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Published online by Cambridge University Press: 24 January 2025
Taxation — Assignment by deed of share in partnership — Effect of assignment on accumulated partnership income — Income Tax Assessment Act 1936 (Cth) ss 92, 95, 102.
Michael Bernard Galland (“the taxpayer”) carried on practice as a solicitor in partnership with his father, under the name of “Bernard L. Galland & Co” (“the partnership”), during the 1979-80 year of income. The partnership agreement provided, inter alia, for the equal division of profits and losses which were to be ascertained in July after the preparation of accounts in respect of the previous financial year.
(1984) 15 ATR 200, (1984) ATC 4053; New South Wales Supreme Court; Hunt J.
2 “Escrow. A writing sealed and delivered to a stranger (i e a person not a party to it) to be held by him until certain conditions be performed . . . and then to be delivered to take effect as a.deed.” J, Burke, Osborn's Concise Law Dictionary (6th ed 1976) 135Google Scholar.
3 Such approval is required pursuant to reg 25(4) of the Solicitors (General) Regulations (NSW).
4 The assignment was substantially in the same form as that considered by the High Court in FCT v Everett (1980) 143 CLR 440. In that case, the taxpayer and his wife executed a deed on 7 January 1969 which conveyed six thirteenths of the taxpayer's share in a partnership of solicitors “together with all those rights including the right to receive an appropriate share of the profits of the partner to which an assignee of a share in a partnership is entitled”. However, the deed further provided that the assignee was not entitled to any share of the prospective profits accumulated in the books of the partnership and held subject to distribution when accounts were taken after June 30.
A majority of the High Court (Barwick CJ, Stephen, Mason and Wilson JJ, Murphy J dissenting) held that the deed had the effect of an equitable assignment of a portion of the taxpayer's interest in the partnership and carried with it the right to future income referable to that portion. The taxpayer became a trustee of that interest for the assignee so that the income in question was assessable to the assignee as income of a trust estate under s 97 of the Income Tax Assessment Act 1936 (Cth). The taxpayer, as trustee, was not liable to pay income tax on the income of the trust estate by reason of s 96 of the Income Tax Assessment Act 1936 (Cth).
The important point to note is that, due to the wording of the deed of assignment, the question of the assessability of income earned by the partnership prior to 7 January but not distributed until 30 June did not arise.
5 The taxpayer's daughter was under a legal disability and therefore the distribution made to her was assessable income of the trustee under s 98(1) of the Income Tax Assessment Act 1936 (Cth).
6 The right to appeal is conferred bys 196 of the Income Tax Assessment Act 1936 (Cth) and the composition of the Court is governed by s 197 of that Act.
7 Under s 190(b) of the Income Tax Assessment Act 1936 (Cth) it is the taxpayer who bears that onus of proving that the assessment is excessive. Hunt J stated that he had not overlooked this requirement “notwithstanding the way in which I have expressed the issues which have been argued” (1984) 15 ATR 200, 203. His Honour considered that the issues in the case were largely questions of law so that considerations as to where the burden of proof lay were “somewhat unimportant”. Ibid 204.
8 Ibid 203.
9 Ibid 204.
10 The assessable income of a partner only includes his individual interest in the net income of the partnership: s 92 of the Income Tax Assessment Act (Cth).
11 See Commissioner of Taxation (SA) v The Executor Trustee & Agency Co of South Australia Ltd (1938) 63 CLR 108; FCT v Firstenberg (1976) 76 ATC 4141.
12 (1984) 15 ATR 200, 205.
13 Ibid 204.
14 Ibid 205.
15 (1982) 13 ATR 110; 82 ATC 4243.
16 (1960) 8 AITR I 19; 106 CLR 395.
17 (1984) 15 ATR 200, 206.
18 See George v Greater Adelaide Land Development Co Ltd (1929) 43 CLR 91; Adelaide Development Co Pty Ltd v Pohlner (1933) 49 CLR 25; Braham v Walker (1961) 104 CLR 366.
19 (1984) 15 ATR 200, 206.
20 (1982] Ch 511.
21 (1929) 42 CLR 80.
22 (1984) 15 ATR 200, 206.
23 Ruling IT 2003 “Assignment of Partnership Interests”.
24 (1962) 8 AITR 567; 13 ATD 101.
25 (1984) 15 ATR 200, 208.
26 Ibid 208.
27 See FCT v Everett, (1980) 10 ATR 608.
28 See K W, Ryan, Manual of the Law of Income Tax in Australia (5th ed 1980) 242Google Scholar.
29 (1970) 120 CLR 353; I ATR 667.
30 (1970) 120 CLR 353,362; I ATR 667,670.
31 Ibid.
32 (1984) 15 ATR 200, 207.
33 K W, Ryan, Manual of the Law of Income Tax in Australia (5th ed 1980) 242Google Scholar.
34 (1962) 8 AITR 567
35 26 CTBR(NS), Case 5, 32 per Dr P Gerber.
36 Ibid 29 per Mr M B Hogan.
37 26 CTBR(NS), Case 5 and 26 CTBR(NS), Case 123.