CATCHWORDS INCOME TAX - exemption of income of trade union from income tax - whether income of an association of employees formed to provide benefits to members to relieve hardship was income of a trade union. Income Tax Assessment Act 1936 sub-s 6(1); paras 23(f), 23(g) Industrial Relations Act 1988 (Cth) Industrial Relations Act 1979 (W.A.) Taxation Administration Act 1953 Afga-Gaevert Ltd. v. Collector of Customs (1994) 124 A.L.R. 645 Burt v. Commissioner of Taxation (1912) 15 C.L.R. 469 Haigh v. Charles W. Ireland Ltd. [1974] 1 W.L.R. 43 Hornby v. Close (1867) L.R. II Q.B. 153 Victoria Employers Federation v. Federal Commissioner of Taxation (1957) 96 C.L.R. 390 The Concise Dictionary of Law (Oxford: O.U.P., 1986) The Macquarie Dictionary (2nd Ed.) (Macquarie University, N.S.W., Macquarie Library, 1991) The Oxford English Dictionary, Vol. XI (Oxford: O.U.P., 1989) The Shorter Oxford English Dictionary, (London: O.U.P., 1973) Brown. K.D., The English Labour Movement 1700-1951 (Dublin: Gill & Macmillan, 1982) Schloesser, H., Trade Unionism, (London: Methuen, 1913) Sutcliffe, J.T., A History of Trade Unionism in Australia, (1st Ed.) (Melbourne: Macmillan, 1921) NORSEMAN AMALGAMATED DISTRESS AND INJUSTICES FUND V. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA NO. WAG169 OF 1992 LEE J. PERTH 28 MARCH 1995 IN THE FEDERAL COURT) OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) GENERAL DIVISION ) NO. WAG169 OF 1992 B E T W E E N: NORSEMAN AMALGAMATED DISTRESS AND INJUSTICES FUND Applicant and THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent MINUTE OF ORDER JUDGE MAKING ORDER: LEE J. DATE OF ORDER: 28 MARCH 1995 WHERE MADE: PERTH THE COURT ORDERS THAT: The appeal be dismissed with costs. 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. WAG169 OF 1992 B E T W E E N: NORSEMAN AMALGAMATED DISTRESS AND INJUSTICES FUND Applicant and THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent CORAM: LEE J. DATE : 28 MARCH 1995 PLACE: PERTH REASONS FOR JUDGMENT This is an "appeal" under the Taxation Administration Act 1953 against a decision of the respondent ("the Commissioner") disallowing the taxation objection lodged by the applicant ("Norseman") in respect of an assessment of income tax issued to Norseman by the Commissioner for the year of income ended 30 June 1991 ("the year of income"). The appeal is heard in the original jurisdiction of the Court. The principal ground of objection, and the issue raised on this appeal, is whether the income in respect of which the assessment issued was income of a trade union and, therefore, exempt from income tax pursuant to para.23(f) of the Income Tax Assessment Act 1936 ("the Act"). Paragraph 23(f) reads as follows: "The following income shall be exempt from income tax:- ... (f) the income of a trade union and the income of an association of employers or employees registered under any Act or State Act, or under any law in force in a Territory being part of Australia relating to the settlement of industrial disputes; ..." The term "trade union" is not defined in the Act. Norseman is an unincorporated association formed and conducted pursuant to a written constitution. It is not registered under any Act of the Commonwealth or of the State of Western Australia relating to the settlement of industrial disputes. The constitution provides for three trustees to hold office but does not identify any trust fund or trust property nor define the duties of the trustees, other than an obligation to sign all cheques. Management of Norseman is vested in an elected committee. According to the constitution, subject to certain exceptions, membership of Norseman "shall be a condition of employment for all male persons employed by Central Norseman Gold Corporation". It was not submitted that that "condition" bound the nominated employer or that it was an implied term of the contract made between the members of Norseman that a member would not provide services to the nominated employer if the employer employed a male person who was not a member of Norseman. Most members of Norseman were also members of a trade union, or organisation of employees, registered under the Industrial Relations Act 1988 (Cth) or the Industrial Relations Act 1979 (W.A.). The objects recited in the Norseman constitution were as follows: "... OBJECTS To raise money by compulsory levy and subscription and by other means deemed necessary by the Committee. Such other means to be on a voluntary basis. Monies raised to provide:- A. Distress Financial assistance to members, who, through sickness or accident are absent from work for a period greater than three (3) days. No payment to be made for the first three days of absence from work or for days covered by Workers Compensation. Claimants to provide a Doctors (sic) Certificate. B. Injustices To make available finance to fight any injustices to members when considered by the committee. In both instances A. & B. payment to be $10.00 per member per week, or as considered necessary by the committee. ..." During the year of income Norseman received approximately $30,300 from levies and subscriptions paid by members. An additional sum, in excess of $38,000, was received by way of interest on deposits and proceeds from the sale of property. During the year of income Norseman provided funds to members in cases of retrenchment, distress, sickness and accident. Payments for retrenchment were limited to $600 and were calculated according to the period of membership at the rate of $60 per year. Payments for sickness and accident were made according to the number of days of absence from work. Lump sum payments were made to members who had suffered distress. Previous to the year of income Norseman had provided financial assistance to members who were on "strike". On those occasions Norseman did not deal with the employer in relation to any aspect of the strike. No strikes occurred during the year of income. Norseman did not deal with the employer at any time in regard to wages, or hours and conditions of employment of its members. Counsel for Norseman submitted that the applicant was a trade union within the meaning of that term in para.23(f) of the Act, which meaning, it was said, was either the ordinary meaning or, alternatively, a special meaning used in trade and industry. The question whether a word or phrase as used by Parliament is to be given its ordinary meaning or a special commercial or trade meaning is a question of law. The general rule of construction is that, prima facie, ordinary English words are to be understood in their ordinary sense and that the rule is not to be displaced lightly. (See: Haigh v. Charles W. Ireland Ltd. [1974] 1 W.L.R. 43 per Lord Diplock at 55.) But in relation to revenue laws a court may be prepared to infer more readily that the words used are intended to apply a commercial or trade usage rather than the ordinary meaning. However, a commercial or trade meaning must be proved as a fact to be the meaning commonly understood in the relevant trade or area of commerce at the time of enactment of the relevant law. (See: Agfa-Gaevert Ltd. v. Collector of Customs (1994) 124 A.L.R. 645 per Gummow J. at 648-649.) Notwithstanding that a liberal construction should be given to words which, by use of exceptions, confine the imposition of taxation, such a course may be followed only if there is real difficulty in ascertaining the meaning of the words used. (See: Burt v. Commissioner of Taxation (1912) 15 C.L.R. 469 per Barton J. at 482.) The meaning of trade union supplied by the The Oxford English Dictionary, Vol. XI, (Oxford: O.U.P., 1989) is as follows: "An association of the workers in any trade or in allied trades for the protection and furtherance of their interests in regard to wages, hours, and conditions of labour, and for the provision, from their common funds, of pecuniary assistance to the members during strikes, sickness, unemployment, old age, etc." The Macquarie Dictionary (2nd Ed.) (Macquarie University, N.S.W., Macquarie Library, 1991) provides the following meaning: "an organisation of employees for mutual aid and protection, and for dealing collectively with employers." The Concise Dictionary of Law (Oxford: O.U.P., 1986) sets out the following meaning for the term: "An organization whose members are wholly or mainly workers and whose principal purposes include the regulation of relations between workers and employers or employers' associations." In Victoria Employers Federation v. Federal Commissioner of Taxation (1957) 96 C.L.R. 390 Kitto J. reviewed the history of the term "trade union" and, in particular, the distinction to be made between a trade union and a friendly society. According to The Shorter Oxford English Dictionary, (London: O.U.P., 1973) the phrase "Friendly Society" encompasses the following: "Orig., the name of a particular fire-insurance company. Later, one of various associations, the members of which pay fixed contributions to insure help in sickness and old age, and provision for their families in the event of death." The objects of Norseman are consonant with those of a friendly society. Paragraph 23(g) of the Act provides that the income of a friendly society is exempt income. Sub-section 6(1) of the Act defines friendly society as "a society duly registered as a friendly society under any Act or State Act". In the 18th and early 19th centuries in England and New South Wales the combination of workers for the purpose of improving conditions was unlawful. At that time the term "trade union" was introduced to identify such a combination, or union of labour, formed to gain concessions from employers and was used to distinguish such compacts from associations of employees in friendly or benefit societies. (See: Schloesser, H., Trade Unionism, (London: Methuen, 1913), pp.16-19; Sutcliffe, J.T., A History of Trade Unionism in Australia, (1st Ed.) (Melbourne: Macmillan, 1921), pp.27-34; Brown, K.D., The English Labour Movement 1700-1951 (Dublin: Gill & Macmillan, 1982), pp.28-39.) The identification of a trade union as an entity distinct from a friendly society was the fulcrum on which the formation of employer/employee law turned in the mid 19th century. (See: Hornby v. Close (1867) L.R. II Q.B. 153.) In that case an association of employees had, as one of the objects of the association, the relief of sick, disabled and aged members, an object consistent with the benevolent purposes of a friendly society. Cockburn C.J. (at 158) said as follows: "Here we find the very purposes of the existence of the society not merely those of a friendly society, but to carry out the objects of a trades' union. Under that term may be included every combination by which men bind themselves not to work except under certain conditions, and to support one another, in the event of being thrown out of employment, in carrying out the views of the majority." As the dictionaries confirm, it is still an essential part of the ordinary use of the term "trade union" that an organisation so described be one formed by workers to further the interests of the workers in their employment and although part of the meaning of the term may include an organization formed to provide financial aid to union members suffering adversity, the latter meaning is ancillary to, and dependent upon, the principal meaning described. Although the constitution of Norseman had oblique reference to the employer/employee relationship of the nominated employer and its employees in so far as it required the employees to be members of Norseman, that requirement was directed to attaining the objects of Norseman rather than protection of the employees in their employment with the nominated employer, or furtherance of the interests of those employees in respect of their employment. Norseman submitted that it was sufficient to meet the terms of the ordinary usage of the term "trade union" to show that it was an association formed by employees to alleviate adverse consequences associated with their employment such as retrenchment, retirement, accident and strikes. The applicant adduced evidence from an experienced trade unionist to the effect that many trade unions established "welfare funds" to provide financial support for employees affected by such circumstances and that in some workplaces a "welfare fund" may be established and operated separately from a trade union. It was said that to persons in the trade union movement and in the industrial relations field, a "welfare fund" was regarded as a trade union. Whether the term "trade union" has a special and expanded meaning for persons in the industrial arena is unnecessary to decide for I remain persuaded, as was Kitto J. in Victorian Employers Federation (at 393-395), that popular use of the expression "trade union" conforms to the dictionary definition set out in the Oxford Dictionary and that the term is used in that sense in para.23(f) of the Act. It follows that the meaning of "trade union" in para.23(f) will not be satisfied unless the association of employees in question has been formed to deal with the employers of the members and for the protection and furtherance of the interests of members in respect of the conditions of their employment. Although commonsense may suggest that in providing exemption from income tax under the Act, there would be little reason to distinguish the income of a trade union or friendly society from the income of a fund established by workers for benevolent purposes, the context of the Act does not indicate that Parliament intended to expand the meaning of the term trade union beyond popular usage. The appeal must be dismissed with costs. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment of his Honour Justice Lee. Associate: Date: APPEARANCES Counsel for the Applicant: R.K. O'Connor, Q.C. Solicitors for the Applicant: Mallesons Stephen Jacques Counsel for the Respondent: R.L. Le Miere, Q.C. T.J. Carey Solicitors for the Respondent: Australian Government Solicitor Date of Hearing : 12 September 1994 Date of Judgment : 28 March 1995