary meaning may be so irrational that the court is forced to the conclusion that the draftsman has made a mistake, and the canons of construction are not SO rigid as to prevent a realistic solution in such a case: see per Lord Reid in Connaught Fur Trimmings Ltd. vy. Cramas Properties Lid. [1965] 1 W.L.R. 892, at p. 899; [1965] 2 All E.R. 382, at p. 386. Examples of that sort of case may be found in Maxwell on the Interpretation of Statutes, 12th ed., (1969) at p. 228 et seq., and Craies on Statute Law, 7th ed., (1971) at p. 520 et seq. However, if the language of a statutory provision is clear and unambiguous, and 1s consistent and harmonious with the other provisions of the enactment, and can be intelligibly applied to the subject matter with which it deals, it must be given its ordinary and grammatical meaning, even if it leads to a result that may Seem inconvenient or unjust. To say this is not to insist on too literal an interpretation, or to deny that the court should seek the real intention of the legislature. The danger that lies in departing from the ordinary meaning of unambiguous provisions is that 'it may degrade into mere judicial criticism of the propriety of the acts of the Legislature', as Lord Moulton said in Vacher & Sons Lid. v. London Society of Compositors [1913] A.C. 107, at p. 130; tt may lead judges to put their own ideas of justice or social policy in place of the words of the statute. On the other hand, if two constructions are open, the court will obviously prefer that which will avoid what it considers to be inconvenience or injustice. Since language, read in its context, very often Proves to be ambiguous, this last mentioned rule 1s one that no infrequently falls to be applied". 9. (See also Stephen J. at 310, Mason and Wilson JJ. at 319 - 321; Saraswati v. The Queen (1991) 172 CLR 1 at 21 - 23). A literal interpretation of section 139L(e) of the Act requires that before a benefit will become "income" for bankruptcy purposes, it must satisfy all other requirements which would attach to the provision of a benefit from an employer to an employee if that benefit was hypothetically to become taxable under the FBTA Act. That is, it must fall within a relevant generic type, it must be in respect of the employment of the bankrupt and it must not be exempt income. So construed, the section would operate to include a benefit received by a bankrupt in respect of his or her employment which generically fell within the category of benefit dealt with by the FBTA Act and which benefit was not an exempt benefit under that Act. Thus, any relevant benefit provided to a bankrupt employee in respect of his or her employment by a third party, for example, by a customer or client of, or supplier to, the bankrupt's employer, which is not a fringe benefit for the purpose of the FBTA Act only because it was not supplied by the employer, would nevertheless come within the definition of "income" under section 139L(e) of the Act because hypothetically, in the circumstances in which the benefit was provided, it would satisfy the definition of a "fringe benefit" if it had been provided by an employer. A literal construction does not produce a manifestly absurd or unreasonable result which does not conform to the legislative purpose of the section and Division 4B of Part VI of the Act. The statutory object as stated in section 139J of the Act is to require a bankrupt who derives income during the bankruptcy to pay contributions to the bankrupt's estate. As a matter of construction and logic the contributions must be paid 10. out of the income so derived. This follows because the property of the bankrupt vests in the trustee at the commencement of the bankruptcy (sections 58 and 115 of the Act) and after acquired property falls to be dealt with by section 116 of the Act, leaving no other source of money or property within the control of the bankrupt from which to make the contribution, which is not otherwise dealt with by some relevant provision of the Act dealing with the right to or the use of such money or property. Where a bankrupt is engaged in employment, the object of Division 4B is to ensure that income (including "fringe benefits" as defined), whether derived by the bankrupt in cash or in kind or whether received directly or by some third party, together with any other benefits received in relation to that employment which, if they were supplied by the bankrupt's employer would attract fringe benefits tax, as a whole are treated as income for the purpose of assessing whether a contribution is payable by the bankrupt out of that income. If the statutory income threshold 1s exceeded, then a contribution is payable; otherwise no contribution is payable. It is not an object within section 139J of the Act to prevent bona fide acts of benefaction from the family or friends of a bankrupt using their own money or property. Nor is it an object of the section to prevent a bankrupt accepting such benefaction unless the bankrupt has sufficient income to pay any contribution assessed if the benefit 1s treated as income for bankruptcy purposes. Likewise, it is not an object of the section to require payment by the benefactor of any assessed contnbution towards the bankrupt's estate as the price for providing the benefit. The construction contended for by the respondent can lead to results which 11. are absurd and which it is highly unlikely were intended by the legislature. For example, it is not an object of Division 4B of the Act to exclude a bankrupt spouse, partner or child, from the family home where that home and lifestyle, while owned and provided by other family members, are so valued that continued residence at home would render the bankrupt liable to assessment to contribute to the estate even though the bankrupt was without funds or income to satisfy the assessment. Yet, on the construction contended for by the respondent, such is the consequence where the valuation of the benefit exceeds the statutory income limit if an assessment is to be avoided. In the circumstances of the bankrupt in the instant case, the value of the legal services paid for by others for his benefit itself exceeds the income limit. If the Tespondent is correct in the construction contended for, that circumstance alone renders the bankrupt liable to assessment for contribution to his estate whether or not he has any capacity to pay the contribution and exposes him to the serious consequences of non- payment of the contribution. In principle this would seem to occur whether the funds for the legal services were provided by family and friends or by a Legal Aid Commission briefing out and paying for the provision of legal services to the bankrupt, notwithstanding that a bankrupt was at the relevant time not employed and not in receipt of income and satisfied the means test applicable to the grant of legal aid. That, of course, is not the present case. However, no basis has been shown which would justify the applicant being treated differently from a Legal Aid Commission beneficiary placed in similar circumstances to the applicant requiring substantial legal services where those services have been paid for by a third party provider. 12. In my view, it is unnecessary to have recourse to the extrinsic material placed before the court. However, if recourse is had to that maternal, it shows that the result contended for by the respondent would be unintended and contrary to what the legislature sought to achieve. The explanatory memorandum to the Bankruptcy Amendment Bill 1991 stated with respect to "Clause 24 - Income of bankrupt" as follows:- "24.1 Clause 24 proposes the repeal of section 131 of the Act, which provides that subject to any contrary order of a court, a bankrupt is entitled to retain income for his or her own benefit. The Bill will introduce a new regime for the payment by the bankrupt to his or her estate of contributions from income which will render section 131 redundant. 24,2 There are a number of significant problems confronting trustees in bankruptcy in obtaining contributions from bankrupts under section 131 of the Act. The section provides that the bankrupt is entitled to retain the benefit of his or her income, without imposing any limit having regard to capacity to make some payment to the estate. The trustee can apply to the Court for an order requiring the bankrupt to make contributions, but this is an expensive process. Frequently, the trustee would have no money available to enable him or her to commence court action. There are no Statutory criteria to guide the exercise of the discretion of the Court in determining an appropriate level of contributions. Even if a court orders that the bankrupt make contributions from his or her income, frequently the bankrupt will not comply with this order. The only penalty for non-compliance with a Court order is committal of the bankrupt to prison for contempt of court. Besides being a severe sanction committal of the bankrupt to prison is completely ineffective in terms of Securing income contributions from the bankrupt - an imprisoned bankrupt cannot earn income to contribute. The Bill proposes the repeal of section 131 and the insertion of a number of provisions designed to sweep away these significant deficiencies in the present law. Under the Act as amended by the Bull, it will be compulsory for bankrupts whose income exceeds a specified threshold amount to contribute to their estate. Collection of contributions will be by inexpensive and efficient administrative means, rather than by way of application to a court. The proposed new regime The underlining is mine. As to clause 139L, the memorandum stated :- "25.4 The Fringe Benefits Tax Assessment Act 1986 provides a regime for the assessment of the value of non-cash benefits provided by employers to employees, and the levying of tax on the employer in respect of the benefits so provided. It is not uncommon for a bankrupt to be provided with non- cash benefits by third parties, not necessarily the employer of the bankrupt. The value of non-cash benefits of a kind which would be taxable under the Fringe Benefits Tax Assessment sct 1986 if ided | ! 'll E regarded in the bankruptcy context as part of the bankrupt's income, for the purpose of assessing the bankrupt's liability to make contributions to his or her estate". (The underlining is mine). The object of the legislature as appears from this material was to secure contributions from income of bankrupts where there was a capacity to pay. That capacity was in part to be determined by fixing a specified threshold amount and including benefits received which would be taxable as fringe benefits if the provider were the bankrupt's employer. In the circumstances, applying the relevant principles of statutory construction there is no warrant to depart form the literal interpretation of section 139L(e) of the Act with the consequent rejection of the interpretation contended for by the respondent. 14. On the agreed facts the items valued at $713,390.56 were not supplied in respect of the employment of the bankrupt by anyone. Accordingly, they do not satisfy the definition of "income" in section 139L(e) of the Act. In my opinion the AAT erred in concluding that the benefits valued at $713,390.56 constituted "income" under section 139L(e) of the Act and as such were to be included by the trustee for the purpose of determining whether the bankrupt was liable to make a contribution to his estate in the contribution period commencing 1 July, 1992. The decision of the AAT must be set aside. It also follows that the trustee erred in making the assessment and serving the contribution notice in issue. The decision and conduct of the trustee are, in my opinion, void. The bankrupt is not obliged to comply with the provisions of the assessment and notice for the assessment period commencing I July, 1992. The respondent must pay the applicant's costs of and incidental to the application before this Court. I certify that this and the preceding thirteen (13) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper. Date: 20 October, 1994 ov iva K Maen. Associate FEDERAL COURT } OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION } No. WAG 126 of 1993 ON APPEAL from the General Administrative Division of the Administrative Appeals Tribunal constituted by Deputy President Mr B J McMahon, Senior Member Mr T E Barnett and Member Associate Professor R D Fayle BETWEEN: ALAN BOND Applicant and THE TRUSTEE OF THE PROPERTY OF ALAN BOND, A BANKRUPT Respondent CORAM: FRENCH, COOPER and CARR JJ. DATE: 20 OCTOBER 1994 PLACE: PERTH REASONS FOR JUDGMENT Introduction In the case of an ordinary bankruptcy, there are doubtless many people who feel reassured when they see the family and friends of a bankrupt rally around to help that person. This feeling of reassurance may well stem from confirmation of the continuing importance of the family and friends in our rapidly changing society. Such an observation is probably valid even where the bankrupt's family is fragmented, for in many cases the business and other pressures which lead to insolvency also lead to a marital split. On the other hand, creditors, together with possibly most members of the community, might well resent the sight of a bankrupt continuing to enjoy the trappings of great wealth prior to discharge from bankruptcy. The suspicion arises that assets may have been secreted and placed out of reach of creditors only to re-emerge with the appearance of family support and benevolence. Division 4B of Part VI of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act") was enacted by Parliament to deal with such concerns. It does this by requiring a proportion of a bankrupt's income to be made available for distribution to creditors. "Income" is defined statutorily by reference to income according to ordinary usages and concepts and the definition includes several other specific payments, benefits and considerations. Assessments of such amounts are made by the trustee of the bankrupt's estate in a procedure similar to the manner in which the Commissioner of Taxation raises assessments of income tax. The main difference is that the amount so assessed by the trustee is to be made available to the bankrupt's creditors rather than to Consolidated Revenue. Where the bankrupt has to pay income tax, child support moneys or maintenance, the trustee's assessment is raised on the nett amount - see s.139N. While the present case might not to the lay person fit the descmption of an ordinary bankruptcy case, it must, of course, be judged on exactly the same principles as if it were such a case. There 1s no evidence before the Court that the gifts referred 3. to below would otherwise be moneys forming part of the bankrupt's estate and thus available for distribution among the creditors. Furthermore, it is common ground that in this matter none of the payments was provided in relation to any employment or any work done or services rendered by the bankrupt or could be charactensed as income according to ordinary usages and concepts. In this case, the applicant, Mr Alan Bond, appeals against a decision of the Administrative Appeals Tribunal. The Tribunal's decision was to affirm a decision made by the respondent, his trustee in bankruptcy, that certain gifts fell within the definition of "income" in s.139L{e) of the Bankruptcy Act. As a consequence of that decision, the respondent made an amended assessment and served a notice pursuant to s.139W of the Bankruptcy Act requiring the applicant to pay to him the sum of $208,866 on instalment dates set out in that notice. As the extent of the gifts proved subsequently to be considerably in excess of those included by the respondent in his assessment, instead of simply affirming the respondent's decision, the Tribunal remitted the matter to the respondent with a direction to make a fresh assessment of the applicant's income upon the basis that in the contribution assessment period commencing 1 July 1992 the applicant denved income by way of gifts of $713,390.56. Factual Circumstances There were no factual issues between the parties and the factual circumstances of the matter are uncomplicated. A sequestration order was made in respect of the apphcant's estate on 14 April 1992 and the respondent was appointed his Trustee in Bankruptcy on that date. 4. The amount of $713,390.56 referred to above was the sum of the following payments by way of gift to provide to the applicant the benefits set out below beside each item:- 1. Housing $ 8,525.00 2. Use of Office $ 491.00 3. Use of secretarial services $ 2,878.04 4. Use of telephone facilities $ 1,600.00 5. Travel expenses $ 32,654.50 6. Legal expenses 667,242.02 TOTAL $713,390.56 The first five items were provided to the applicant by his son Mr John Bond and by Topsfield Pty Ltd, a company of which Mr John Bond is a director and the only beneficial shareholder. The sixth and largest benefit was paid as to $262,257.02 by Topsfield Pty Ltd, $204,990.00 by the applicant's daughter, Ms Jody Bond and the remaining sum of $199,995.00 by either Mr Graham Ferguson Lacey or his firm "Hemisphere Management". None of these payments was provided to the applicant in relation to any employment or any work done or services rendered by him to Mr John Bond or to any other person or entity. The Tribunai held and the respondent contends that the gifts made to or on behalf of the applicant were benefits which tell within the definition of "income" in subsection 139L(e) of the Act being benefits which, if they were provided by an employer, would be fringe benefits for the purposes of the Fringe Benefits Tax Assessment Act 1986 ("the FBTA Act"). 5. The Statutory Provisions Division 4B of Part VI of the Bankruptcy Act came into effect on 1 July 1992. The objects of that Division are set out in s.139J in the following terms: "S.139J = The objects of this Division are: (a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and (b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate." The provisions of Division 4B require the Trustee to make an assessment of the bankrupt's income that is likely to be derived during the contribution assessment period (s.139W) and, following service of a notice upon him, the bankrupt is obliged to pay the assessed contribution to the Trustee (s.139P and s.139Q) calculated in accordance with a formula set out in s.139S. At the relevant time, section 139L defined income in the following terms: *"S.139L In this Division: "Income", in relation to a bankrupt, means any amount derived by the bankrupt that 1s income according to ordinary usages and concepts, and includes. (a) a payment to the bankrupt from a provident, benefit, superannuation, retirement or approved deposit fund; and ' (b) a payment to the bankrupt in consequence of a termimation of any office or employment; and (c) an amount received by the bankrupt under a policy of life insurance or endowment insurance; and (d) an amount received by the bankrupt as a beneficiary under a trust to the extent to which the amount was paid out of income of the trust; and (e) the value of a benefit that is, or if 1t were provided by an employer would be, a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986, being that value as worked out im accordance with the provisions of that Act but subject to any modifications of those provistons made by the rules; and (f) the amount of any money, or the value of any other consideration, received by a person other than the bankrupt from another person as a result of work done or services performed by the bankrupt, less any expenses (other than expenses of a capital nature) necessanly incurred by the first-mentioned person in connection with the work or services, but does not include an amount that is not income for the purposes of the Social Securtty Act 1991 because of subsection 8(8) of that Act (other than paragraph (a), 6. (b), (h), (ha), (J), (kK), (Ka), (m), (2), (za) or (zb) of that subsection)." Section 136(1) of the FBTA Act contains the following relevant definitions: " "fringe benefit", in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax, being a benefit provided to the employee or to an associate of the employee by: (c) the employer, (d) an associate of the employer; or (e) a person (in this paragraph referred to as the "arranger") other than the employer or an associate of the employer under an arrangement between (i) the employer or an associate of the employer; and (ii) the arranger or another person, in respect of the employment of the employee, but does not include ...." *in respect of", in relation to the employment of an employee, includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment." The applicant, through counsel, conceded that the payments described above were "benefits" within the meaning of that expression in the FBTA Act, but argued that they did not fall within the definition of "fringe benefit". The essence of the applicant's argument was that these benefits did not fall within s.136(1) of the FBT Act because the applicant was not an employee and the benefits were not provided "in respect of the employment of the employee". Accordingly, so it was argued, the benetits did not fall within s.139L(e) of the Bankruptcy Act. The words "the value of a benefit that 1s, or if it were provided by an 7. employer would be a fringe benefit ..." in s.139L(e), it was said, do not exclude the requirement that ail the other conditions set out in s.136(1) of the FBTA Act need to be satisfied before a benefit is a "fringe benefit'. The phrase "if provided by an employer would be" extends the reach of s.139L(e) to benefits provided to the bankrupt in respect of his or her employment, other than by an employer, an associate of the employer or an "arranger". Further, that phrase obviates the necessity for proof that the provider of the benefit is an employer, associate or "arranger". The Tribunal held (at paragraph 29 of its reasons for decision) that the inclusion of the phrase "the value of a benefit that is, or if it were provided by an employer would be a fringe benefit..." in subsection 139L(e) had "a clear purpose". That purpose was:- ".. to include in a bankrupt's statutory income benefits of the individual types characterised by the FBT Act as fringe benefits which are received by the bankrupt, whether or not in the course of any em, ent, or in the course of rende an services to the provider or whether received for altruistic or other reasons". (my emphasis). The only other occasion upon which this question has been considered to date is in a matter decided by the Administrative Appeals Tribunal constituted by Olney J. as presidential member and Messrs D L Elsum and W McLean as members in Pattison v. Ansett (unreported, delivered 15 February 1994 No. 9307). Olney J. as presiding member determined that the question of the proper construction of s.139L was a question of law and accordingly decided that question. Paragraphs 35, 36 and 37 of the Tribunal's reasons in that matter read as follows: "35. If 1t had been the intention of the legistature to include benefits which had no relevant relationship to the employment of or work done by the bankrupt Parliament could have made its mtention clear by referring in s.139L(e) to a benefit which "if it were provided by an employer to an employee in_respect of the employment of the employee, would be taxable as a fringe benefit. The Tribunal in Bond's case has construed the paragraph as if the words which are underlined (which are absent from s.139L(e)), were in fact used." (original emphasis). {Counsel for the applicant suggested, correctly in my opinion, that Olney J's underlining should have started three words earlier in the above passage.] *36. There can be no doubt that s.139L(e) catches fringe benefits as defined in the FBTA Act. That is provided for tn specific terms. Accordingly relevant benefits provided by an employer, an associate and "an arranger" in relation to the bankrupt's employment come within the scope of s.139L(e). The effect of the words "or if it were provided by the employer would be* have the effect of extending the concept of "income" to benefits received from a source other than from an employer, associate or an arranger. This suggests that Parliament had in mind that the paragraph may apply to a situation in which the bankrupt was not employed, and thus the benefit could not be in relation to his employment. 37 A literal construction of s.139L(e) suggests a conclusion contrary to that arrived at by the AAT in Bond's case, but having regard to the genera) thrust of the provisions of Part 4B of Part VI of the Bankcuptcy Act and the commercial context in which those provisions were introduced the presiding member 1s of the view that the early decision of the AAT in Bond's case should be followed." With the greatest of respect to Olney J. I do not read the relevant phrase in s.139L(e) as evidencing Parliament's intent that the paragraph should apply to a situation in which the bankrupt was not employed. The phrase "... if it were provided by an employer would be ..." does usetul work in a context where the bankrupt is employed but where there might otherwise be difficulties in establishing that the payor was the employer, an associate of the employer or "an arranger". It eliminates the need to show that the payor was an associate of an employer or "an arranger" making the payment under an arrangement between the employer or an associate of the ae 9. employer on the one part and the arranger or another person on the other part. Furthermore, in doing so it extends what would otherwise be the reach of the definition of fringe benefits to whoever provides the benefit. An evidentiary hurdle is thus removed from the trustee's path but in my view this does not remove the necessity to prove the other matters referred to in s.136(1) of the FBTA Act which expressly condition the charactenzation of a "benefit" as being "a fringe benefit". A most important part of those conditions is that the benefit be provided "... i respect of the employment of the employee." It seems to me that the question is not whether that requirement has been expressly negatived in the phrase under consideration, but what has been brought within or included in the definition of "income". I agree, again with great respect, with Olney J's conclusion that a literal construction of s.139L(e) suggests a conclusion contrary to that arrived at by the Tribunal in this matter. The next question is whether there is any or sufficient justification for diverging from that literal construction. Two fairly recent High Court decisions deal with the circumstances in which a court is justified in diverging from the literal construction of a statutory provision. In Cooper Brookes (Wollongong) Pty Ltd v. The Federal Commissioner of Taxation (1981) 147 CLR 297 the High Court held that there was an obvious error on the part of the 10. draftsman of s.80C(3) of the Income Tax Assessment Act 1936 (Cth). The result was that the literal meaning of that section did not give effect to the intention of the legislature, and thus it was permissible to depart from its literal meaning, because to do so would fulfil that intent. It was possible to trace the process by which that section had become an anachronism: per Stephen J. at p.311. See also in the joint reasons for judgment of Mason and Wilson JJ. at p.323: "Here, the entirety of the situation to which s.80C(3) was directed was apparent from the legislative scheme viewed as a whole, as indeed was the purpose or object of the provision itself. It is evident that there was an oversight on the part of the draftsman." In the second decision, Saraswati v. The Queen (1991) 172 CLR 1 at p.22 McHugh J. observed: ".. once a court concludes that the literal or grammatical meaning of a provision does not conform to the legislative purpose as ascertained from the statute as a whole including the policy which may be discerned from its provisions, it 1s entitled to give effect to that purpose by addition to, omission from, or clarification of, the particular provision [authorities cited]. But where the text of a legislative provision 1s grammatically capable of only one meaning and neither the context nor any purpose of the Act throws any real doubt on that meaning, the grammatical meaning 1s "the ordinary meaning" to be applied. A court cannot depart from "the ordmary meaning" of a legislative provision simply because that meaning produces anomalies: cf. Cooper Brookes (1981) 147CLR, at pp. 305, 320. But s.34 of the Interpretation Act assumes that it may do so if the ordinary meaning conveyed by the text of the provision "taking into account its context in the Act ... and the purpose or object underlying the Act" leads to a result that is "manifestly absurd" or "unreasonable". Furthermore, tf "the ordinary meaning" of a legislative provision is manifestly absurd or unreasonable, a real doubt must anse as to whether Parliament intended the enactment to have its ordinary meaning: cf. Cooper Brookes at p.320" In my opinion, it is not evident that there was an oversight in the drafting of $.139L(e) of the Bankruptcy Act. It seems to me that the literal or grammatical meaning of that section does conform to the legislative purpose when ascertained from the Bankruptcy Act as a whole including the policy which may be discerned from 11. its provisions. Giving a literal construction to this section, when one takes into account its context in the Bankruptcy Act and the purpose or object underlying that Act does not, in my opinion, lead to a result that is "manifestly absurd" or "unreasonable". When one looks at the context of the section, the logical starting part would appear to be s.139J, the first provision of Division 4B, the text of which is set out above and which sets out the objects of the Division. The object relevant to this matter is "... to require a bankrupt who derives income during the bankruptcy (my emphasis) to pay contributions towards the bankrupt's estate ...". Section 139K defines the expression "derived" in the following terms: "derived" means earned, derived or received from any source, whether within or outside Australia." The expression 1s obviously wide enough to include income derived in accordance with ordinary usages and concepts whether such income is from personal exertion or from dividends, interests or the like. The definition of "income" in s.139L itself speaks of "j. any amount derived by the bankrupt that is income according to ordinary usages and concepts" and then goes on to include specifically various payments referred to in the subsequent sub-paragraphs, including sub-paragraph (e) which is in issue in this matter. The draftsman appears deliberately to have followed various principles reflected in the Income Tax Assessment Act and the FBTA Act. ae 12. For example, s.139M(1) which, broadly speaking, deals with income derived but which 1s not actually received by the bankrupt can be seen to mirror the principles and indeed a lot of the language of s.19 of the Income Tax Assessment Act. Section 139M(3) also assists to understand the context of the expression "income". It provides: *(3) A reference in this Division to income derived by a bankrupt during a contribution assessment period includes a reference to income so derived in respect of work done or services performed by the bankrupt before that period or work to be done or services to be performed by the bankrupt after that period." Again, in s.139Z which deals with the situation where either a bankrupt does not provide information about derivation of income or claims not to be likely to derive or not to have derived any income, sub-section (2) provides: *(2) Without limiting the matters that a trustee may take into account for the purpose of making an assessment as mentioned in subsection (1) in respect of a contribution assessment period, the trustee may have regard to anv employment or gther work or other income-producing activities that were engaged in by the bankrupt before that period and may determine whether the bankrupt is likely to engage, or to have engaged, in similar employment, work or other mcome-producing activities during that period" (emphasis added). As counsel for the applicant pointed out, the scheme of Division 4B when read with ss.58 and s.116 of the Banknuptcy Act is to catch (with some exceptions) property, after-acquired property and a proportion of income m accordance with ordinary usages and concepts which expression is extended to include that which would be a fringe benefit for the purposes of the FBTA Act. Even if it were permissible to have regard to the Explanatory Memorandum or to the Second Reading Speech, there 1s nothing in either of those documents which suggests that Parliament intended to catch 13. benefits arising from the payments made for and on behalf of the applicant in this matter. We were taken to numerous instances where the consequences of the construction contended for by the respondent would at the very least appear most unreasonable. There is, in my opinion, considerable merit in the contentions put forward on behalf of the applicant for a literal construction. The mischief envisaged is that a bankrupt might be working but structuring his or her affairs so that benefits flow elsewhere or are provided by someone sufficiently remote not to be caught simply by the incorporation of the provisions of the FBTA Act. The statutory provisions, to which I have referred above, deal with that situation. On the agreed facts that is not the situation in the present matter. The respondent suggested that the bankrupt's situation would be ameliorated through the hardship provisions of s.139T. I am not persuaded either that such would be the case in the present matter or that, even if it were, this submission just:fies departure from applying the words which Parhament has chosen to use. In my view, a literal construction of s.139L(e) 1s warranted and for the above reasons I would allow this appeal. 14, I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment of Justice Carr. Associate: fil bask Date: 20 October 1994 Counsel for the Applicant: Mr C.D. Steytler QC. with him Mr S.R. Paterniti Solicitors for the Applicant: | Messrs Parker & Parker Counsel for the Respondent: Mr B.D. Luscombe Solicitors for the Respondent: Messrs Mallesons Stephen Jaques Date of Hearing: 21 March 1994 Date of Judgment: 20 October 1994