JOHN McCLUSKY and REPATRIATION COMMISSION
[2009] AATA 913
•27 November 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 913
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2008/5400
VETERANS' APPEALS DIVISION ) Re JOHN McCLUSKY Applicant
And
REPATRIATION COMMISSION
Respondent
DECISION
Tribunal Mr John Handley, Senior Member Date27 November 2009
PlaceMelbourne
Decision The decision under review is affirmed.
(Sgd) John Handley
Senior Member
VETERANS' ENTITLEMENTS – Applicant in partnership as a Solicitor – part of his interest in the partnership transferred to an employee solicitor on 1 January 1989 – remaining interest of the applicant transferred on 25 November 1990 – applicant turned 65 on 7 July 1989 – ceased working in October 2007 aged 83 years – alone test conceded – whether he was working as an employee of another person or on his own account for a continuous period of at least 10 years that began before he turned 65 – decision affirmed
Veterans’ Entitlements Act 1986 (Cth) s 24(2A)(d) and s 24(2A)(g)(i) and (ii)
Partnership Act 1958(Vic) s 5
Business Names Act 1962 (Vic) s 7
REASONS FOR DECISION
27 November 2009 Mr John Handley, Senior Member 1. Mr McClusky, the applicant in these proceedings, presently receives Disability Pension at 90 percent of the General Rate. He made an application to have pension paid to him at the Special Rate. The Veterans' Review Board (VRB) on 26 September 2008 rejected his application. This application is a review of that decision.
2. A number of issues were not in dispute between the parties and may be briefly summarised as follows.
3. The applicant was born on 7 July 1924. On 28 February 1950 he commenced self employment as a solicitor in Port Melbourne. In subsequent years he entered into partnership with a number of persons and continued to practice as a solicitor in the partnership.
4. At 31 December 1988 the applicant was in partnership with three other persons and they each held a 25 percent interest in the partnership. An employee solicitor expressed an interest in becoming a partner and it was agreed that he would acquire the interest of the applicant. It was agreed between the partners that the intending partner would acquire, and the applicant would divest, 20 percent only to him from 1 January 1989. The remaining 5 percent was retained by the applicant pending the performance of the new partner.
5. The applicant continued to work in the practice and on 25 November 1990 he transferred his remaining 5 percent interest to the new partner.
6. Thereafter the applicant gradually reduced his hours of work and from approximately October 2004 he was working four hours per week. He ceased work in October 2007.
7. The applicant receives general rate pension for the accepted conditions of bilateral sensori neural hearing loss and tinnitus, cataracts of both eyes and osteoarthrosis of his left knee. It was the applicant's case that he ceased employment by reason of those disabilities.
8. The applicant contended that from 1 January 1989, when he agreed to transfer 20 percent of his interest in the partnership, he became an employee of the practice. By reason of him turning 65 years on 7 July 1989 he was therefore an employee before reaching that age. Accordingly, when he stopped undertaking his last paid work, he satisfied the provisions of s 24(2A)(g)(i) of the Veterans’ Entitlements Act 1986 (the Act) by reason of him having been engaged as an employee for a continuous period of at least 10 years that began before he turned 65.
9. It was the case of the respondent that the applicant was not an employee before 25 November 1990 when he transferred the remainder of his partnership interest namely, 5 percent. Accordingly the applicant was not working as an employee of another person for a period of at least 10 years that began before he turned 65.
10. The respondent initially contended that the applicant could not satisfy s 24(2A)(d) of the Act namely that his incapacity was from war-caused injury alone. However, that provision was conceded during the currency of the hearing and the only matter therefore in issue was whether the applicant was an employee from 1 January 1989 or from 25 November 1990.
11. The applicant acknowledged, as I would also, that the circumstances surrounding the alteration in his status as a partner at 1 January 1989 occurred many years ago and his recollection was imprecise. He initially relied on a letter at page 47 of the T‑documents dated 25 February 2008 signed by Mr Hill (the current sole proprietor of the McClusky practice) which recorded that the retirement from the partnership had occurred in 1992. The applicant said he drafted that letter and he had relied on some documents he located at his home. He later found a letter (refer below) from the accountants to the McClusky practice, Coleman and Partners and relied on it in drafting another letter signed by Mr Hill on 8 April 2008 (T‑document, p53). The applicant said the letter is his authority of having transferred 20 percent only at 30 December 1988.
12. The frailty of memory was also explained by reference to a claim form completed by the applicant for disability pension in May 1999 (Ex A5) where at paragraph 22 the applicant recorded that he was then employed by McCluskys but at paragraph 23 he recorded that he was self employed until 1995 but was thereafter employed as a solicitor by the practice.
13. The applicant said that from 1 January 1989 his involvement in the practice did change. He said from that date he worked as an employee solicitor and was paid at $40.00 for each hour that he worked and without entitlement to profits from the practice. He said he was not involved in its administration and only attended partners' meetings if he was asked and then because matters that concerned or affected him were being discussed. He said that he regarded himself as working there on a salary (Trans, p11).
14. The applicant was then asked to consider the letter from Coleman and Partners (refer above) dated 9 November 1990 (Ex A3). The letter is reproduced as an annexure to this decision. The names of the other partners and recordings of their income entitlements and taxation liabilities have been deleted.
15. The applicant said the alterations suggested by the letter, which were implemented, did have a financial impact, being a payment to him of $18,824 calculated by regard to hours worked. He said he paid tax on that sum. That is, it was not paid to him as a sum nett of income tax.
16. In cross examination the applicant acknowledged the letter enclosed a partnership return for the 1990 year and he is described as having an entitlement, as a partner, to a taxable distribution. A passage from the transcript, where the applicant was examined on this issue is reproduced as follows (Trans. p18‑19):
Now just taking that at face value and what one would interpret that to be, Mr Muller, the accountant, has prepared the partnership tax return and he has listed the distributions to the partners for this partnership tax return as Mr McClusky, Mr Deleted, Mr Deleted, Mr Deleted and Mr Deleted. And this is the 1990 tax return – partnership tax return. Wouldn’t the reasonable person looking at this take it that here you are in the 1990 partnership tax return listed as the first partner, that you’re a partner in that firm? Would that be a reasonable appreciation of the situation?‑‑‑Well, it would depend upon whether you’re aware of all of the facts of the thing or not.
Right?‑‑‑I think you’ve got to understand that this is a taxable distribution he’s talking about and so from the point of view of the Tax Office he would have had to have done that. I am still holding that five per cent irrespective of what basis I’m holding it on. But from the point of the view of the Tax Office I’ve still got that five per cent.
Yes, but you’re not an employee in the firm here are you. You’re listed as receiving, by whatever means it’s calculated, a distribution of the partnership profits?‑‑‑No, he’s now got further down – he says:
Mr McClusky’s share of profit has been calculated as follows 1309 hours at $40.
Yes?‑‑‑
Less an adjustment of the MUH Trust.
Which was a service company that I had apparently been credited with and shouldn’t have been credited with so they’ve taken it back so you’re left with that 48,000, 48/49,000.
Right, but you are listed in the partnership return as a partner. Now there’s a method of calculating how your share of profit is determined but you wouldn’t be in the partnership tax return if you were not a partner. You would be paid a salary as the receptionist or an employee solicitor, tax would be taken out of your salary, a group certificate would be issued, you wouldn’t be entered on the partnership tax return if you were not a partner?‑‑‑Well, what I said before is because I held that five per cent I was, as far as the Tax Office is concerned, I think, I would have had to have been dealt with that way.
17. The applicant agreed the MUH trust was a service trust of the practice. He denied he had an entitlement to income from it after 31 December 1988, as evident by the declaration of the sum of $1630 previously paid to him, in error. He also said the representation of an entitlement to $6826 in the 1989 year was incorrect because he did not have an entitlement to a profit distribution based on a 5 percent partnership interest. It follows, he said, that the 1989 returns were adjusted to record him having an entitlement to income based on remuneration for hours worked.
18. The applicant agreed that the monies paid to him calculated at $40.00 per hour for each hour worked did not have income tax deducted by the practice nor did it issue a group certificate to him. The applicant agreed that he paid income tax on the amounts that the practice paid to him by the work that he performed at $40.00 per hour.
19. The applicant agreed that in the event the partnership dissolved after 1 January 1989 and before he transferred his remaining 5 percent interest, he would have had an entitlement to partnership assets calculated by his interest in the partnership. However he said that he was unsure, in the event of proceedings being brought against the partnership or it having a liability, whether he would be exposed to the extent of his 5 percent interest. Additionally he said that he regarded himself as holding the 5 percent interest on behalf of the partner to whom he had previously transferred 20 percent. He said that if a judgement was entered against the practice he would have expected that person to fulfil it.
20. In re-examination the applicant said after 1 January 1989 the persons constituting the partnership, as he alleged, were paid income being profits from the partnership and a distribution from the practice trust. He said the only monies that he received after 1 January 1989 were $40.00 per hour for each hour worked. He said the amount recorded in the letter of 9 November 1990 of $3,365 described as income received through the practice trust in the 1990 year was debited against his share of profit because those monies had been paid in error. That is to say, he did not have an entitlement to income that was distributed through the practice trust.
21. The applicant said that from 1 January 1989 he did not make any financial contribution to the outgoings of the firm. He said that in the event that there had been a substantial reduction in the practice income, he would have expected an approach by the partners indicating that they were no longer able to employ him or continue to pay the hourly rate at $40.00.
22. The applicant said he did not know whether the Law Institute of Victoria or the Professional Indemnity Insurer were notified that he was no longer a partner from 1 January 1989. He also agreed that a business name extract received as exhibit A4 correctly recorded that he ceased to be an owner of the registered business name of McCluskys at 25 November 1990.
23. Mr Robert Umbers was a partner of the firm McCluskys until 1995 and was in partnership before 31 December 1988. The letter from the accountants of 9 November 1990 at exhibit A3 is addressed to him. Mr Umbers said he recalled the applicant resigning as a partner in late 1988 when he transferred 20 percent of his equity in the practice to a new partner. He also recalled that 5 percent was retained by the applicant and transferred to the new partner at a later date.
24. Mr Umbers said that the applicant was very much the senior partner before the change, that he had started the practice after the war, that he was a mentor to a number of persons who eventually entered into partnership and he was very much hands on until he sold the 20 percent share. Until that time he said that there were regular decisions made in partnership meetings but after 1 January 1989 there was significant decision making changes and from that date the applicant was no longer involved in partnership decisions.
25. Mr Umbers recalled the applicant retained 5 percent of his interest in the partnership after 1 January 1989 but it was agreed between the partners and the applicant that his only remuneration would be at $40.00 for each hour worked. He said that so far as he could recall no arrangement was made giving him any other monetary entitlement. From 25 November 1990, when the applicant transferred his remaining 5 percent equity, Mr Umbers said that there was no change in his involvement in the firm compared to his involvement subsequent to 1 January 1989.
26. Mr Umbers recalled that the name of the applicant remained on the practice letterhead after 1 January 1989 but without having an accurate recollection, he presumed that his name was removed from the letterhead after November 1990. He did not have any recollection of whether the Law Institute of Victoria was notified of the partnership changes at January 1989.
27. The witness confirmed that the applicant was no longer involved in practice decision making after 1 January 1989 but was consulted from time to time out of courtesy. He said the arrangement to retain him at $40.00 per hour was made because of his local reputation and his history with the practice. He said the applicant would have been notified of plans to acquire a new building to conduct the practice in the early 1990's because it was a significant decision. However it was a decision made by the partnership and was not dependent on any opinion of the applicant. He said decisions previously involving the applicant concerning the hiring or termination of staff were no longer the subject of discussions with him after he ceased to be a partner.
28. In cross examination Mr Umbers agreed that by the applicant retaining 5 percent equity in the partnership after 1 January 1989 he had a right to be consulted and a right to be heard. He also agreed that if there had been dissolution of the partnership he would have been entitled to 5 percent of its assets and he would also be exposed to any liability incurred by the partnership. He could not recall whether the applicant had any entitlement to a distribution from the practice trust but he remained firm, despite persistent questioning, that the applicant's only entitlement was to remuneration at $40.00 per hour for each hour worked. He agreed that some of the financial documents purported to record a distribution to the applicant from the practice trust. He thought that whilst the applicant may have had an entitlement to payments from the practice trust, by reason of his equity of 5 percent in the practice, there was agreement between the partners and with the applicant that his only remuneration from all sources associated with the practice would be at $40.00 per hour for each hour worked.
29. Mr Anthony Hill is currently the sole proprietor of the McCluskys practice. He was a partner from January 1984 and recalled the disposition by the applicant of his 25 percent interest in the partnership in the late 1980's. He recalled that there was a distribution of 20 percent of that interest to the incoming partner and a retention by the applicant of 5 percent which was eventually transferred to the new partner at a later time. The evidence of Mr Hill was qualified by these events having occurred almost 20 years previously, there was no documentation, the partners' meetings were not recorded in Minutes, his recollection was poor and the financial matters concerning the practice were largely conducted by Mr Umbers. Mr Hill acknowledged that he signed the letters found at pages 47 and 53 which were drafted by the applicant.
30. In cross examination, Mr Hill said he had no belief of the applicant attending partnership meetings after 20 percent of his interest was transferred. He said he did not ever consider whether the applicant would be entitled to participate in the partners' meeting despite holding a 5 percent equity. He agreed that after 25 November 1990, when the remaining 5 percent was transferred, the applicant would have no rights of attendance at partners' meetings. However the partners did consult him from time to time because they valued his opinions. He said the applicant worked independently as a senior solicitor after 1 January 1989 and again after 25 November 1990 without any variation in his conduct within the practice. He did not act under the direction of the partners and he was not supervised.
31. Mr Hill did not believe that if there had been dissolution of the partnership that the applicant would have an entitlement to 5 percent of the assets but said that issue had not ever been discussed or considered. He agreed however that on strict interpretation the applicant would have an entitlement to 5 percent on dissolution. He also agreed that each partner would be jointly and severely liable in the event of an action against the practice and in the event that the assets of the other partners were not able to be realised, the applicant could be sued for the whole lot (Trans p24).
32. When Mr Hill observed the letter of 9 November 1990 (Ex A3) he agreed, on the face of it, that the applicant was being represented as a partner in the 1990 income year. Mr Hill also agreed the letter records the remuneration payable to the applicant as being a share of profit but he explained that he was not involved in the financial arrangements negotiated with the applicant and he thought that the only remuneration payable was by an hourly rate. Mr Hill said he did not know whether taxation instalments were taken out of the monies paid to the applicant. He also agreed on the face of the letter that it would appear that the applicant did receive a distribution from the practice trust and the amount paid to the applicant, calculated by regard to the hours worked, was offset by the amount that he did receive from the trust. He said he had no idea why that sum would be deducted from the gross hourly income and said that he would defer to Mr Umbers. He thought the reference to a share of profit was an expression used by the bookkeeper who would have sent the figures off to the accountant and the accountant would have done the paperwork.
conclusions and reasons for decision
33. This review is not without difficulty especially when there is a necessity to comprehend and reconstruct events occurring more than 20 years ago. Those difficulties extend to the following circumstances:
· It would appear a partnership deed did not exist between the partners of the McClusky partnership before or after 1 January 1989;
· Partners' meetings before and after 1 January 1989 did not have documented Minutes;
· The absence of any documents recording any basis for the disposition of 20 percent of the applicant's partnership interest or the acquisition by the new partner of part of the applicant's partnership interest;
· The acquisition by the new partner of 20 percent of the 25 percent interest in the partnership by the applicant at 1 January 1989 was not adequately explained. It was suggested that 5 percent be retained by the applicant pending the performance of the new partner but no one suggested or offered any explanation of what would occur in the event that the partners found that the new partner did not perform. Additionally it would appear that no period of time was agreed or envisaged as to when the remaining 5 percent of the applicant's interest would be transferred to the new partner if he did perform;
· The new partner did not give evidence in these proceedings and his belief as to whether the applicant remained a partner, or not, after 1 January 1989, is not known;
· The accountant who wrote the letter of 9 November 1990 (Ex A3) was not called to give evidence. That letter purports to identify the applicant as a partner in the 1990 income tax year. The same accountant wrote a letter (T‑documents, p54) of 1 April 2008 where it was his opinion that the applicant was a salaried employee from 1 January 1989. An explanation of what would appear to be differing perceptions was not given. The letter of 9 September 1990 on the one hand suggests a payment to the applicant in the 1989 and 1990 income years of monies from the MUH Trust but those monies were deducted from the amount calculated as the applicant's entitlement from monies calculated by regard to hours worked at $40.00 per hour. The reason for the deduction was not satisfactorily explained, save that it was suggested those payments were made in error. It is assumed that the accountant acted on the instructions or the advice of the partners but in the absence of the accountant being called, the reasons giving rise to the contents of the letters of 9 November 1990 and 1 April 2008 remain unexplained; and
· If at all times after 1 January 1989 the applicant was an employee, there was no explanation why income tax was not withdrawn from the payments made to him until after 27 November 1990 or a group certificate not being issued until 30 June 1991 in respect of the income paid after 1 December 1990 (refer later) only.
34. The applicant asserted that he was an employee of the practice after 1 January 1989 on the following basis:
(a)From 1 January 1989 he did not regard himself as a partner, he was not involved in the administration of the practice and only attended partners' meetings if asked. Prior to 1 January 1989 he did participate in partners' meetings and made decisions with the other partners by consensus. He did not work at the direction of the other partners.
(b)He regarded himself as having an entitlement to a salary only calculated at $40.00 per hour for each hour worked. That arrangement arose out of an agreement between him and the persons, who he said, constituted the partnership on and from 1 January 1989;
(c)He did not make any contribution to the outgoings of the firm after 1 January 1989;
(d)He said theoretically he would be entitled to 5 percent of the value of the assets of the partnership in the event of dissolution of it but said that he had an expectation that the partner to whom he had transferred 20 percent would be responsible with the other partners in the event of a judgement being entered against the practice; and
(e)The entitlement to salary at $40.00 per hour was the sole remuneration to which he was entitled and from 1 January 1989 he had no entitlement to partnership profits or a distribution from the practice trust.
35. The case for the respondent was of the applicant not being an employee before 25 November 1990 when he transferred the remaining 5 percent of his interest to the new partner. By way of summary the respondent relied on the following issues that emerged from the evidence:
(i)The applicant did attend some partners' meetings after 1 January 1989, he was consulted on occasions by the other partners and it was understood that by him having that degree of interest he had a right to be heard and his interest constituted a stake in the partnership;
(ii)The applicant agreed to retain 5 percent of his interest after transfer of the other 20 percent to the new partner by representations made to him by the other partners existing prior to 1 January 1989 and 5 percent should be retained until such time as the partners were content with the performance of the new person as a partner;
(iii)Income tax was not deducted by the practice from the remuneration received by the applicant before 25 November 1990 nor was a group certificate issued prior to that date;
(iv)The wages book received into evidence records that the applicant commenced employment with the practice on 1 December 1990 and was paid either at $35.00 or $40.00 per hour. A group certificate was issued after 30 June 1991 in respect of the employment;
(v)The letter of 9 November 1990 records the applicant being one of five persons who would be identified in a partnership income tax return for the 1990 income year. The letter also records that the applicant was entitled to a taxable distribution of monies which were recorded in the partnership return;
(vi)The applicant agreed that he was described in the partnership return as having an entitlement in order to satisfy the Australian Taxation Office;
(vii)The letter of November 1990 also refers to the applicant having an entitlement in the 1989 year, specifically from 1 January 1989, of monies described as a share of profit but also described as being the sum payable by regard to hours worked at $40.00 per hour;
(viii)The applicant was unsure whether he was recorded with the Law Institute of Victoria as a partner in the practice after 1 January 1989 and was also unsure whether he was recorded in any policy of professional indemnity insurance as a partner. He had no recollection of whether his name was recorded on the letterhead of the firm after that date. Mr Umbers was of the belief that the applicant was recorded with the Law Institute of Victoria as a partner after 1 January 1989 but not from 25 November 1990. Mr Umbers was also of the belief that the applicant remained named on the letterhead after 1 January 1989 but not after 25 November 1990;
(ix)Both Mr Umbers and Mr Hill agreed that the applicant, by reason of him retaining 5 percent interest in the partnership, had an entitlement after 1 January 1989 to a distribution in the event of the partnership being dissolved and were also of the belief that he had a liability in the event of a judgement being entered against the firm;
(x)The applicant remained the proprietor of the registered business name of the practice until 25 November 1990;
(xi)The applicant was engaged without direction or supervision by the other partners.
36. Having regard to the foregoing I am satisfied, and find as a fact, that the applicant remained a partner, that is to say he was working on his own account, in partnership, at all times prior to 25 November 1990. He was not an employee of another person (refer s 24(2A)(g)(i)) before that date.
37. The difficulties and uncertainty involved in reconstructing the events surrounding the partnership immediately before and after 1 January 1989 have been referred to above. However, it would appear, despite the passage of time, the absence of documentation and the imperfection of memory that the applicant did remain a partner and his interest was confined to 5 percent from 1 January 1989 until 25 November 1990.
38. It would appear that there was agreement reached between the applicant and the other partners that he would, after 1 January 1989, be remunerated at $40.00 per hour for each hour worked but there is nothing from the language of the witnesses that he was regarded as being an employee. If he was, income tax would have been withdrawn weekly and a group certificate would have issued. Representations were made to the Tax Office that the applicant was a partner in the 1990 income year and the applicant cannot now assert that he was, in that year, an employee. It was only at 25 November 1990 that the status of the applicant changed and from that date he was an employee. Of significance in my view is the representations made to the Tax Office in the 1990 year were well after 1 January 1989 from which date the applicant retained a 5 percent interest in the partnership. That interest was held until the 1991 income year.
39. It would appear that the applicant did receive a distribution from the MUH Practice Trust in the 1989 and 1990 income years but those sums were deducted from the amounts paid for the hours worked. It would appear that the Trust distribution was paid in error and there was an adjustment later but those errors tend to point in my view to the confusion or uncertainty either by the accountant or the instructions the accountant received from the partners about the true status of the applicant.
40. I wondered, having heard the applicant and his witnesses, and having read the materials, whether the applicant might be described from 1 January 1989 as a salaried partner but such a finding is not required because I am satisfied on the balance of probabilities that only from 25 November 1990 can the applicant be regarded as being an employee of another person namely, the partnership. Prior to that date he was a partner although between 1 January 1989 and 25 November 1990 the extent of his partnership was confined to 5 percent. In that period of time he earned income, he was represented to the Tax Office as a partner and he completed a partnership return. The partnership (the alleged employer) did not deduct income tax from the amounts paid to him before 25 November 1990 nor was a group certificate issued. A group certificate was issued in the 1991 year which was a representation on the part of the employer, to the Tax Office, that monies had been paid to the applicant (the employee) which were regarded as income from which taxation was withdrawn on a weekly basis. Those representations are to be compared to the representations made in 1990 when a partnership return was lodged.
41. The applicant relied on the definition of a partnership at s 5 of the Partnership Act 1958 (Vic). That section provides that a partnership is the relationship that exists between persons carrying on a business in common with a view of profit. That section appears in similar legislation in other States.
42. The relationship between partners carrying on a business in common is, in other words, a mutual agreement or undertaking between persons. In the present case such mutuality existed after 1 January 1989. The applicant remained a partner on terms and conditions that were agreed between him and the other partners. The applicant was well respected and had a long standing of high repute in his local community. He was regarded as an asset of the practice by the other partners and it was in his interests and the interests of the partners for him to be retained as he was. He remained an owner of the registered business name until 25 November 1990. Section 7 of the Business Names Act 1962 (Victoria) provides that an applicant for a business name shall describe the nature of the business carried on . .. under that name by the applicant . . . .It is not only an application but a representation to the Business Name Registrar of the carrying on of a business. The business of the applicant, prior to him ceasing to be the owner of the business name on 25 November 1990 was a legal practice of which he was a partner.
43. I am satisfied also that the applicant and the other partners from 1 January 1989 conducted the partnership with a view of profit which may alternatively be understood as meaning the intention to earn income at a rate greater than expenses. By all accounts it would appear that considerable income was earned and profits were distributed. In the 1989 and 1990 years, the letter from the accountant describes the monetary entitlement of the applicant as a share of profit. No where is it recorded that the monies were income received as salary or wages. If the monies were paid by that description – because he was regarded as an employee – he would not have been identified at all in the 1990 partnership return. The taxable distribution to the applicant calculated by hours worked, does not dilute or alter his status as a partner. It certainly does not transform the relationship between the applicant and the other partners into a relationship of employee or employer. By his continuing to be engaged, the applicant generated fee income for the practice. There was a clear view to profit which, having regard to distribution in 1990, was obviously demonstrated.
44. I think only from 25 November 1990 can it be said that the applicant was no longer engaged in a mutual agreement with other persons constituting a partnership because from that date he had divested himself of his remaining interest in the partnership. Equally from that date it cannot be said that the applicant was conducting a practice with a view to profit. Rather he was, from that date, engaged as an employee earning a salary over which he paid income tax by deductions made by the employer and a group certificate was issued at the end of the 1991 income year.
45. The relationship of employee and employer is more than an identification of whether there is a contract of or for services. It compels enquiry into whether the person who is alleged to be an employee had rights:
(i)to annual leave, sick leave and long service leave;
(ii)whether the person was entitled to compensation as a worker (by reason of employment);
(iii)whether there were rights under an industrial award or workplace agreement which both parties could exploit; and
(iv)the basis that income is payable.
Many other elements probably apply. There was nothing from the evidence heard and read, that these features, typical of the employment of persons, were ever considered or applied to the applicant before 25 November 1990. I doubt that he was ever regarded as an employee before that date. His status between 25 November 1990, (when he ceased to be a proprietor of the business name and when he transferred his 5 percent interest) and 1 December 1990 (when the wages book records him starting employment) is unclear. But the events of 25 November were, of themselves, sufficient to end the applicant's membership of the partnership.
46. On balance therefore the applicant cannot satisfy s 24(2A)(g)(i) or (ii) of the Act. Two dates in particular are important. The applicant turned 65 years on 7 July 1989. His claim for special rate pension which was the subject of this review was made on 19 October 2007. At that latter date the applicant had not been working as an employee or working on his own account for a continuous period of at least ten years that began before the age of 65.
47. In the circumstances the decision under review will be affirmed.
I certify that the 47 preceding paragraphs are a true copy of the reasons for the decision herein of:
Mr John Handley, Senior MemberSigned: Grace Carney Personal Assistant
Dates of Hearing 5 and 6 October 2009
Date of Decision 27 November 2009
Counsel for the Applicant Mr R Niall
Solicitor for the Applicant Williams Winter
Departmental Advocate Mr K Rudge
ANNEXURE
PERSONAL & CONFIDENTIAL
9th November, 1990.
Mr R W Umbers,
McCluskys,
180 Bay Street,PORT MELBOURNE. VIC 3207
Dear Bob,
RE: PARTNERSHIP
I enclose the 1990 Income Tax Return for signature and return to me. Copies of the financial statements are attached for distribution to the partners.
The taxable distribution to be included in 1990 income tax of the partners are as follows –
J W McClusky 49,981
Deleted Deleted
Deleted Deleted
Deleted Deleted
Deleted Deleted
Deleted
Mr McClusky's share of profit has been calculated as follows:-
1,309 hours at $40 52,360
Less Income received through M U H Trust 3,365
48,995The balance of the income has been distributed in proportions
25/25/25/20.
ADJUSTMENT RE 1989 DISTRIBUTION
An error was made in calculating Mr McClusky's share of profit for 1989
and 1990 as follows:-
J W McC Share
Profit to 31/12/88 deleted deleted = deleted
Profit to 30/6/89 deleted 5% 6,826
Total deleted 67,709
- 2 -
Mr McClusky's share of profit for the period 1/1/89 to
30/6/89 should have been 682 hours @ 40 = 27,280
Less Share of income from M U H Trust
for period 1/1/89 - 30/6/89 = 1,630
Share of Profit 25,650
Profit share credited 6,826
Adjustment Required 18,824
To correct the accounting position, I suggest that Cassie to record the following journal entry –
Dr Deleted Deleted
Dr Deleted Deleted
Dr Deleted Deleted
Dr Deleted Deleted
Cr J W McClusky 18,824
Adjustment to correct incorrect allocation of income derived during 6 months period ended 30/6/1989.
This entry will correct the books but it ignores the fact that deleted, deleted, deleted and deleted have paid tax on a total of $18,824 which tax would have been paid by J Mc.Clusky if proper allowance had been made for the remuneration due to him on an hourly basis. All partners were taxed at the same tax rate viz. 50.25% including Medicare Levy. It is suggested that the following payments be made by J McClusky to correct the position.
To Deleted .5025% of deleted deleted
To Deleted .5025% of deleted deleted
To Deleted .5025% of deleted deleted
To Deleted .5025% of deleted deleted
- 3 -
There are 3 other methods of adjustment -
[1]Debit Deleted/Deleted/Deleted - Deleted with net adjustment and credit J W McClusky with after tax adjustment. This means that Deleted and others would not recover the additional tax paid by them until some time in the future.
[2]Notify the Tax Office and obtain amended assessments for all partners for 1989.
[3]Mr McClusky to pay tax on extra $18,824 in 1989/1990 financial year.
I believe that the method selected is the most appropriate. If any other method is adopted then the accounts forwarded herewith will require adjustment.
Please contact me if this is not clear or if you want me to discuss this with you and/or John McClusky personally.
Regards,
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