Commissioner of Taxation v. Comber, A.H. [1986] FCA 92

Federal Court of Australia|1986-03-27|Before: Lockhart JJ, Fisher J, Lockhart J

Income Tax - Assessable income - Retirement allowance - Lump sum

Portion deemed by s.109 to be a dividend - Whether such portion

excluded from assessment under s.26(d) - Whether assessable

dividend under s.44(1) - Whether capital or income in nature.

Income Tax Assessment Act 1936, ss.25(1), 26(d), 44(1), 78(1),

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. 238 of 1985 ) )

ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES

BETWEEN : THE COMMISSIONER OF TAXATION OF THE, COMMONWEALTH OF AUSTRALIA

JUDGES MAKING ORDER : Bowen C.J., Fisher and Lockhart JJ.

The order of the Supreme Court of New South Wales be varied by deleting the order that the Commissioner amend the respondent''s assessment by including therein 5% of the whole of the sum of

$100,000 and substituting therefor an order that there be included in the respondent's assessment 5% of portion of the said

The assessment be remitted to the Commissioner for amendment in

The Commissioner of Taxation pay to Albert Henry Comber his costs

Settlement and entry of orders is dealt with in Order 36 of the

) ) NEW SOUTH WALES DISTRICT REGISTRY ) No. 238 of 1985 ) GENERAL DIVISION )

ON APPEAL FROM THE SUPREME: COURT OF NEW SOUTH WALES

BETWEEN : THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALTA

The facts and the relevant statutory provisions are set forth

in the reasons for judgment of Fisher J. and Lockhart J.

The first question is whether $58,500, portion of an amount

of $100,000 paid to Mr Comber, is assessable as a dividend in his hands by virtue of para. 44(1)(a) of the Income Tax Assessment Act

The sum of $58,500 being in the opinion of the Commissioner of Taxation in excess of an amount which is reasonable, is by virtue

of s.109 deemed to be a dividend paid by the company on the last day of the year of income in which it was paid or credited. This is of

significance for the company, which loses the deduction which it

otherwise might have claimed under para. 78(1)(c). However, Mr Comber was not at the relevant time a shareholder in the company. Paragraph 44(1)(a) only reaches shareholders. It does not render the amount

The next question is whether the sum of $58,500 is within para. 26(d) so that it 1s assessable income in the hands of Mr Comber to the extent of 5%. It is within para. 26(d) unless it is excluded

by the terms of para. 26(d)(1). The wording of para. 26(d)(i) raises

Prior to amending Act No. 90 of 1952 the wording of para. 26(d)(i) was appropriate because s.109 in its then form deemed so much of an allowance, gratuity or compensation as exceeded an amount- which in the opirtion of the Commissioner was reasonable to be "a dividend paid out of profits derived by it to the recipient and received by him as a shareholder of the company". Clearly the amount of excess

determined under old s.109 was deemed under a provision of the Act to be "a dividend paid to the recipient". When s.109 was amended in

1952 although the amount of the excess was still deemed to be a dividend it was no longer deemed to be paid out of profits or to be

received by the recipient as a shareholder of the company.

The new s.109 is, of course, dealing with amounts in fact paid to recipients and it deems the excess of the amount so paid to be a dividend. Is this sufficient to answer the words of para. 26(d)(i)? Paragraph 26(d)(1) is clearly dealing with amounts in fact paid to the taxpayer. One such amount paid to the taxpayer. which is excluded by the words of para (i) is an amount that under a provision of the Act is deemed to be a dividend paid to the recipient. Can one marry the

notional and actual position and say para (i) is satisfied where the amount is "notionally" deemed to be a dividend and "actually" paid to the recipient. Because of the earlier words of para. 26(d)(i) namely "any allowance, gratuity or compensation where that amount is paid in a lump sum", the words "paid to the recipient" would seem to be otiose 1f they merely refer to the actual position. However, the words are not inconsistent with an interpretation which reads them as referring to the actual position. The draftsman of the amendments of 1952 may well have left the words in para. (1) unaltered when he altered s.109 on the basis they could still be read appropriately to cover the case of excess under s.109. Indeed, if this is not so they seem to have become inapplicable to any amount since nowhere else in the Act is the amount of an allowance, gratuity or compensation under any provision

of the Act deemed "to be a dividend paid to the recipient".

In my opinion para 26(d)(i) does apply to the amount of $58,500, with the result that it is excluded from the operation of

The final question which arises is whether the amount is

income in accordance with ordinary concepts and in consequence assessable income in the hands of Mr Comber in pursuance of

sub-s.25(1). In the light of the facts found by the learned trial

Judge it appears to me that the amount was of a capital nature. it

was a gift and it was not in any real sense the_ product of any income earning activities of Mr Comber. In my opinion it was a capital

Commissioner for appropriate amendment. The Commissioner of Taxation

I certify that tnis and the three (35 preceding pages are a true copy of the Reasons for Judgment herein of his 'Honour the Chief Judge, Sir Nigel Bowen.

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

FISHER ¢.: This is an appeal by the Commissioner of Taxation ("the Commissioner") from the Supreme Court of New South Wales in the Administrative Law Division. There were in fact two appeals heard concurrently by that Court against decisions of Taxation Board of Review No.3 which had confirmed assessments for the vear ot imcome ending 30 June 1980. The respondent Albert Henry Comber ("the taxpayer") and Henry Comber Pty. Limited ("the company") were appellants before the Supreme Court. The learned

trial Judge dismissed the appeal by the company and allowed the

In my opinion the findings made by the trial Judge on this question were reasonably open to him and no ground has_ been established for interfering with them. It follows that the payment of $58,500 to the taxpayer was of a capital nature and does not

constitute assessable income for the purposes of s. 25.

F . i certfy that this and the Thirteen (13) preceding pages are a true copy of the -

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Judgment (49 paragraphs)

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