Grant, J.P. v Commissioner of Taxation

Income Tax - partnership of taxpayers claiming deduction under

Curran scheme - s.6BA Income Tax Assessment Act 1936

- whether

distribution of bonus shares out

of share premium account was

"di-lidend" in

S.6BA(

(a)

- effect of definition of "dividend"

5.6 of the Income Tax Assessment Act

- whether partners

"taxpayers" for -purpa,ses of s.6BA.

Income Tax Asses6ment Act 1936 - ss.6, 6BA. 51

Companies Act

(N , .S .W. ) 1961 - s.60

Curran v. Commiasi\oner of Taxation (1974) 131 C.L.R.

409

London Australis TFnveskment

Co. Ltd. v. Federal Commissioner of

Taxation (1977)

-;l38 C".L.R.

106

Slinsabv v. Wesbminste.r Bank, Limited C19313

2 K.B. 173

Commissioner of'T&aKion

v. Sahhar (1985) 5 F.C.R. 247

I I I

JXMES PE!ER GRANT - J . THE COMMISSIONER OF TAXATION OF THE

, _

COMMONWEALTH OF AUSTRALIA

€10. G 396 OF 9985

Bowen C.J.. Fisher and Beaumont

JJ.

I .

Sydney	.
1 July 1986

I r J THE FEDEW= C0.UP.T OF AUSTPJlLIA

EIEW SOUTH WLES D.ISTRICT REGISTRY

)	No. G 396 of 1985

GENERAL DIVISION

O N APPEAL F R O M THE SUPREME COURT OF NEW

SOUTH WALES

BETWEEN :

JAMES PECER GRANT

Appellant

THE COMMISSIONER OF TAXATION OF THE

COMMONWEALTH OF AUSTRALIA

Respondent

I - .

MINUTES OF ORDER

. I

Judges making order:	Bowen C . J . ,	Fisher and Beaumont, JJ.
Date order made:	1 July 1986
Mher e made :	Sydney

TIiE COURT ORDERS THAT:	l I .
! !
I

1. The appeal be dismissed.

2. The appellant pay the respondent's costs.

m: Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

- .-

. . _..

. . 1 - {

: '

1I-T THE FEDERAL C,OUl?T OF AUSTFSLIA 1

. :

1 1

PmT SOUTH [ALES DISTRICT REG1STP.Y	1	No. G 396 of' 1085	i
1	!

GEETEp,n.L DIVISION

. .

. I	!
I
I
!	i
!

OPT APPEAL FROM THE SUPPEM!Z COURT OF N E N ' SOUTH MALES	!
I
I

BETPEEN:	J.WS PETER GRANT	i
Appellant
THE COMMISSIONER OF TAXATION OF THE
COMMONWELALTH OF AUSTRALIA	i
r
Respondent	I
i
I
!
i

COP?: Bowen C.J..

Fisher and Beaumont.

JJ.

DATED: 1 July 1986

RESSONS FOR JUDGMENT

THE COURT:

This 1s an appeal from the dismlssal by the Supreme

Court of PIew South Wales (Yeldham	S.) of an appeal to that Court	! -
l
1

from . a decision of the Deputy	Commissioner	of Taxation	- 1
I
I _

disallowing	the	appellant axpayer's	objection	against an	i
i
I

assessment of

Income tax in respect

of the year of

income ended

3 0 June 1978.

I .

The matter for determination in the Supreme Court was	; . '
I
L.
i

yhether the taxpayer, a chartered accountant, was entitled to an

[

allowable deduction under s.51 of the Income Tax Assessment Act

1936 (the Act) in respect

of a loss claimed to have been incurred

W,.	hlm as	a result of certaln,share trading transactlons. The	:
I
i
!
I

deduction In respect

of the

loss claimed arose out of an attempt

by the taxpayer to deduct the "cost" to him of the issue

certain bonus shares.	The	deduction was said to	be lustified by	i
k.,

Curran's case (Curran	v. The Commissioner	of Taxation of the	, .
!

Commonwealth of

Australia (1974) 131 C.L.R.

4091. In disputing

the deductlon claimed, the Commissioner relied, inter alia, upon

I ,

the provisions of

s.6BA

of the Act as they stood before their

. t

amendments in

1979.

. Those provisions, which were apparently

: I

intended to deny	a deductlon	in a situation such as arose in	-	!
I

Curran, came into operatlon on 22 June 1978.

However, by s.3(2) .

of Act

No. 57 of 1978,

s.6BA applied in every case where the

bonus shares In question were allotted after

16 August 1977. The

taxpayer denled, for reasons independent of the time at which the

allotment occurred, that

s.6BA applied in the present case.

The primary facts are not in dispute. Untll

1 July

1978, the taxpayer,

Mr. E.G.

Chant and Mr. D.L.'

Nicholl (the

partners) carried on pract!.,:

as chartered accountants under the

firm 'nsme of Dulhunt?, Grant & Co. as partners in equal shares.

Earlier in 1978 It xas proposed that he firm merge with a larger

firm

Chartered

accountants.

The

partners

then

became

concerned that the proposed merger could result in the creation

of a substantial income tax liability for the partners because

.	the treatment, for the purposes of the merger, of the firm's xork-in-progress. They sought the advice of a solicitor. Mr. Baffsky, with a vlew to minimizing the mcidence of income tax.

Mr. Baffsky advised that the partners should enter into a scheme

- - -

similar to that held to be effective

n Curran. Mr. Baffsky said

that, by entermg into such a scheme, the partners would be able

to obtain

a deduction In the order of $600.000.00.

Mr. Baffsky

2 advised that in order- that the scheme might succeed, it would be

necessary for

tke partners to become share traders. He suggested

that, for this purpose, the partners retain the services of

Messrs. P.N. Burke & Co., a firm of chartered accountants.

On 3	April 1978, acting on the advice of Messrs. P.N.

Burke Ei Co.,

the partners entered into

a share management

agreement wlth Morlop Enterprises Limited,

a Hong Kong company.

For a remuneration of $33.000.00, payable

in such manner as might

be	agreed, Morlop agreed to manage the partners' business of

share trading. On

5 April 1978. the partners-paid the sum of

$6,600.00

to Morlop. Pursuant to this scheme,

a number

dealings were executed by the partners, involving shares in two

private companies. It appears that

"loss" of

$660,065 was

generated

these activities. The --partners' objective, in

embarking on these dealings, as the learned judge

found, was to

obtain

"Curran" deduction by carrying on the business of

trading in shares.

_ -

- .-

However. in April 1978, the partners learnt that it was

proposed to mtroduce

legislation (subsequently enacted as

.6BA

of the Act) which might deprive t$em

of the benefits of their

plan. Mr. Baffsky then advised that

a varlation of the "Curran"

scheme would achieve their objective

of minlmizing

tax without

Q-

any further cost. Mr. Baffsky arranged for

Mr. Wales, a partner

In the firm of Messrs. P.N. Burke €i

Co.,

to explain the detalls

of the new scheme to the partners.

Mr. Wales’ explanation need

not-be recounted in any

detail.

Since

the scheme

envisaged

by him

was,

fact,

implemented, it-

will suffice, for present purposes, to record the

procedures involved in the execution

of the scheme as follows. On

June 1978, the directors

Amanada Pty. Limited (.Amanada)

resolved to allot to Tonnegar Pty. Limited (Tonnegar) 138,542

ordinary shares in the capltal

of Amanada. The shares. of $1.00

each, were paid up to one cent

and were at a premium of $99.00

per share. The balance of

99 cents per share and the premlum of

$99.00 per share were both left at call.

22 June, the

partners purchased 6,667 of these .shares from Tonneqar for

$33.00.

On 23 June, the directors

Amanada resolved that the

amount of $99.99 owing on each of these shares be called, payable

on 27 June 1978.

Notice

of t L call, requiring payment by the

partners of the sum

$666.633.33, was given. On

27 June,

Huntspill Pty. Limited (Huntspill) advanced the partners the

sum

; of $667.000.00.

On that day, Amanada received an amount of

. .

$13,852,814.58-which included an amount of $666,633.33 paid on behalf of the partners. The directors of Amanada then resolved that the sum of $13.715.658.00 standing to the credit of the

company‘s

premlum

account

applied

paying

13,715,658 of the company’s unissued ordinary shares of

$1.00

each and that such shares, when so paid up, be issued as fully

. .

paid bonus shares to the holders

of the issued ordinary shares in

the proportlon of

bonus shares for each one ordinary share

I I

held. Pursuant to this resolution. 660,033 fully paid bonus	i
I *
shares were allotted to the partners. On 28 June, the directors	! , _
of First Minot Investments Pty. Limited (First Miriot) resolved to	!
endeavour to purchase from the exlsting shareholders all the
!

issued

ordinary

in the

capital

of Amanada

for

$13,855,582.00 plus any costs and expenses. Mr. Baffsky was	i
1
appointed to negotiate the acquisition. They also resolved that	i
\
$13,856,000.00 be borrowed from Huntsplll. Instructions were	i
l

gi-:en

for the registratlon of the transfer,

First Minot, of

the 666200 orfinary shares (being 6,667 original shares together

with 660,033 bonus shares) held by

the-parGrs. The sum of

$666,766.00 was expressed as thg?.-consideration for the transfer.

/.-

-- I

Cheques were exchanged between the parties to enable the partners

to repay the amount of

$667

,OOO.’OO owing to Huntspill.

The sum of $658.346,

described

the

partnership

adjustment sheet issued

by the Commissioner as “net loss on share

tradinq“ and disallowed

by him, was made up as follows:

Amount paid for 6.667 partly

paid shares in Amanada

$33. -

$666,633.	paid	call	Plus	-
plus cost ‘of bonus shares issued’ $660;033.	-

$1,326,699. -

Less the proceeds of sale

666.766. -

6. ',

Profit on trading to 30.6.78

(other than on sale of shares

Amanada

1,554. -

Difference:

$658,346. -

The profit on share trading

of $1,554.00 arose from a

relatively small number of share transactions embarked upon by

the partners in April, May and June

1978.

In the Supreme Court, the taxpayer claimed that, at all

material times, he was engaged in the business of share trading.

In accordance with the decision in Curran, he further claimed

that, in computing his taxable income,

a deduction should be made

his

the

partnership

loss of

$658,346.00.

contended that

the partnership should'be allowed a deduction in

respect

the

transactions

looked

as a whole

and.

specifically, that the sum

$660,033.00, being the amount

applied from the share premium account in paying up the bonus

shares allocted to the partners, should be treated as if the

partners had paid that amount for the bonus shares. The taxpayer

relied on s.51(1) of	the Act in claiming a deduction of his share	t.
l

partnership	the	of	loss in	accordance	with	5.90.	, .
I
l

The Commissioner,	in the first place, denied that the	I ,
!

taxpayer engaged in the business of a share trader.

He further

claimed that the transaction was a sham; or

a "fiscal nullity":

or otherwise void by virtue of

s.260

of the Act. Finally, he

argued that the provisions of s.6BA of the Act operated

so as to

deprive the taxpayer of any deduction which might otherwise have

- !

been available as

a result of the decision in Curran.

._	. .	- . . . . --	__ __ - - . .	-	_.	l
i

7 .

Yeldham J. held that, notwithstanding the existence of

motive to obtain

a substantial tax deduction, the partnership did

in fact carry on the business of share trading. But his Honour

a l s o held that the provisions of s.6BA applied. In the learned

Judge's opinion, the application of the share premium account

fell within the concept of a "dividend"

for

the purposes of

s.GBA(l)(a). In the result, the Commissioner-'S. assessment	was
uphe Id.

It is convenient to deal first wlth the questlon whether

s.6BA applied in the present circumstances. It is common ground

that the decision in Curran was the "mischief" intended

to be

remedied by the enactment of s.6BA.

It is important, therefore,

to understand

what

was

there

decided.

Mr.

Curran

was

stockbroker who dealt in shares. He purchased shares in various

companies which, after he had become a shareholder, resolved to

issue bonus shares either out of the proceeds of the realisation

of assets not acquired for the purpose of resale at

a profit, or

out of

the amount of the revaluation

assets not acquired for

the purpose of resale at a profit, or out of a share

. . premium:

account or out of

a combination of these elements (see

(1974) 131

C.L.R. at p.411).	!
;

Of the malorlty, (Barwick C.J.,

Menzies and Gibbs

JJ.

fjtephen J.

dissented), Barwick C.J.

held that the taxpayer was

h	entltled to deduct the notional cost to him	of the acquisition of	I
I
!	1
4:
,'
..

_ _

. - -

- -

- - -

. - -.. - --_ -

- - - - __- -

_._

______ ___.-

$ - - -.

the bonus shares. notwithstanding that the dividend applied in

paylng up the bonus shares was exempt under

44(2)(b)(iii) of

the Act.

The learned Chief Justice held that whether or not the

taxpayer pays income tax on the amount credited

in connection

with the bonus issue could have no relevance to the question

xhether he was entitled to treat himself as having paid the

amount credited to him by the company as the cost of the bonus

shares. That did not mean,

in his Honour's opinion, that the

appellant was not to be regarded as having paid for those shares

the amount of their paid-up value (at p.415). Menzies

J. agreed

xith this reasoning (at pp.416-7). Gibbs

J. was of the opinion

.--- -

that it was not possible

to arrive at the taxyg-er%~--"true

income" without taking the bonus shares i to'acount

as trading

stock

acquired, whether or not those shares could properly be

regarded as having been purchased: the taxpayer's trading account tralue shares which were in fact valuable, because the amount

xhich it would then show as income would include the value which

the shares possessed wherztfrep'were first brought into stock;

and the "only practicable way of reaching

a true result...would

be to bring the articles into the account at an appropriate value

as though they had been purchased.

and there is no provision in

the Act that would require any different approach." tat p.421)

The decision in Curran was referred to, with approval,

in London Australia Investment Co. Ltd.

v. Federal Commissioner

of Taxation (1977) 138 C.L.R.

106 (see per Gibbs J.

at p.119;

per Jacobs

J. at pp.132-3).

..	-	. ..	I
I
1

At the relevant date,

s.6BA provlded:

”6BA ( 1) Nhere -

(a) a

dividend (includinq an amount debited

aqainsk an amount standinq to the credit of

a 8hxe premium account) is payable to a

. taxp’a9er 5y a company in respect

of shares

I i ’

(...the

‘original shares‘) in the company;

tour emphasis].

t b )

the company issues other shares

[...the

‘bonus shares’3 to the taxpayer; and

(c)

the amount of the dividend payable

to the

‘1

taxpayer

applied

the

company,

xhole

or in part,

payment

part

payment

the

moneys

payable

the

taxpayer in respect of the bonus shares or

the dividend is otherwise satisfied, in

=hole or-in part, by the issue	of the bonus	i
shares,	i
I

then the following

provisions of this section

have effect for the	purposes of the Act....	I
i
L

( 2 )

Subject to sub-section ( a ) , any part of

the dividend that is applied by the company in

payment or part payment of the moneys payable

the taxpayer in respect of the bonus shares or	I
i

is otherwise satisfied

by tKe issue

of the bonus

shares shall not be treated as being an amount	I
paid or payable by the taxpayer in respect of	I
the bonus shares or as in any way constituting	!

any part	of	the cost to the taxpayer of the	I
l

bonus shares.	L
I
l

(3)....	I
I

( 4 )

%&-sections

( 2 ) and ( 3 ) do not apply

(a) in the case of

a taxpayer being a person

other than

a company....

- to the extent

(if any) that a part of

the dividend that

is applied by the company

in payment or

part payment of the moneys payable by the

taxpayer in respect of the bonus shares or	I
is otherwise satisfied by the issue of the	I
bonus sha’res has been or will be included	~

in the assessable income of the taxpayer

!. .

10.

any year

of income, either directly or

through	any	interposed	partnerships	or
trusts:	or

(b)	. . . . ' I

-On this branch

of the argument, the question which

aro

for determination

the

Supreme

Court

was

whether

the

transaction entered into between Amanada and the partners could

properly be described as resulting in

a "dividend. ..payale to

taxpayer" for the purposes

of s.6BA(l)fa).

On behalf of

the taxpayer, reliance was placed upon the

definition of "dividend" in the general definition provision,

s.6(1) of the Act. By that

provision,

unless a contrary

intention appears, "dividend" in the Act includes:

"(a) any distribution made by a

company to any

of its shareholders. whether in money	or
other property;

(b) any amount credited by a company to any of

its shareholders as

shareholders; and

of shares issued by

company to any of its shareholders to the

extent

which

the

' paid-up

value

represents a capitalization of profits,

but does not include

(d)

moneys paid

or credited by a company to a

shareholder or

any

other

property

distributed by a

company to shareholders

(not being moneys or other

property to

xhich this paragraph, by reason of

sub-section ( 4 ) , does not apply), where the

amount of

the moneys paid or credited, or

the amount of the value

of the property, is

debited against an amount standing to

the-

credit of

a share premium account of the

company.

11.

sub-	section (4) and ( 5 ) of 5.6 provide:

"(4) Subject

n xt

succeeding

sub-section, where, in pursuance of or as part

of an agrceement or an arrangement, whether oral

or in wrfting, being

an agreement

or arrangement

! made

fter

commencement

this

sub-section -

(a) a company issues shares at

a premium, being

a premium in respect of which the company

credits

amount

a share

premium

account of the company; and

(b)

-the company pays or credits any moneys, or

distributes

any

other

property,

shareholders in the company and the amount

of the moneys

paid or credited or the

mount of the value

of the property so

distributed is debited against an amount

stamding

the

credit

of that

.premium account.

paragraph (d) of the definition of 'dividend' in sub-section (1) does not apply to the moneys so pald or credited or to the property so distributed.

(5) Where

moneys

so credited are, in

pursuance of or as part of. the agreement or

arrangement, applied or to be

applied in paying

up an amount on a share issued or to be-issued

by the company, the credit shall be disregarded

for

the

purposes

the

last

preceding

sub-section unless. in pursuance of or as part of the agreement or arrangement, the company, by

means of the redemption or cancellation, or of

reduction in the paid-up value, of that share or

any other share in the company, is to pay or

transfer to, or pay, transfer or apply on behalf

of or

the direction of, the holder

of the

share. any money or other property other than

.	shares in the company."

Reliance was

also placed by the taxpayer upon s.60(1) of

the Companies Act

1961 (N.S.W.).

It provided that where a

company issued shares for which a premium was received by the

c: .

12.

company,	a sum	equal to the aggregate amount or value of the	i
l

premiums on those shares was to be transferred to

an account

called the "share premium account". and the provisions	of the Act	l
I

relating to the ,reduction of the share capital of

company

applied

if the

share' premium account were paid up share

capital Of the company.

By s.60(2) the share premium account

l .

could be applied:

(a) in paying up

m-issued shares to be issued

members of the company as fully paid

bonus shares:

L .

(b) in

paying

in whole

or in part

the

balance unpaid on shares previously issued

to members of the company;

the

payment

dividends

such

dividends are satisfied by the issue of

shares to members

of the company....

The taxpayer

further

relied

upon

the

provision

Amanada's articles of association, empowering its directors,

xhenever there was

a sum

standing to the credit

of the company's

l '

share premium account, to cause the company to apply that	sum	or	I
;
i

any part thereof

paying up

uiissued ordinary shares in the

capital of

the company, to be issued to members of the company

holding ordinary shares in the company as fully paid bonus

shares; any such bonus shares should be issued to the holders of	i-
i

ordinary shares in proportion to the number of ordinary shares

held by each such member (article

105).

L I

On behalf

of the taxpayer it was then submitted that,

f o r

the purposes of s.6BA(l)[a)

the Act, no dividend was

13.

involved

here.

was

said

that,

a matter of general

principle, a distribution by a company to shareholders out of its

share premium account

I s made out of capital, not profits.

Moreover, the taxpayer argued, a sum deblted against an amount standing to the credit of a share premium account fell outsi.de paras. (al. (b) and (c) of the definition of "dividend" in s.6(1)

of the Act. Further, the argument ran, s.6(5) did not

apply here

so that the exclusion from the definition of "dividend" in s.6(1)

found in para.'(d) of that provision stood. Thus, the taxpayer argued, even if the general law, which would characterise the dealing with the share premium account as an affair of capital,

were to

be displaced by the special definition of "dividend" in

s.6(1) .of the Act, para.(d) of that definition would apply

so as

exclude

the

subject

transaction

from

the

definition

"dividend" and thus from the operation of s.6BA( 1) (a) itself.

Yeldham J. rejected the taxpayer's arguments, construing

the words in brackets in s.6BA(l)(a) as indicating

clear

legislative intention that the word 'dividend' wherever used in

the .section is to be extended to include 'an amount debited

-against an amount standing to the credit of the share premium

- .-

account', notwithstanding the exclusion of such amounts in the

definition

s.6(1),

which

must

give

way

a contrary

intention.

We agree with this construction.

14.

The

explanatory

memorandum

dealing

with

the

Bill

containmu s.6BA. explained that the "law Cwas3 to be amended to

overcome the decision

the High Court in Curran'

S case by

providing that tax-free bonus shares allotted'after

16 August

1977.. .fwould3 be treated as having no independent cost to the

taxpayer".

It was further explained

that s.GBA(1) set out the

basic conditions under

which the section was to apply:

"These Ewere3 that

a dividend be payable to

taxpayer on 'original' shares in

a company and

that the amount of the dividend be satisfied

whole or

in part by an

issue of 'bonus shares'

to the taxpayer. The dividend to which the

section app,lleL\d3 can include a tax-free amount

that is Got

8 dividend for income

tax purposes,

because .oE b&nu

declared out of funds in

share pr6mium account." (Our emphasis)

As Finlay

J. observed in Slinqsbv v. Westminster Bank,

Limlted E19311 2 K.B. 173 at p.188, "dividend" can be used in the

' 1

narrower sense as meaning that part of the profits of a company divisible among its shareholders; it can also be used in the I

broader sense as meaning that which is to be divided.

In the

case of s.6BA(l)(a), it is clear from the reference, in the words

in brackets, to a share premium account that the narrower meanin-g

of "dividend" could not have been intended. That is to say, the'

reference, in s.6BA(l)(a) to the share premium account must have

been intended to include. as a dividend, a distribution made to

shareholders out of that account, even if such

a division could.

not be characterised as

a "dividend" in the narrower sense of the

word.

15.

The taxpayer sought to explain the reference to

a share

premium account in s.6BA(1) as intending to do no more than act

as an aide-memoire to

a reader of the legislation with

a view to

reminding one that, in the limited circumstances provided by

sub-sections ( 5 )

and (6) of 5.6,

the prima facie exclusion of

dealings with

a share premium account contained in para.(dl of

the definition of "dividend" in

S.6(1) will not apply.

We cannot accept that the reference, in

si6BA(1) (a) to

premium

account

was

intended

operate

such

curious

and

complicated

way.

For

one

thing,

some

the

distributions in Curran were made out of

a share premium account

and the extracts we have cited from the explanatory memorandum

make it clear that s.6BA

was intended to reverse the result of

that decision. In any event, if, as the taxpayer suggested, the

;;lords in brackets in s.GBA(l)(a) were intended to do no more than

merely pick up the exclusion in para.(d)

of the definition of

"dividend" in ~.6(1)

conjunction with

s . 6 ( 4 )

and

( 5 1 ,

one

would have expected to find,	in s.6BA(ll(a), a reference to those
provisions.

We think it is more likely that, in inserting the words

in brackets in s.6BA(l)ta), the legislature intended to cover the

field of

a "dividend" funded out

of a

share premium account for

the purposes of s.6BA. For these reasons, we agree with Yeldham

J. that, for the purposes of s.GBA, the definition of "dividend"

in s.6(1), at least in its application to

a distribution out of

9 . . .

. .

d '

16.

share premium account, was

intoded to be modified by the words

in brackets in s.6BA(l)(a).

It follows, in our view, that s.6EA(l)(a) picked

UP, as

a	notional dividend, the distribution made out of the share

premium account.

A further argument put on behalf of the taxpayer should

be noted. It was submitted on behalf of the taxpayer that. in

any event, no dividend was payable "to

a taxpayer" as required by

a.6BA(l)(a). It xas argued that since the dividend payable in	I
i I

respect of	the original shares was paid to	a partnership, this	I
!
I

did not constitute a payment to

a taxpayer for the purposes of

the application of s.GBA(l)(a).	l
i
!
t r

In support of this contention. reference was made to	I
i

Commissioner	of	Taxation	v. Sahhar (1985) 5 F.C.R.	247. A	i
F

question there arose as to the application

of s.226(2) of the Act

in the context

a partnership.

Under

that

provision,

additional tax

was payable if a taxpayer incl'uded in his return

1 ,

as	a deduction for expenditure incurred by him."an amount in

excess of the expenditure actually incurred" by him,

It was held

by Fox J. and by Lockhart J.,

Jenkinson 3. not deciding, that

s.226(2) did not apply to a

taxpayer who claimed in his return

deduction for an amount described therein as his share of the

partnership loss,

because such a claim was not for "expenditure

incurred by him" within the meaning

of that provision. Lockhart

J. said (at p.250):

1 l -

:I - -,

. .

- r . .

. - - __

- - ._,

,-- --

i-_

-~----

_._.__.5________-._________.

-J

- .

. -.

, . ..' .

-:.

, ,

l?.

A UartnershiD

has. of cours

e. no

existenc

~~~

independent o? its members. The-moss

income of

a partneaship is earned iointly

by the partners;

and.partiZe5ship outgoings are

~oint

outgoings of

the

partners.

T ~ F

partnership

rofits

and

losses

are the- profits

and

losses

the

partners. TheLAct, however, for some purposes

treats a

partnership as if it were

a distinct

entity from' those who constitute it:

Federal Commiss,ioner'of Taxation

(1982) ATC 4243

(a judgmkt o r a

Full Court of this Court). It

is true,

as was pointed out in Rowe's case at

4244,

that "I%ere is nothing in the Act which

denies or alters the basic legal principle that

the profits or net income of

a partnership are

the

profits

net

income

those

who

constitute it"; but ss.90. 91, 92 and 93 of

Dim 5 of the Act determine the nature of a

partner's int,erest in the net income of the

partnership of which

he is a member and his

interest in a

partnership loss for the purposes

of the Act.

' I

(Our emphasis)

_ I

In our opinion, it does not follow from the fact that

I-

partnerships are

specially dealt with, in certain respects, by

the provisions of Division 5

of Part I11

of the Act, that the

dividend deemed to be paid by s.GBA(l)(a) was not "payable to

taxpayer" for the purposes *of that provision. And, of course, it

is appropriate, for present purposes, to interpret "taxpayer" as

including the plural.

The situation then was one in which

a notional dividend

was payable by Amanada to the partners. True it is that Division

5 of Part I11 of the Act required that the dividend be treated as

part of the gross income

of the partnersgip and be returned for

tax accordingly.

But,

the

terms

s.GBA(l)(a),

S	nonetheless accurate to describe the dividend as an amount "payable to taxpayers".

_ _

. _ _ .

* .._ . ,

. -1.-

.I .. ,

- . ..

18.

In our opinion. the Commissioner correctly applied

s.6BA

in the

present case. In the circumstances,

It is not necessary

that we deal with the other arguments advanced	on his behalf to
support his assessment.

_ .

He would dismiss the appeal with costs.

_ .

Counsel and Solicitors

Conti Esq . .

Q.C. and

Mr. -RH.

Bloom instructed by

for Appellant:

Messrs Simons

& Baffsky.

/--

Counyl and Solicitors

D.E.

Grieve E s q . , Q.C.

with

fQr Respondent:

Mr. B.R.

Pqpe

instructed

Government

/	Australian Solicitor.

Dates of hearing:	12 and 13 June	1986
Date Judgment Delivered:	1 July 1986

I certify that t h i s and the

precedmg

pages are a true copy of :he

reasons for

judgment hePetn of th Court

[1986] FCA 258

7 Jan 1986