De Romero v Read

The case of *De Romero v Read* concerned a dispute over a covenant in a deed of separation where a husband agreed to pay his wife an annuity of £10,000 free from all State income tax. The covenant explicitly stated the intention that the husband would pay any State income tax assessed against or payable by the wife in respect of the annuity, and would refund any such tax she paid. The husband died, and his executors, the respondents, were sued by the wife, the appellant, to recover sums she had paid in State income tax and unemployment relief tax on the annuity. The respondents argued that the covenant was void under section 83 of the *Income Tax (Management) Act 1928* (NSW).

The central legal issue before the High Court was the interpretation of section 83(a) of the *Income Tax (Management) Act 1928* (NSW), which rendered void any contract, agreement, or arrangement that had the purpose or effect of "altering the incidence of any income tax". Specifically, the court had to determine whether this provision applied to agreements that shifted the burden of paying tax from one party to another, even if the direct liability to the Crown remained with the original taxpayer, and whether it applied to unemployment relief tax.

A majority of the High Court, affirming the decision of the Supreme Court of New South Wales, held that the covenant did indeed "alter the incidence" of the tax within the meaning of section 83(a). The court reasoned that the "incidence of taxation" refers to the burden of the tax, not merely the direct liability to pay the Crown. Therefore, an agreement that shifts this burden from one individual to another, even if it does not affect the collection of tax by the Crown, is void. This principle was applied to both the State income tax and the unemployment relief tax, as section 22 of the *Prevention and Relief of Unemployment Act 1930* (NSW) made the provisions of section 83 applicable to that tax.

Consequently, the High Court dismissed the appeal. The covenant, to the extent that it purported to shift the burden of State income tax and unemployment relief tax from the wife to the husband, was deemed void. As a result, the executors were not liable to repay the amounts of tax paid by the wife.