W M Kuhnel and Company Limited v Deputy Federal Commissioner of Taxation (SA) - [1923] HCA 58

33 CLR 349

WM. KUHNEL &COMPANY LIMITED

THE DEPUTY FEDERAL COMMISSIONER

OF TAXATION (SOUTH AUSTRALIA) War-time Profits Tax-AssessmentDeductions from profits-Commonwealth income

tax-Taxpayer a company-Shareholder a trustee-War-time Profits Tax Assessment Act 1917-1918 (No 33 of 1917-No. 40 of 1918), secs. 15 (4), (5), 18-Income Tax Assessment Act 1915-1916 (No. 34 of 1915-No. 39 of 1916), sec. 26 (1)-Income Tax Assessment Act 1915-1918 (No. 34 of 1915-No. 18 of 1918), sec. 26.

Held, that the proper method for determining the deduction, from the profits of a company provided for by sub-secs. 4 and 5 (c) of sec. 15 of the War-time Profits Tax Assessment Act 1917-1918, of Commonwealth income tax paid in respect of the profits is (a) as to the accounting periods 1916-1917 and 1917- 1918, to find the amounts of income tax that would have been payable by each shareholder of the company if the share of the profits credited or paid to him had been the only income derived by him from sources within Australia, whether the shareholder is a trustee or not; and (b) as to the accounting period 1918-1919, to find the amounts of income tax that would have been payable by each shareholder of the company if the share of the profits credited or paid to him had been the only income derived by him from sources within Australia, but limited where the shareholder is a trustee to the amount for which the trustee is to be separately assessed and liable under sec. 26 (2) of the Income Tax Assessment Act 1915-1918.

33 CLR 350

Sendall v. Federal Commissioner of Land Tax, (1911) 12 C.L.R., 653, not followed by Isaacs and Rich JJ. with respect to the War-time Profits Tax Assessment Act 1917-1918.

CASE STATED. On the hearing of appeals by Wm. Kuhnel &Co. Ltd. to the Supreme Court of South Australia from assessments for war-time profits tax for the several accounting periods 1916-1917, 1917-1918 (S.A.).

and 1918-1919, Murray C.J. stated, for the opinion of the High Court, a case which, SO far as material, was as follows :-

1. The appellant is a company duly registered in the State of South Australia under the provisions of the Companies Act 1892 (S.A.) as a limited company.

2. William Kuhnel (hereinafter called the testator ") late of Ran- furly, Brougham Place, North Adelaide, in the State of South Australia, piano warehouseman, deceased, by his will dated 29th June 1915, probate whereof was granted by the Supreme Court of the said State on 3rd May 1916, appointed Elder's Trustee and Executor Co. Ltd., whose registered office is situate at 29-31 Currie Street, Adelaide, in the said State, his sole executor and trustee.

3. Pursuant to the memorandum and articles of association of Wm. Kuhnel &Co. Ltd. (hereinafter referred to as "the appellant Company") the capital of the appellant Company is £75,000 divided into 75,000 shares of one £1 each, of which 50,000 shares were deemed fully paid up and were issued to the testator and his nominees as…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

AGLC: W M Kuhnel and Company Limited v Deputy Federal Commissioner of Taxation (SA) [1923] HCA 58
Case: [1923] HCA 58
Decision Date: 7 December 1923

CaseChat Overview and Summary

The case of *W M Kuhnel and Company Limited v Deputy Federal Commissioner of Taxation (SA)* concerned appeals by the appellant company against assessments for war-time profits tax for the financial years 1916-1917, 1917-1918, and 1918-1919. The dispute centred on the correct method for calculating the deduction from the company's profits for Commonwealth income tax paid in respect of those profits, as provided by sections 15(4) and 15(5)(c) of the *War-time Profits Tax Assessment Act 1917-1918*. The matter was brought before the High Court of Australia by way of a case stated by the Supreme Court of South Australia.

The primary legal issue before the High Court was to determine the proper method for calculating the deduction for Commonwealth income tax. Specifically, the court had to ascertain how to apply section 15(5)(c) of the *War-time Profits Tax Assessment Act*, which required the deduction of the aggregate of amounts of tax that would have been payable by each shareholder if their share of the company's profits had been their sole Australian income. This involved determining how to treat a shareholder that was a trustee, and how the provisions of the relevant *Income Tax Assessment Acts* applied to such a shareholder, particularly in light of changes to those provisions over the relevant accounting periods.

The High Court, in its judgments, clarified the method for calculating the deduction. For the accounting periods 1916-1917 and 1917-1918, the court held that the income tax payable by a shareholder who was a trustee should be calculated as if the trustee were beneficially entitled to the entire share of profits received in that capacity, and that this amount should be assessed at the rate applicable to a person with that income as their sole Australian income. For the accounting period 1918-1919, the court noted that the *Income Tax Assessment Act* had been amended, and the calculation for a trustee shareholder was to be limited to the amount for which the trustee was separately assessed and liable under the revised section 26(2) of that Act. The court also indicated that the method previously applied by the Commissioner for the first two periods, as described in paragraph 24 of the case, was in accordance with the law then existing. The court explicitly stated that the *Sendall v. Federal Commissioner of Land Tax* decision was not to be followed in relation to the *War-time Profits Tax Assessment Act*.

Orders