Baldwin and Commissioner of Taxation
[2005] AATA 44
•19 January 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 44
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT2003/381
TAXATION APPEALS DIVISION ) Re PAUL BALDWIN Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr SC Fisher, Member Date19 January 2005
PlaceBrisbane
Decision The Tribunal affirms the decision under review.
...........[Sgd] ...........
SC Fisher
Member
CATCHWORDS
TAXATION – Income Tax – Allowances – Applicant reported allowance as partnership income – Correct characterisation of allowance was personal income – Decision under review affirmed.
Income Tax Assessment Act 1997 s6-5(4), 995-1
Income Tax Assessment Act 1936 ss90-94
Taxation Administration Act 1953 s14Parthership Act 1891 s 5, 8
Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63
McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284
Gauci & Masi v Federal Commissioner of Taxation (1975) ATC 4149; (1975) 6 ALR 183
Secretary, Department of Social Security v Murphy , Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 269
Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248; [2003] 74 ALD 21
Bantick and Secretary, Department of Family and Community Services [2003] AATA 472
Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598; (1981) 4 ALD 198
Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 389
Terry Shields Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1989) 89 ATC 4674
Crommelin v Deputy Federal Commissioner of Taxation (1998) 98 ATC 4790.
Marshall v Marshall [1997] QCA 382; [1999] 1 Qd R 173
Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460.
Re Ruddock (1879) 5 VLR (IP & M) 51
Pooley v Driver (1876) 5 Ch D 458
Curtis v Perth & Fremantle Bottle Exchange Co Ltd (1914) 18 CLR 17
Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280; [1993] 115 ALR 1
Collector of Customs v Agfa-Gevaert Ltd (1995) 186 CLR 389
Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225REASONS FOR DECISION
19 January 2005 Mr SC Fisher, Member Introduction and background
1. Mr Paul Baldwin (the applicant) was and has been employed by the Department of Main Roads, Queensland (“DMR”) at all material times in the capacity of an owner driver of a truck used in road construction activities. The applicant received an allowance of $74,361 from the DMR during the fiscal year ended 30 June 2001. The applicant did not return the receipt of this allowance on his personal tax return lodged with the Commissioner of Taxation (the respondent), but he did return this allowance as partnership income under a partnership styled “PB and AM Baldwin” under a partnership income tax return lodged with the respondent in respect of the fiscal year ended 30 June 2001. The respondent disputed the characterisation of the $74,361 allowance as partnership income, and disallowed the objection of the applicant dated 30 June 2003 by a notice of decision on objection dated 29 September 2003. The applicant appealed to this Tribunal on 15 October 2003.
2. The substantive provisions governing this appeal are contained within the Income Tax Assessment Act 1997 (“ITAA 1997”) and the Income Tax Assessment Act 1936 (“ITAA 1936”). In these Reasons for Decision, references to statutory provisions are references to provisions of the ITAA 1997 unless the context indicates otherwise.
Jurisdiction
3. The Tribunal has jurisdiction in this appeal by virtue of sections 14ZZA – 14ZZM of the Taxation Administration Act 1953 (Commonwealth).
The Burden of Proof
4. Under section 14ZZK(a) of the Taxation Administration Act 1953, the applicant is limited to the grounds stated in the taxation objection to which the decision relates unless this Tribunal orders otherwise. Among other things, the applicant has the burden of proving that the assessment is excessive or that the taxation decision concerned should not have been made or and that it should have been made differently: section 14ZZK(b). In general, the taxpayer must go further than showing the assessment is excessive or wrong and show what the correct assessment should be: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 – 88. In the absence of evidence, the Tribunal is not able to infer facts in favour of taxpayers: McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284. The scheme of the Income Tax Assessments Act 1936 and the Income Tax Assessment Act 1997 does not place any onus on the Respondent to show that the assessment was correctly made: Gauci & Masi v Federal Commissioner of Taxation (1975) ATC 4149; (1975) 6 ALR 183.
The Decision under Review
5. The decision under review is a decision made by the respondent on 29 September 2003 disallowing an objection of the applicant to include in his income returned under his personal income tax return an allowance of $74,361 instead of his net share of this allowance received by means of a partnership styled “PB and AM Baldwin”.
The Role of the Tribunal
6. The role of the Tribunal is to review the merits of the decision before it: section 43 of the Administrative Appeals Tribunal Act 1975 and Secretary, Department of Social Security v Murphy, Federal Court, 29 June 1998, 908/98; (1998) 52 ALD 269. The Tribunal is guided by the norm that it should reach the correct and preferable decision on the basis of the material before it: Ajka Pty Ltd v Australian Fisheries Management Authority [2003] FCA 248 at [33]; [2003] 74 ALD 21. The Tribunal is required to stand in the shoes of the original decision-maker and consider all evidence anew, bearing in mind statutory provisions and any significant legal precedent: Bantick and Secretary, Department of Family and Community Services [2003] AATA 472 at 23. The Tribunal must base its decision upon the material that is logically probative of the existence of facts that emerge from the evidence before it: Collins v Minister for Immigration and Ethnic Affairs (1981) 36 ALR 598 at 601.
Issue
7. The central issue in this appeal is the correct characterisation of the $74,361 allowance received by the applicant. The applicant contends that this payment should be characterised as partnership income. The respondent contends that this payment should be characterised as income derived by and received by the applicant personally and not through the partnership “PB and AM Baldwin”.
The Material Before the Tribunal
8. The following documentary evidence was before the Tribunal:
Exhibit 1 Affidavit of Mr Wills Rieken sworn on 18 October 2004.
Exhibit 2Statutory Declaration of Mr Neville Armstrong affirmed on 8 October 2004.
Exhibit 3Statutory Declaration of Mr Barry Malone affirmed on 8 October 2004.
Exhibit 4Unsworn statement of Mr Barry Malone dated 1 June 2004.
Exhibit 5Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
Exhibit 6Supplementary Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975.
Exhibit 7Business Documents marked Schedules 4 – 7.
Exhibit 8Document marked Schedule 3 and captioned “INFORMATION REQUIRED WITH FIRST RETURN” (undated).
9. The Applicant tendered documentary Exhibits 2, 3, 4, 7 and 8, which were taken into evidence by the Tribunal. The Applicant was represented by Mr Gordon Duncan, taxation agent.
10. The Respondent lodged documents T1 to T8 under section 37 of the Administrative Appeals Tribunal Act 1975 and tendered documentary Exhibits 1, 5, and 6, which were taken into evidence by the Tribunal. The Respondent was represented by Ms Kerri Mellifont of Counsel.
11. Both parties lodged a statement of facts and contentions and the Respondent lodged an outline of submissions.
Evidence
12. The applicant gave evidence in person. The Applicant did not lodge a witness statement for himself. Mr Barry Malone, Mr Neville Armstrong and Mrs Cheryl Olsen gave evidence on behalf of the applicant.
13. The Respondent called evidence from Mr Wills Rieken, who provided a Affidavit sworn on 18 October 2004.
14. In this appeal, there were no significant differences between the parties concerning the primary facts nor were there any issues of credit. The Tribunal accepted the applicant as a witness of truth who gave his evidence in a straightforward manner. For this reason, the Tribunal decided that it was not necessary to recite the evidence of the witnesses called by the parties at any length and that an abbreviated summary would suffice. What is in contest was the taxation and other legal consequences of the facts as they emerged from the oral and documentary evidence presented.
Evidence of the Applicant
15. The evidence in chief of the applicant in its salient aspects is summarised in the following account:
A.The applicant explained his work history with the DMR since 1989.
B.Originally, the applicant was employed without using his own truck. Later, he used his own truck and became an owner driver.
C.The applicant explained that he cannot substitute another drive for himself.
D.The applicant said that the hire money for his truck is paid into his joint account.
E.The applicant said that the truck was purchased from joint sellers (N & K Armstrong).
F.The applicant said that there is no formal partnership agreement between himself and his wife, but that they operate on the understanding that there is a business partnership between them.
G.The applicant said that originally he had been registered for GST, but this was later cancelled as this was not required and proved administratively difficult for the DMR.
16. The cross-examination yielded the following evidence in its salient aspects:
A.The applicant’s wife performed administrative work for the purposes of the partnership.
B.There was an understanding between the applicant and his wife that they were a partnership.
C.The applicant’s wages from his DMR employment were paid into a joint bank account which also functioned as the bank account used for private expenses.
D.DMR timesheets recorded only his name as the party with whom the DMR was dealing, and not the partnership.
E.In 1997, when the DMR conducted a review of the owner driver system, the applicant opted to continue under the award system that had prevailed.
F.The DMR never addressed correspondence jointly to the Baldwins, only to him personally.
G.The registration certificate of the truck, while in joint names, designated the use of the vehicle as “private”. The applicant explained that he had never thought anything about this designation of the truck on the registration certificate.
Evidence of Barry John Malone
17. The evidence-in-chief of Mr Barry John Malone (given by telephone) consisted of an affirmation of his Statutory Declaration affirmed on 8 October 2004. In cross-examination:
A.Mr Malone explained the roles he had performed while he had been employed by the DMR, concluding as an Inspector where he engaged owner drivers (including the applicant) to perform day-labour jobs.
B.Mr Malone explained that when Mr Baldwin bought the truck from N & K Armstrong, the “job went with the truck”, and this is how Mr Baldwin came to be employed by the DMR as an owner driver.
C.Mr Malone explained that the applicant had been employed under the relevant industrial award. The truck allowance paid to the applicant compensated him for fixed and variable operating costs associated with the truck, and that this allowance was calculated and paid in accordance with the relevant industrial award.
D.Mr Malone said that Mrs Baldwin was not employed by the DMR at any time, and he had not seen any documentation recording her as an employee.
Evidence of Neville Kevin Armstrong
18. The evidence-in-chief of Mr Neville Kevin Armstrong (given by telephone) consisted of an affirmation of his Statutory Declaration sworn on 8 October 2004, supplemented by oral evidence and by further evidence given in cross-examination to the following effect:
A.Mr Armstrong said that he sold a tipper truck and water tank to Paul and Anita Baldwin on or about 5 June 1989.
B.Mr Armstrong said that this equipment, despite a contract held with Department Main Roads, was for use as and when required by them.
C.Mr Armstrong said that the equipment was part of the general truck hire operations conducted at the time.
D.Mr Armstrong said that he and his wife had sold the truck to the Baldwins.
E.Mr Armstrong said that he had been employed as an owner driver by the DMR and that there was a separate hire arrangement for his truck.
F.The truck higher rates were regulated and set in the award and it was not possible to negotiate those rates outside of the award.
Evidence of Cheryl Pamela Olsen
19. The evidence of Mrs Cheryl Pamela Olsen (an Accounting Clerk under the supervision of Mr Gordon Duncan, Chartered Accountant) given in person at the hearing and in evidence-in-chief, and during cross-examination was to the following effect:
A.Mrs Olsen said that she was an Accounting Clerk under the supervision of Mr Gordon Duncan, Chartered Accountant and that for the last 15 years, Mrs Olsen had been employed undertaking accounting and taxation compliance duties.
B.Mrs Olsen said that she did the partnership income tax returns for Mr and Mrs Baldwin and Mr Baldwin’s personal tax return.
C.Mrs Olsen explained that Exhibit 8 had been prepared on behalf of the Baldwins and lodged with the Australian Taxation Office before the advent of self-assessment.
D.Business expenses for the operation of the truck (including some of those documented within Exhibit 7) were recorded by her as partnership expenses.
E.Mrs Olsen said that she used the partnership cashbook to create the income tax return for the partnership and didn’t use any other source documents for this purpose.
F.Mrs Olsen said that she was aware that money from the DMR was banked into the joint bank account.
G.Mrs Olsen said that no other income besides the DMR income was identified and recorded by her. Ms Olsen said she was not aware if Mrs Baldwin earned any other income and she did not see any evidence of this.
Respondent’s evidence
20. The Respondent called evidence from Mr Wills Rieken, who provided an Affidavit sworn on 18 October 2004. The gist of the evidence provided by Mr Rieken (given by telephone) is to the following effect:
A.Mr Rieken has been an employee of the DMR for 30 years and currently holds the position of Senior Project Consultant (Employee Relations) with responsibility for aspects of employee relations such as onward interpretation and the negotiation of agreements.
B.Mr Rieken said that the Code of Conduct promulgated under the Public Sector Ethics Act 1994 (Qld) precluded the entry into of a contract between the State of Queensland and an employee any other than an employment contract.
C.Mr Rieken said that there is no oral contract between the DMR and Mr Baldwin on the terms alleged by Mr Baldwin.
D.Mr Rieken agreed with the evidence of Messrs Armstrong and Malone except to the extent that they sought each to characterise the use of the truck other than as an owner driver.
E.Mr Rieken said the Civil Construction Award (and before that the Local Authorities (Excluding Brisbane) and Main Roads, Etc, Award) provides for the payment of an allowance to an employee owner who decides to use his or her truck under the direction of the DMR. The payment for truck hire cannot be separated from the employment relationship and the truck hire payment is not payable if somebody other than the employee uses the truck for work purposes. The truck hire payments are made to the employee owner drivers to compensate them for the fixed and operational costs of the vehicles in accordance with rates as specified in the Civil Construction Award.
F.Mr Rieken said that Mr Malone would not have had authority to negotiate contracts with persons such as Mr Baldwin.
G.Mr Rieken said that research undertaken on DMR employment records at his direction concerning the applicant does not record any contract between him and DMR for truck hire.
H.Mr Rieken’s employees are paid under the payroll system, which is the system used to record truck hire allowance payments also. Payments to contractors are made through the accounts payable system. In the case of the applicant, he had only ever been paid through the payroll system.
21. In cross-examination, Mr Rieken conceded that a truck could be jointly owned if that is what the employee wanted, but that the employee had to be an owner driver if the truck hire allowance is to be paid. The ownership structure of the truck is not an issue for the DMR.
Applicant’s Submissions
22. The submissions made by Mr Duncan on behalf of the applicant are summarised in the following account:
A.Mr Duncan submitted that the Tribunal should find that there is a partnership for taxation purposes between Mr and Mrs Baldwin whether or not there was a partnership for general law purposes, and that it was correct for the applicant to return his income from the truck allowance as partnership income under section 92 of the Income Tax Assessment Act 1936.
B.Mr Duncan submitted that the fact that there was a joint bank account, satisfied the requirements of the Respondent concerning the existence of a partnership bank account.
C.Mr Duncan submitted that the applicant did not have the opportunity to avoid the inclusion of equipment hire on his group/employment advice.
D.The hire charge is not seen as employee income by the DMR and superannuation is not paid upon it.
E.Mr Duncan submitted that the reluctance of the DMR to request invoices from the applicant, or to recognise the partnership as a GST entity should have no bearing upon the taxation treatment of a allowance.
F.Mr Duncan submitted that all that had been required by the Australian Taxation Office to recognise a partnership had in fact been done by Mr and Mrs Baldwin. Mr Duncan submitted that it goes against the weight of evidence for the Tribunal not to recognise a partnership between Mr and Mrs Baldwin and the fact that this was the entity that contracted with the DMR.
23. The Tribunal also took into account the correspondence from the applicant’s tax agent to the respondent, where various arguments were put concerning what was contended and what should be the proper taxation treatment of the allowance.
Respondent’s Submissions
24. The respondent’s submissions are to the following effect:
A.The respondent submitted that the issue of whether there was or there was not a partnership is a “red herring”.
B.There is no evidence pointing to a contract, oral or otherwise, between the applicant and the DMR made on or about 5 June 1989 for the hire of truck and plant by a partnership including the applicant to the DMR for which the DMR made payment to the applicant on behalf of the partnership.
C.The allowance of $74,361 paid by the DMR to the applicant is a payment made to the applicant under an industrial instrument (and not under a contract between the DMR and the alleged partnership) and is not accordingly a payment to a partnership.
D.The allowance of $74,361 is assessable income in the hands of the applicant alone and not assessable income of a partnership of which the applicant is a member within the meaning of section 92 of the ITAA 1936.
E.The allowance of $74,361 was paid in response to employee timesheet entries made by the applicant to the DMR.
F.The fact that the applicant’s allowance payments are made to the joint account does not support the existence of the partnership, especially given that wages of the applicant are also deposited into that account.
G.Section 6–5(4) of the ITAA 1997 produces the result that the applicant received the allowance of $74,361 when it was deposited periodically in his bank account and so the applicant derived that amount as income according to ordinary concepts (ordinary income) as the periodic payments of parts of the allowance were applied or dealt with by or on behalf of the applicant or as he directed.
H.The allowance of $74,361 fell within the description of an allowance provided by Dixon J in Mutual Acceptance Co Ltd v Federal Commissioner of Taxation (1944) 69 CLR 309 at 402, namely a “gain or reward allowed or conceded by the employer to the employee for his work” (the similar description of an allowance provided by Lee CJ in Terry Shields Pty Ltd v Commissioner of Pay-roll Tax (NSW) (1989) 89 ATC 4674 was also cited to the Tribunal).
I.The fact that PAYG withholdings were not made from the allowance paid to the applicant did not mitigate against the treatment of the payment as an allowance in the hands of the applicant rather than as a payment of partnership.
J.The subjective belief of the applicant that the payment of the allowance to him was, in his capacity as a partner in a firm, did not deprive the payment of its nature and character as a payment to him personally: Crommelin v Deputy Federal Commissioner of Taxation (1998) 98 ATC 4790.
Summary of The Legislative Scheme
25. Section 6–5(4) of the ITAA 1997 provides that in working out whether a taxpayer has derived an amount of ordinary income, and (if so) when the taxpayer derived it, the taxpayer is taken to have received the amount as soon as it is applied or dealt with in any way on the taxpayer’s behalf or as the taxpayer directs. Section 995–1 defines “partnership” to mean an “association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly..” The tax treatment of partnerships is governed by sections 90–94 of the ITAA 1936.
Findings of Fact
26. Based upon the evidence before it, the Tribunal makes the following findings of fact in this appeal:
Mr Paul Baldwin (the applicant) was employed by the Department of Main Roads, Queensland (“DMR”), as an owner driver at all material times, under a contract of employment dated 5 June 1989.
A.The applicant is married to Mrs Anita Baldwin.
B.The applicant is an Australian resident.
C.The 5 June 1989 contract was between the applicant personally and the DMR.
D.The allowance of $74,361 paid by the DMR to the applicant was paid to him personally and not to him in any joint capacity.
Tribunal’s Reasons
27. To recapitulate: the central issue in this appeal is the correct characterisation of the $74,361 allowance received by the applicant. The applicant contends that this payment should be characterised as partnership income derived in and through the partnership “PB and AM Baldwin”. The respondent contends that this payment should be characterised as income derived by and received by the applicant personally.
28. The applicant’s tax agent conducted this case on the footing that there is a partnership between the applicant and his wife. From this baseline, the applicant contended that the contract with the DMR was between the partnership and the DMR. The respondent disputed this characterisation and contended the partnership issue was a “red herring”. The respondent’s contention overstates the case. The applicant, to succeed, has to show two things that are interrelated. First, there is a partnership between the applicant and his wife (“the partnership issue”). Secondly, the June 1989 contract was between the partnership and the DMR and not between the applicant personally and the DMR (“the contract issue”). Ordinarily, the first step would precede the second but in this case it is possible for the Tribunal to invert this process of reasoning without doing violence to principle or logic for reasons that will be clear.
29. Taking the second inquiry first concerning the contract issue, does the evidence in this case enable the Tribunal to conclude that the June 1989 contract was between the partnership and the DMR, and not between the applicant personally and the DMR as contended by the respondent.
30. It is theoretically possible for the partnership to have contracted with the DMR. It is settled law that in a partnership, each partner is the agent for all of the other partners: section 8 of the Partnership Act 1891 (Queensland) and Marshall v Marshall [1997] QCA 382; [1999] 1 Qd R 173 at 179 per McPherson JA.[1] It is possible for the applicant to have contracted with the DMR on behalf of the partnership using the statutory allocation of agency power embedded within section 8 of the Partnership Act 1891 (Queensland). The more immediate question is whether the applicant did in fact do so.
[1] There are no private international legal (or conflict of laws) issues concerning which body of partnership law applies to the putative partnership in this case as the putative partners are both domiciled in Queensland and the partnership business is conducted in Queensland.
31. A closer look at section 8 is required, however, for the purposes of this case. This provision reads:
“8 Power of partner to bind the firm
Every partner is an agent of the firm and his or her other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way of business of the kind carried on by the firm of which the partner is a member bind the firm and his or her partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner.”
32. Section 8 was not invoked expressly by the applicant before or during the hearing. The applicant did not contend that he possessed or was invested with authority within the meaning of section 8 to contract with the DMR on or about 5 June 1989. Nevertheless, section 8 forms part of the operative legal background relevant to the applicant’s case. There is no evidence before the Tribunal that enables it to infer that the conduct or actions of the applicant were within the ambit of those “acts of [a] partner who does any act for carrying on in the usual way of business of the kind carried on by the firm” so as to bind the partnership by virtue of the operation of section 8. The exclusion or proviso to section 8 is irrelevant for the purposes of this appeal. In other words, the applicant did not act as a partner of his firm when he contracted with the DMR. On the basis of the evidence before it, the Tribunal has found that the June 1989 contract was between the applicant personally and the DMR, and not between the partnership (represented by the applicant) and the DMR. Section 8 is simply not applicable in this case, and the provision does not assist the applicant to establish his case that he contracted with the DMR in the capacity of a partner of his firm.
33. The subjective belief or understanding of the applicant that he is a member of a partnership does not necessarily translate into a contract (a subset of an act of a partner) that attracts the benefit (if it can be called that) or the burden of the operation of section 8. With limited exceptions (most notably the doctrine of the undisclosed principal in the law of agency), the question of who are the contracting parties to any given contract is determined objectively, not subjectively under Australian contract law: Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460. The evidence before the Tribunal establishes clearly without any equivocation that the DMR contracted only with the applicant on the basis that he was (and remains) an employee owner driver. The joint ownership of the truck by the applicant and his wife does not alter or have any bearing upon which party the DMR contracted with. The truck is simply an asset to be deployed by the applicant in performing his contract with the DMR.
34. Having reached the conclusion that it has come to concerning the counter-party to the DMR contract, technically the Tribunal is spared the task of determining whether a partnership exists between the applicant and his wife. Nevertheless, in deference to the arguments on this point mounted by the applicant, the Tribunal considered that it should examine this matter shortly. In the tax context, whether a partnership exists or not is sometimes said to be a question of fact that the proponent carries the burden of proving: RL Deutsch and Ors, ‘Australian Tax Handbook 2004’ (Thomson/ATP, Sydney, 2004), para [28 020]. In the opinion of the Tribunal, however, this statement is not completely accurate. The existence of a partnership is determined by applying a hybrid mixed test of law and fact derived from provisions in the nature of section 5(1) of the Partnership Act 1891 (Queensland), which provides that partnership is the relationship which subsists between persons carrying on a business in common with a view of profit. The cases show that whether a partnership exists or not is the result of the substantial rights and duties conferred upon and assumed by the putative partners rather than the language used to describe their relationship: Re Ruddock (1879) 5 VLR (IP & M.) 51 and Pooley v Driver (1876) 5 Ch D 458 at 483 – 485. This is more or less consistent with the general principle of contract law that it is not necessarily the language used by the parties to a contract that accurately describes the nature of the relationship; rather it is the substance of the relationship that does so read against the backdrop of the applicable general law (Curtis v Perth & Fremantle Bottle Exchange Co Ltd(1914) 18 CLR 17 at 25 per Isaacs J).
35. The Tribunal turned to consider the partnership issue next. The statutory litmus test of a partnership is whether the putative partners carry on a business in common with a view of profit: section 5(1) of the Partnership Act 1891 (Queensland). It is common to atomise the elements of partnership into (1) do the persons carry on a business (2) in common (3) with a view of profit. The effect or construction of a term whose meaning or interpretation is established is a question of law. Whether facts fully found fall within the provision of a statutory enactment properly construed is generally characterised as a question of law: Collector of Customs v Pozzolanic Enterprises Pty Ltd : (1993) 43 FCR 280; Collector of Customs v Agfa-Gevaert Ltd(1995) 186 CLR 389; [1996] HCA 36. This process of reasoning applies also to the issue whether a partnership exist in this case under the ITAA 1936 and the ITAA 1997. In this case, the Tribunal can adopt the expedient course of assuming that the applicant and Mrs Baldwin are in fact partners. Even if this assumption is made, this does not resolve the case in favour of the applicant. It is necessary to go one step further and for the applicant to demonstrate that by contracting with the DMR on 5 June 1989 he did so in the capacity as a partner of the firm. As stated earlier in these Reasons for Decision, the evidence does not enable an inference to be drawn to support a finding of fact that the applicant contracted on behalf of the partnership in entering into the DMR contract.
36. The tax concept of a partnership located within section 995–1 of the ITAA 1997 (extracted above) contains two limbs, the first of which replicates the general law notion of a partnership, while the second requires the receipt of income (whether ordinary or statutory) on a joint basis. The evidence in this case clearly discounts the joint receipt of income by the applicant and his wife as the documentary evidence (in the form of pay slips and timesheets and the employee group certificate) forming part of Exhibit 1 points overwhelmingly to the receipt of the allowance (as a form of income) only by the applicant and not by the applicant and some other person on a joint basis. The first limb of the tax concept of a partnership does not assist the applicant in this case because even if he is a member of a firm, the payments made to him by the DMR were not paid to him in his capacity as a partner under a partnership contract; instead, those payments were paid and received by the applicant in his personal capacity. This makes it unnecessary for the Tribunal to consider the terms of sections 90–94 of the ITAA 1936 governing the tax treatment of partnerships.
37. The Tribunal considered carefully the effect of Exhibit 8 tendered on behalf of the applicant. This document provides information concerning the partnership “PB & AM Baldwin”. Clause 5 of this document says that “Business contracts are made in the name of PB & AM Baldwin”. Insofar as the 5 June 1989 contract between the applicant and the DMR is concerned, clause 5 has absolutely no bearing on the relationship between the applicant and the DMR. The DMR engaged the applicant as its employee in the capacity of an owner driver and not the partnership “PB & AM Baldwin”. The connecting factors between a contract with an outsider and a partnership are supplied by section 8 of the Partnership Act 1891 (Queensland). A contract by a person who is a member of a firm does not make the contract a partnership contract. In a nutshell, this is the position of the applicant in this case. Putting the matter in its most favourable light from the perspective of the applicant in connection with the partnership issue, even if the applicant is in a partnership with his wife, the DMR contract is not a partnership contract. Put another way, the DMR did not contract with PB & AM Baldwin.
38. No submission was put to the Tribunal that the applicant contracted as an agent for an undisclosed principal or principals, or that the applicant held the benefit of the contract with the DMR on trust for a class of beneficiaries constituting the members of the partnership (or indeed other individuals comprising himself and his wife in a non-partnership capacity). Furthermore, it was not argued in the alternative that the applicant was engaged first as an employee and that he subsequently novated his contract of employment to include himself and his wife as partners (and if so, whether they were employees or independent contractors in relation to the DMR). The Tribunal did not find it necessary to examine these possibilities in the circumstances of this case. The third possibility has many obstacles to its success and (not the least of which is that contracts of employment are personal to the parties and non-assignable: Devefi Pty Ltd v Mateffy Pearl Nagy Pty Ltd (1993) 113 ALR 225 at 234 (FCA (FC)).
39. To sum up the reasoning of the Tribunal concerning the contract issue: the 5 June 1989 contract is between the DMR and the applicant in the capacity as an owner driver, under a contract of employment that is also regulated by an industrial award. The DMR did not contract with the partnership “PB & AM Baldwin” under that contract or, so far the evidence before the Tribunal discloses, any other contract. This means that the allowance of $74,361 is income in the hands of the applicant personally and not to any partnership of which he may be a member. The respondent was correct to characterise the allowance in these terms. Consequently, any deductions in relation to the operation of the truck that are properly allowable to the applicant are applied against his income alone.
Tribunal’s Conclusion
40. In this case, the correct and preferable decision is that the 5 June 1989 contract was between the DMR and the applicant in his personal capacity and not in any partnership capacity. No other decision is reasonably open on the basis of the evidence before the Tribunal. This means that the allowance of $74,361 is income in the hands of the applicant personally and not to any partnership of which he may be a member. The respondent was correct to characterise the allowance in these terms.
Tribunal’s Order
41. The Tribunal affirms the decision under review.
I certify that the 41 preceding paragraphs are a true copy of the reasons for the decision herein of Mr SC Fisher, Member
Signed: Camille Bank
Associate
Date/s of Hearing 20 October 2004
Date of Decision 19 January 2005
Advocate for the Applicant Mr Gordon Duncan
Counsel for the Respondent Ms Kerri Mellifont
Solicitor for the Respondent Australian Taxation Office Legal Practice
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