Inspector-General in Bankruptcy v McGushin

The Inspector-General in Bankruptcy has appealed against a decision of the Administrative Appeals Tribunal that set aside the decision of the Inspector-General to include ten elevenths of the net income of M. K. McGushin Pty Ltd in its assessment of the assessable contribution of Mr McGushin. The case concerns the interpretation of sections 139L(1)(a)(vii) and 139W of the Bankruptcy Act 1966 (Cth) (BA) and whether the Inspector-General was correct to include ten elevenths of the net income of the company in the assessable contribution of Mr McGushin. Mr McGushin, a general surgeon, was director of M. K. McGushin Pty Ltd at the time of his bankruptcy. The company operated a medical practice in which the only practitioner was Mr McGushin. The Tribunal held that the Inspector-General’s decision was incorrect and dismissed the appeal. The Tribunal found that Mr McGushin’s income was not assessable income because it was not derived by Mr McGushin. The Tribunal held that the Inspector-General’s interpretation of section 139L(1)(a)(vii) was too broad and did not take into account the specific circumstances of the case.

The Tribunal considered the definition of ‘income’ under the BA and concluded that for the purposes of the trustee’s assessments, income is identified not simply by virtue of having been received but also on the basis of it having been ‘derived’. The Tribunal found that Mr McGushin’s income was not derived by him because he did not receive any distribution of profit from the company during the Contribution Assessment Period. The Tribunal also found that Mr McGushin did not have a set salary and the amount he would draw from the company would differ from year to year. However, he did receive fortnightly periodic transfers automatically from the company’s bank account into his personal bank account. The Tribunal held that these transfers were not assessable income because they were not derived by Mr McGushin. The Tribunal also found that the corporate structure was not a sham or a device employed by Mr McGushin for the purpose of seeking to avoid the provisions of the BA.

The Inspector-General argued that the simple application of the ordinary meaning of the words in s 139L(1)(a)(vii) BA meant that the fees paid to the company were still assessable income. However, the Tribunal held that the Inspector-General’s interpretation was too broad and did not take into account the specific circumstances of the case. The Tribunal held that the income was not derived by Mr McGushin and therefore was not assessable income. The Tribunal also held that the Inspector-General’s decision was incorrect because it did not take into account the specific circumstances of the case. The Tribunal concluded that the Inspector-General’s decision was not supported by the evidence and was therefore incorrect.

The appeal was dismissed and the applicant was ordered to pay the respondent's costs of the appeal, including any reserved costs, to be taxed if not agreed. The Tribunal held that the Inspector-General’s decision was not supported by the evidence and was therefore incorrect. The Tribunal also held that the Inspector-General’s interpretation of section 139L(1)(a)(vii) was too broad and did not take into account the specific circumstances of the case. The Tribunal concluded that the Inspector-General’s decision was not supported by the evidence and was therefore incorrect. The Tribunal also held that the Inspector-General’s decision was not in accordance with the law and was therefore incorrect.