Messer v Deputy Federal Commissioner of Taxation

The case of *Messer v Deputy Federal Commissioner of Taxation* concerned an appeal to the High Court of Australia by Kenneth Durward Messer against an income tax assessment. The dispute arose from the formation of a company to take over a pastoral business previously operated by a partnership of which Messer was a member. The partnership transferred its assets, including a pastoral lease, to the newly formed company. In exchange for these assets, the partners received shares in the company. The Commissioner of Taxation assessed Messer for income tax on the value of his shares, treating it as consideration for the assignment of the lease.

The primary legal issue before the High Court was whether the shares received by Messer constituted "money derived by way of consideration for the assignment or transfer of a lease" within the meaning of section 16(d) of the *Income Tax Assessment Act 1922-1930*, or if they fell under the provision for amounts paid by a company in the form of shares. A related question concerned the constitutional validity of section 16(d) if it were interpreted to tax share considerations unconditionally.

The Court reasoned that while the transaction involved an exchange of cheques between the partners and the company, this was a procedural step to comply with company law requirements for shares to be considered paid for in cash, rather than a genuine cash payment to the partners. The substance of the transaction was that the partners received shares in the company in exchange for the business assets, including the lease. The Court held that the phrase "money derived" in section 16(d) referred to money that came under the actual control and disposition of the taxpayer, which was not the case here. Instead, the consideration received was in the form of shares.

Consequently, the High Court held that the assessment should be reduced by excluding from Messer's assessable income twenty-nine thirty-fifth parts of the sum of £1,000 referable to the consideration for the pastoral lease, as this proportion represented the value of the shares received. The Court found it unnecessary to answer the second question regarding the classification of the income.