MacFarlane v Commissioner of Taxation

The case of MacFarlane v Commissioner of Taxation involved the taxpayer, Mr. MacFarlane, contesting certain amended assessments issued by the Commissioner of Taxation. The taxpayer had omitted to declare interest from certain investments and moneys he had appropriated from a company he controlled, leading to disputes over whether these amounts were properly included in his assessable income. The matter was heard by the Federal Court of Australia.

The central legal issues before the court were whether the taxpayer's de facto wife was beneficially entitled to half of the investment income and if the legal title of the investments was determinative of this entitlement. Additionally, the court had to decide if the moneys appropriated by the taxpayer from the company he controlled should be considered a "deemed dividend" under section 108 of the Income Tax Assessment Act 1936 and if this deemed dividend was part of his assessable income pursuant to section 44(1) of the Act. The court also needed to determine if the deemed dividend was paid "out of profits derived by [the company]".

The court concluded that the taxpayer's de facto wife was indeed beneficially entitled to half of the income derived from the investments, regardless of the legal title being in the taxpayer's name. This was based on the equitable principle that the wife had a beneficial interest in the investments. Regarding the moneys appropriated from the company, the court found that these did not constitute a "deemed dividend" as they were not derived from company profits. Consequently, they were not part of the taxpayer's assessable income.

The court allowed the appeal in part and varied the orders of the Supreme Court of New South Wales. It ordered that the amended assessments for the years of income ended 30 June 1972 to 30 June 1979 be remitted to the respondent to include half of the income derived from the investments in the taxpayer's assessable income. The appeal was otherwise dismissed, and there was no order as to the costs of the appeal.