Commissioner of Taxation v Walsh, Peter Joseph & Anor [1983] FCA 140

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

PETER JOSEPH WALSH and BEATRICE JOAN WALSH as trustees for LISA MARIE WALSH TRUST

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

BEATRICE JOAN WALSH as trustees for LISA MARLE WALSH TRUST

JUDGES MAKING ORDER - McGregor, Lockhart, Fitzgerald JJ.

) ) QUEENSLAND DISTRICT REGISTRY ) Qld. G14 of 1983 ) )

BETWEEN: THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Appellant AND:

PETER JOSEPH WALSH and BEATRICE JOAN WALSH as trustees for LISA MARIE WALSH TRUST

Respondents Coram: McGregor, Lockhart, Fitzgerald JJ. Date : 5 July 1983 REASONS FOR JUDGMENT McGregor J. THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH

OF AUSTRALIA (the Commissioner) appealed against a decision of a judge of the Supreme Court of Queensland wherein he directed that

an assessment of income tax imposed pursuant to the provisions of

s.94 of the Income Tax Assessment Act 1936 (the Act) for the year ended June 1973, be set aside. The income referred to in the notice of assessment was said to be "net uncontrolled partnership

income of $1,768." In a notice accompanying the assessment the

A further tax of $751.02 has been imposed in accordance with the provisions of section

94 on the net uncontrolled partnership income of $1768 included in your taxable income.

2. The net uncontrolled partnership income was arrived at by deducting from the gross uncontrolled partnership income included in your assessable income the proportion of

expenses and apportionable deductions applicable thereto.

Gross uncontrolled partnership income included in the assessable

Proportion of expenses applicable to the total partnership incame $ - -

Net uncontrolled partnership income included in the assessable income $1768.00

Proportion of apportionable deductions as defined by section 6 $ -

4. The rate of further tax has the effect of imposing on the net uncontrolled partnership income included in the taxable income a total rate of 50 cents in the dollar."

The essential facts and findings which are not 1n daspute or,

Syncarpia Pty. Ltd. (Syncarpia) was, pursuant to a deed dated 22 November 1972, the holder of trust property and trustee thereof as therein defined for certain unit holders who were holders of numbers of units; the trust thus constituted being styled "The

The said deed provided that each unit holder was to be presently entitled to the income of the unit of

In the year ended June 1973 Syncarpia with two other companies, Wise Investments Pty. Ltd. and Glen Gar Don Pty. Ltd., otherwise unassociated with it, entered into a profit making venture described in detail in the reasons for judgment of the judge at first instance in the Supreme Court of Queensland. The oral agreement between the partners was that they should purchase a property, sell it at a profit, and split the profit after taking out costs equally; 1£ there were any loss they were also to be split equally. As a result, and still within that income year, Syncarpia made a

referred to in the tax return for the year ending

Peter Joseph Walsh and Beatrice Joan Walsh were, by

deed dated 21 November 1972, constituted trustees of property, as to capital and income thereon to be held absolutely for Lisa Marie Walsh as cestui que

The profit referred to in (i) above was distributed by Syncarpia to unit holders under the P.J. Walsh Family Unit Trust; P.J. and B.J. Walsh as trustees

P.J. and B.d. Walsh as trustees for Lisa Marie Walsh in their Return for year ending June 1973, included in their net income, inter alia, the distribution of the said sum of $1768.00. The Return was stated to have been prepared by

(ix) The Commissioner, relying on s.94 of the Act,

(x) The trial judge found that there was a partnership at least within the meaning of s.6(1) of the Act

(xi) Lisa Marie Walsh was presently entitled to the whole of the income being held by her parents under the deed dated 21 November 1972; but, being in the

Before this court, as before the trial judge, there was an issue as to whether there was any partnership. Iam satisfied, with respect, that the learned trial judge was correct in the conclusion he reached, 1.e. that there was a partnership at least within the extended meaning of s.6{1) of the Act. Further, I agree with him also that P.J. & B.J. Walsh are assessable to tax on the share of the net income of the trust

estate of Lisa Marie Walsh pursuant to s.98 of the Act.

The question here is whether the further tax imposed in reliance on s.94 of the Act 1s payable. It will be if that section or any sub-section which is in an entire form applies to these facts. Section 94 is in Division 5 of the Act referring to Partnership; but sub-sections in it refer to Trust Estates. Division 6 was

headed "Trustees". There appears to be some affinity or

Parsons and Kenneally in Principles of Income Tax Law in

Australia (which professes to state the law as at 5 March 1974)

(1) To impose further tax on the share of partnership income to which a _ person under 16 years of age on the last day of the year of income is presently entitled whether as partner or as beneficiary

under a trust estate (Subsections (3) and (4) of s.94); and

(2) to impose further tax on the share of partnership income to which a person ether than a company is entitled as

partner or as beneficiary under a trust estate (whether immediately or through a

series of trusts) whose trustee is a partner or which is assessable to that trustee or to a trustee in another trust as income to which no person is presently entitled, if the partnership is so constituted or controlled or its operations are so conducted that the partner or trustee-partner has not the real and effective control and disposal of the share of partnership income or of

a part of that share (Subsections (1) and (2) of s.94)."

Section 94(1) may be discarded from consideration. The net income of the partnership was the net income of Syncarpia plus companies named. The relevant partner is Syncarpia; but, contrary to s.94(1)(a)(i) it is a company, and a "person in the Capacity of trustee"; and, contrary to $s.94(1)(b), the partnership was not so constituted or controlled or its operation so conducted that the partner (Syncarpia) had not the real and effective control and disposal of its share. There was no evidence or finding by the learned trial judge of any aspect in the agreement between the partners as a result of which the partnership could be said to be so constituted or controlled nor as to the way its operations were conducted. In my opinion, the

words of Latham C.J. in Robert Coldstream Partnership v.

FederalCommissioner of Taxation (1943-44) 68 C.L.R. 391

(Coldstream) at pp.392,393 (referring to the then s.94) are

"The section refers in the first place to three circumstances or conditions. First, the

constitution of the partnership, which must be determined upon a consideration of the terms of the partnership agreement; second, the control of the partnership, which must be determined by reference to the facts of management and the conduct of the business of the partnership, and, thirdly, the conduct of the operations of the partnership, which 1 have some difficulty in distinguishing from

Implication (so far as there is any) is rather to the contrary of

there being any such constitution control or conduct. The partners were entitled, so far as the agreement between them

revealed to dispose of their share as they chose. It 1s not to

the point, I suggest, that, quite separately from the agreement for partnership, Syncarpia was bound by the trust deed - and, in particular, by its clauses 4, 5 and 23 - which might be thought effectively to affect the said control, or at least the disposal, after its receipt, of its income. I note also the words of

considered by Latham C.J. had no equivalents to e.g. s.94(4) (5) or (11); and did not refer to trustees or further tax. Yet its opening words were as to partnership constitution control and conduct similar to those introduced by the amending Act No. 110

of 1964. Section 94(1) is said to be "subject to this section";

it is necessary to consider the effect of later sub-sections

should the facts in this matter fall within them or any of them.

"Subject to the succeeding provisions of this section, where -

(a) a partnership is so constituted or controlled, or its operations are so conducted, that a partner in the

partnership, being a trustee of a trust estate, has not the real and effective control and disposal of his share in the

part of that share (which share or part of a share, as the case may be, is in this sub-section referred to as

(b) in calculating in accordance with section 95 the net income of that trust estate or of any other trust estate, there is included in the assessable

income of the trust estate any uncontrolled partnership income,

(i) a beneficiary, not being a company or a person in relation to whose share of the income of the trust estate sub-section (4) applies, is presently entitled to the whole of the income of the trust estate otherwise than in the capacity of a trustee; or

(1i) there is no part of the net income of the trust estate that is included in the assessable income of a beneficiary in pursuance of section 97 or in

respect of which the trustee is assessed and liable to pay tax

this section applies to the portion of the net income of the trust estate that

if a beneficiary, not being a company or a person in relation to whose share of the income of the trust estate sub-section (4) applies, is presently entitled to a share of the income of the trust estate otherwise than in the

capacity of a trustee, this section applies to so much of that share of the

to that share the same proportion as the portion of the net income of the trust

partnership income bears to the net income of the trust estate; and

if there is a part of the net income of the trust estate that is not included in the assessable income of a beneficiary in

pursuance of section 97 and in respect of which the trustee is not assessed and is

not liable to pay tax in pursuance of section 98, this section applies to so much of that part of the net income of

the trust estate as bears to that part the same proportion as the portion of the

net income of the trust estate that was derived from uncontrolled partnership

income bears to the net income of the trust estate."

I have already expressed the view that the partnership here was not so constituted, controlled or its operations so conducted as is referred to in s.94(2)(a). Thus, in my opinion, there is no income which can, within the meaning of s.94(2)

appropriately be referred to or called "uncontrolled partnership

Section 94(3) refers to a share in the net income of a partnership being included in the assessable income of a partner who is at the relevant time under the age of 16 years; it has no

"(4) Subject to the succeeding provisions of this section, where, in calculating in accordance with section 95 the net income of a trust estate, .....there is included in the assessable income of the trust estate a share in the net income of a partnership of a year of income and a beneficiary who was under the age of sixteen years on the last day of the year of income of the partnership 1s presently

entitled to, or to a share of, the income of the trust estate, this section applies -

(a) if the beneficiary is presently entitled to the whole of the income of the trust estate - to the portion of the net income of the trust estate that was derived from the share of the trust estate in the net income of the partnership; or

(b) if the beneficiary is presently entitled to a share of the income of the trust estate - to so much of that share of the net income of the trust estate as bears

to that share the same proportion as the portion of the net income of the trust estate that was derived from the share of

partnership bears to the net income of the trust estate.

put, if during that year of income of the partnership, the beneficiary rendered any services, without remuneration, in the production of

assessable income of the partnership, this section applies to the portion of the net income of the trust estate referred to in paragraph (a) or the part of the share of the net income of the trust estate referred to in paragraph (b), as the case may be, reduced by an amount that, in the opinion of the Commissioner, would constitute reasonable

remuneration by way of salary or wages for those services.

The sub-section envisages that there is included in the assessable income of the trust estate held by P.J. and B.J. Walsh i.e. trust property referred to in the Deed dated 21 November 1972 i.e. the Lisa Marie Walsh trust, what may be regarded as a share ($1768) of or in the net income of a partnership. This, in the context, is a share in the income the partnership of Syncarpia and the two other companies . With respect, I do not agree with the learned trial judge's view that for s.94 to apply the Commissioner must demonstrate that P.u. and B.J. Walsh as trustees for Lisa Marie Walsh were partners. In the circumstances present here, I consider "this section applies", the beneficiary, Lisa Marie Walsh, being, as s.94(4)(a) contemplates, "presently entitled" to the whole of the income of

that trust estate, to the portion of its net income derived from

the net income of the said partnership, viz. $1768. The

qualification in the section introduced with the word "but" has

"subject to the succeeding provisions of this section; which

estate includes the net income or a share of the net income of another trust estate; and

(ii) the assessable income of the other trust estate by reference to which that net income is calculated uncluded income of a particular class (including an amount that is

to be deemed by an application or applications of this paragraph to be income of a particular class),

the assessable income of the first-mentioned trust estate shall be deemed to include income of that class of an amount equal to so much of the net income or share of the net income of the other trust estate that 1s included in the assessable income of the first-mentioned trust estate as bears to that net income or share of that net income the same proportion as the portion of the net income of the other trust estate that was derived from income of

that class bears to the net income of the other trust estate; and

estate that is derived from income of a particular class that is included in the

amount remaining after deducting from the income of that class that is included in the assessable income of the trust estate -

any prescribed deductions that relate exclusively to that income of that class;

(ii) so much of any other prescribed deductions (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to that income of that class; and

deductions (being apportionable deductions) the same proportion as_ the

amount that, but for this sub-paragraph, would be the portion of the net income of the trust estate that is derived from that income of that class bears to the sum of the net income of the trust estate

The conditions for the application of s.94(5) are met

The assessable income of the Lisa Marie Walsh Trust estate included a share of the net income of Syncarpia.

The assessable income of Syncarpia, by reference to which the net income of the Lisa Marie Walsh Trust as calculated, included income of a particular class. This it happens is one of the classes of income referred to in Division 2 of the Act viz. s.26(a) i.e. "...profit arising from the sale by the taxpayer of any property acquired by him for

14, These preconditions having been fulfilled, as in my view they are, the sub-section determined what was the assessable income of the Lisa Marie Walsh Trust; i.e. what that income

shall be deemed to include, viz. income of the particular class

mentioned in (ii) above. The amount of such income is to be so

much of the net income of Syncarpia as is included in the Lisa Marie Walsh Trust estate (i.e. $1768), measured against an equation with which this court on this appeal is not presently concerned, but subject to reduction as sub-para.(b) provides. Tz has not been suggested that there are any deductions as referred

Like others, I have found difficulty with the expression "income of a particular class". Since undefined, it 1s arguable, as counsel contended, to regard the phrase as a reference to something which, in the end, the draftsman failed to define. Even so, if possible an effect should be given to the section.

I agree that its meaning, to say the least, could have been made

plainer. But eventually I have concluded that "income of a

particular class" is no more than a convenient tag to refer to a

category of income, thus derived by "another trust estate". I accept the contention of counsel for the Commissioner that partnership income passing through successive trusts does, by the

section, retain its "category". According to accepted canons of

construction, the section should be made to work if reasonably

possible. See e.g. Craies on Statute Law 7th ed. p.103 et seq.

And the words of Barwick C.J. in Tickle Industries Pty. Limited

v. Hann (1974) 130 C.L.R. 321 at p.330 warn us against "undue

literalism". I suggest that a consideration of the Explanatory

Memorandum at p.66 et seq to which we may refer to assist

understanding the object of the sections, does not discourage the

approach to interpretation taken above. Counsel for the

Commissioner cited in this area of his argument, Cooper Brookes (Wollongong ) Pty. Limited v. Federal Commissioner of Taxation 81 ATC 4,292 (Cooper Brookes) at pp.4,295-6, 4,299, 4,300: Reg. v.

Smith (1974) 2 N.S.W.L.R. 586 at p.589; Scott v. Moses 75 W.N.

{N.S.W.) 101 at p.102; Dunlop v. Milton Timber and Hardware

Company Limited: Dunlop v. Thomas 1960 N.Z.L.R. 1096 at p.1098.

Section 94(6) and (8) has no application. There 1s no

suggestion or evidence that the Commissioner has the opinion

Section 94(7) was not the subject of any submission. It

is an exclusionary provision which does not apply to the

Section 94(9),{(10), (11) and (12) provide for further

tax at the rate declared by Parliament upon the portion of

taxable income derived from income to which s.94 refers and other

(a) section 98 applies in relation to the net income of a trust estate of a share of that net income; and

(b) this section applies to a portion of that net income or of that share of that net income, as the case may be,

assessed and is liable to pay further tax, at the rate declared by the Parliament for the purposes of this section, upon that portion of that net income or of that share of that net income, as the case may be, reduced by an amount equal to so much of the sum of the concessional deductions that are taken into account for the purposes of section 98 in relation to that net income or that share of that net income as bears to that sum the same proportion as that portion of that net income er of that share of that net income bears to

that net income or that share of that net income, as the case may be."

"prescribed deductions", in relation to a trust estate, means the deductions that are allowable in calculating in accordance with section 95 the net income of the trust estate;

"prescribed trust" means a trust that resulted from ~ -

(a) a will, a codicil or an order of a court that varied or modified the provisions of a will or codicil; or

(b) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate;

"share in the net income of a partnership", in relation to a partner, means the individual interest of the partner in the net income of the partnership and any income derived by the

partner from the partnership otherwise than as a partner."

FCT v. Everett (1979-1980) 143 C.L.R. 440 (Everett)

offers assistance on some aspects of this matter. The majority of that court point out that a partner has no title to any specific property owned by the partnership, but a beneficial interest in its assets - in each and every asset and a right to a proportion of the surplus after the realisation of its assets and payment of debts and liabilities. This does not deny that the amount a partner may receive from the partnership may include, as here, a share of income (which may itself be assessable income) earned by the use of assets, cf. the observations of the majority at p.452/5, referring to reasoning of Kitto J. in Dawson Holdings Pty. Ltd. v. Federal Commissioner of Taxation (1965) 39 A.L.J.R. 300 at p.301. Latham C.J. in Coldstream, in his reference to the partnership as a going concern (p.394) thought the section - and he referred there to the earliest s.94 - referred to income and not to disposal of assets upon a dissolution of partnership. Nor do I consider that to describe the interest of a partner as did the learned trial judge as an equitable chose in action, prevents one from recognising a sum of money as a share of income.

Livingstone v. Commissioner for Stamp Duties (1960) 107 C.L.R.

411 does not decide to the contrary, preoccupied as it was with the problem where is situate the right of a residuary legatee or next of kin to have an estate duly administered. so far as Kitto J. in that case referred at p.453 to the interest of a partner, the reference was to a right to a proportion of the surplus after the realisation of assets and payment of debts and

liabilities of the partnership. Kitto Jd. at p.453 was not

attempting to distinguish between or to assert there was no distinction to be made between an asset in the ordinary sense and accrued income; s.94 was not being considered at all. Here the Trust estate before sale of the land was the land the sale of which generated a net income. Following sale there remained with the partners, after deduction of capital sums and expenses, a profit, in ordinary circumstances, assessable to tax. In the hands of Syncarp1a all the amounts received may be regarded in one sense as the Trust estate 1.e. the sum total of assets held by it as the P.J. Walsh Family trust unit. Yet the totality of the account in the tax return of the P.J. Walsh Family Unit Trust shows identifiable components and in this case reveal the "net income" of the (Syncarpia) trust estate. If it is relevant to say sO, no part of it was in income tax law a capital swum, all of which had been accounted for before Syncarpia received its share of the profit. The amount finally received by Syncarpia was thus its profit from the real estate venture, even if it was also in another sense the trust estate. The unit holders - P.J. and B.J. Walsh - are then, in their capacity as trustees for Lisa Marie Walsh, entitled to receive their share of that trust estate. Again, even if it is a share of a trust estate, it is also, identifiably, income. See clause 5 of the Trust Deed of 21

November 1972. The sum they received, $1768, was assessable

income in their hands as trustees pursuant to s.98 of the Act. In my opinion, with such assistance as is available from the Explanatory Memorandum to which we were referred, the assessment

to further tax quoted earlier by reference to s.94(11) is

justifiable. Encouragement for this approach 1s, I consider, to

be found in s.15AA of Acts Interpretation Act 1901 and passages

in Cooper Brookes referred to above. But so far as the Notice

relies on there being "net uncontrolled partnership income", I consider it is not supportable. A reading of the Reasons for Judgment of the learned trial judge suggests that he found the use of that phrase mystifying. I note there does not appear any reference to "uncontrolled partnership income" or s.94(2) in issues said to have been raised by the Commissioner in the

judgment of the learned trial judge; though he mentions it in

Accordingly, the order I would propose is that the appeal should be upheld. The matter should be remitted to the

Commissioner for his further consideration. Each side should pay

cone Taps AND THE 8 eases A one f THE Prec. . {2 F'GES ARE A TRUE COPY OF TE eee etree REASOWNS FOR BEGISIGM HEREIN

• BETWEEN: © THE' COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

PETER JOSEPH WALSH and BEATRICE

• JOAN WALSH as trustees for Lisa

CORAM: McGregor, Lockhart, Fitzgerald JJ. 5 July, 1983

LOCKHART J: - The Income Tax Assessment Act 1936 ("the Assessment Act") is no stranger to intricate sections. It is difficult, however, to imagine a more convoluted provision than s.94 which arises for consideration in this appeal.

1972 and 1973 witnessed a land boom throughout much of Australia. In November 1972 Charles William Wise, a United States citizen, suggested to a business associate

and friend of his, Peter Joseph Walsh, a Brisbane solicitor

that they buy land in the Shire of Beaudesert, Queensland, with a view to selling it quickly for a profit. Mr Walsh agreed and they approached another friend of Mr Walsh, a

Mr Brown, and suggested that he join them in the venture,

On 23 November 1972 a contract of purchase was entered into for the purchase of the land, the purchasers being Mr Wise, Syncarpia Pty. Limited ("Syncarpia") and Glen Gar Don Pty. Limited ("Glen Gar Don") and/or their respective nominees.

Mr Walsh is the governing director of Syncarpia and Mr Brown controls Glen Gar Don. The land was purchased by the three purchasers as tenants in common. Soon after the contract was signed Mr Walsh arranged for the incorporation of Wise Investments Pty. Limited ("Wise Investments"), a company controlled by Mr Wise. The purchase price was $110,770. A deposit of $5,000 was paid. A cheque for one-third of that amount was drawn by Syncarpia in favour of the firm of solicitors of which Mr Walsh is a member and a cheque for two-thirds of the amount was drawn by Mr Wise, also in favour of Mr Walsh's firm. The two cheques were deposited to the credit of a trust account opened by Mr Walsh's firm in the names of the venturers. Mr Walsh's firm then drew a cheque on its trust account in payment of the deposit. Later Glen Gar Don reimbursed Mr Wise or Wise Investments for one-third of the amount of the deposit. $85,000 was borrowed from the Commercial Bank of Australia Limited which took a first mortgage over the land as security. The balance was paid by the three venturers equally. The

On 5 February 1973 a contract was entered into between Wise Investments, Syncarpia and Glen Gar Don as vendors and Mr Barry Maranta as purchaser for the sale of the Beaudesert land. The sale was settled on 6 March 1973. The purchase price was $177,910.

Wise Investments, Syncarpia and Glen Gar Don opened a bank account with the Commercial Bank of Australia in their joint names. The proceeds of sale were paid into that account on 6 March 1973. The amount owed to the Bank under the mortgage was paid to it. The balance was divided equally between the three companies involved in the venture, save for the sum of $1191.05 which was paid on 12 March 1973 to Mr Walsh's firm to meet legal costs and disbursements for acting on the real estate transactions. The account was then closed. The three companies had no account with any other Bank. There have been no other business dealings between the three companies.

Mr Wise and Mr Brown or their respective companies, Their agreement was oral and described in evidence by Mr Walsh

"OQ. I take it also - I think it is common sense but it should go on the record - that that agreement would be, "We will purchase this property with a view to turning it over quickly and selling 1t at a profit, and we will split the profit after taking out costs equally"?--A. Yes.

Q. "And if there are any losses per chance, we will split losses equally"? A.---That was assumed but never said, yes.

as rates, taxes, conveyancing, clearing, if necessary, would be shared equally?---A. Yes."

Mr Walsh gave evidence that Syncarpia was not incorporated for the purpose of carrying out the joint venture but was intended to act as trustee for the various transactions of which this one was the first.

On 21 November 1972 a deed was executed by James Prancis Fitzgerald (therein called "the settlor") and by Mr Walsh and his wife, Beatrice Joan Walsh (therein called "the trustees"). By the deed the settlor paid the sum of $5.00 to the trustees to be held by them upon the trusts set forth in the deed, The trustees acknowledged and declared that they held the sum of $5.00 and all other property and money for the time being and from time to time subject to the trusts constituted by the deed (all of which were called "the trust property") upon trust to hold the same absolutely as to both capital and income for the sole benefit of Lisa Marie Walsh, a daughter of Mr and Mrs Walsh who was born on 16 December 1957. One of the powers conferred upon the trustees by the deed was to contribute for units in the "P.J, Walsh Family Unit Trust or other like Unit Trusts" (Clause 6(g)). It 1s unnecessary to set out

On 22 November 1972 a deed of trust was executed by Syncarpia (therein called "the trustee"). The deed recited that the persons described in the First Schedule thereto had agreed to pay to the trustee forthwith on the execution of the deed the sum set opposite their respective names in the Schedule to the intent that the trustee should become the trustee and also the manager thereof and of all other trust property (as defined in the deed) upon and subject to the terms and conditions therein contained. The deed provided that Syncarpia accepted the trusts created by the deed and agreed to be bound by the same and by the other terms and conditions contained therein for the benefit of the unit holders. Clause 5 of the deed provided:-

"5. Nothing herein contained shall in any wise (sic)

be construed to deprive any of the unit Holders from the full and effective control of the units in respect of which he is registered as the holder thereof and/or the income thereof it being especially declared that each of them shall at all times be presently entitled to the said income."

The beneficial interest in the trust property was divided by the deed into 55 units and each unit conferred an equal interest in the trust property. The First Schedule to the deed described the contributors as Mr and Mrs Walsh as trustees for each of their named eight children in respect of

five units each, a total of 40 units and as trustees for

I shall refer to the trust deed of 21 November 1972 as "the Lisa Marie Walsh trust" and to the trust deed of 22 November 1979 as "the P.J. Walsh Family Unit Trust."

Syncarpia's share of the net profit from the joint venture was $19,565.09. This sum, after deducting a small amount for bank interest and charges, was distributed by Syncarpia to all the beneficiaries of the P.J. Walsh Family Unit Trust. Mr and Mrs Walsh as trustees for Lisa Marie Walsh under the Lisa Marie Walsh trust received $1768.00.

It is common ground that the sum of $1768.00 is assessable income in the hands of the trustees of the Lisa Marie Walsh trust pursuant to s.98 of the Assessment Act on the basis that Lisa Marie Walsh was the sole beneficiary under the Lisa Marie Walsh trust and was presently entitled to the whole of its income although under a legal disability in that she was a minor. What is in dispute in these proceedings is the assertion of the Commissioner that further tax is payable by the trustees by reason of sub-s. 94(11) of the Assessment Act. The relevant year of income is the year ended 30 June 1973.

An objection was lodged and disallowed and an appeal brought to the Supreme Court of Queensland. The appeal was heard by Shepherdson J. who allowed the appeal, set aside the assessment and ordered the Commissioner to pay the costs of

The question to which I shali now turn is whether the sum of $1768.00 received by Mr and Mrs Waish as trustees for Lisa Marie Walsh was income to which s.94 of the

Under the former s.94, repealed by Act No. 110 of 1964, a partnership was itself liable to tax where it was so constituted or controlled, or its operations were so conducted, that any partner did not have the real and effective control and disposal of his share of the net income of the partnership. In those circumstances the Commissioner was authorised to assess the additional amount of tax that would be payable if the share of that partner had been received by the partner who had the real and effective control of that share, and the partnership was liable to the tax so assessed. Section 94 operated only if it was established that a partner did not have the real and effective control of his share, and that another partner had the complete and exclusive control of the whole of that uncontrolled share. The meaning and operation of the former section were discussed in Robert Coldstream Partnership v. Federal Commissioner of Taxation (1943) 68 C.L.R. 391.

Many taxpayers took advantage of this situation to avoid tax. The mischief which the present s.94 was designed to cure was referred to in the report of the Commonwealth Committee on Taxation, June 1961, para. 698 (the Ligertwood Report) in

physical capacity of the children often preclude active and full participation by these partners.

to give reduced services, use their share of profits to pay for their capital interest, and draw amounts against profits. The provisions of the deed effectively dispose of the possibility of the

The present s.94, which applies as from 1 July 1965, operates very differently from the former section. It does not impose a liability to tax on the partnership. Instead, it makes the person who does not have the real and effective control and disposal of his share in the net income of a partnership liable to additional tax.

The section applies to a share in the net income of a partnership in the following four circumstances:-

1. Where a partner has included in his assessable income a share of partnership income and he does not have the real and effective control and disposal of that share or of a part of that share. Section 94 applies to that share or that part of that share: sub-s. 94(1)7

2. Where a trustee, who is a partner ina partnership, does not have the real and effective control and disposal of his share in the net income of the partnership or of a part

included in the assessable income of a trust estate:

or where no beneficiary is presently entitled to any of the income of the trust estate. In this case s.94 applies to the portion of the net

income of the trust estate which was derived from uncontrolled partnership income;

where a beneficiary is presently entitled to a share of the income of the trust estate, in

which case s.94 applies to so much of that share of the net income of the trust estate as bears

to that share the same proportion as the portion of the net income of the trust estate that was derived from uncontrolled partnership income bears to the net income of the trust estate; and

where there is a part of the net income of the trust estate to which no beneficiary 1s presently entitled. In this case s.94 applies to so much

of that part of the net income of the trust estate as bears to that part the same proportion as the portion of the net income of the trust estate that was derived from uncontrolled partnership income

in the opinion of the Commissioner, would constitute a reasonable remuneration by way of salary or wages for those services if they had been performed by an employee of the partnership:

partnership and is presently entitled to a share in the income of a trust estate which includes

(a) if the beneficiary is presently entitled to the whole of the income of the trust estate, to the portion of the net income of the trust estate that was derived from the share of the trust estate in the net

(b) if the beneficiary is presently entitled to a share of the income of the trust estate, to so much of that share of the net income of the trust estate as bears to that share the same proportion as the portion of the net income of the trust estate that was derived from the share of the trust estate in the net income of the partnership bears to the net income of the trust estate: sub-s. 94(4). Allowance is made for services rendered by the beneficiary as in 3. above.

Sub-section 94(5) is intended to apply, where there are successive trust estates, by providing a basis for tracing the net income of a partnership in respect of which s.94 may operate, and which is initially income of a trust estate, through each trust estate to which the section applies in succession.

If there was any doubt about s.94 being a convoluted provision, that doubt should by now be dispelled.

The purpose of s.94 is to impose further tax on a partner who does not have the real and effective control of a share of partnership income. Sub-section 94(9) provides that where the assessable income of a taxpayer, other than a taxpayer in the capacity of a trustee, includes income to

which s.94 applies, the taxpayer is to be assessed and is

liable to pay further tax, at the rate declared by Parliament for the purposes of that section, upon the portion of his taxable income that is derived from income to which the

section applies. The rate is 50 cents in the dollar. Sub-section 94(10) describes how the portion of a taxpayer's taxable income that is derived from income to which the section applies is to be ascertained. Sub-sections 94(11) and (12) create a liability for further tax in assessments of trustees in respect of income which includes income to which s.94 applies.

Sub-section 94(13) defines the expression "share in the net income of a partnership" in relation to a partner as meaning "the individual interest of the partner in the net income of the partnership and any income derived by the partner from the partnership otherwise than as a partner."

Where the Commissioner is of the opinion that, by reason of special circumstances, it would be unreasonable for s.94 to apply to any income, the section does not apply to that income: sub-s. 94(8).

The Commissioner contended that the assessable income of the trust estate under the Lisa Marie Walsh Trust included a share in the net income of the trust estate under the P.J. Walsh Family Unit Trust, that Lisa Marie Walsh was a beneficiary presently entitled to the whole of the income of the Lisa Marie Walsh Trust, was under the age of 16 on the last day of the income year and therefore the Commissioner correctly assessed the sum of $1768.00 to further tax by reason

of sub-s. 94(4) and (5). It was agreed that sub-s. (4) cannot

In my opinion the question whether sub-ss. 94(4) and (5) apply in this case turnson one point namely, whether the sum of $1768.00 paid by Syncarpia as trustee under the P.J. Walsh Family Unit Trust to Mr and Mrs Walsh as trustees for Lisa Marie Walsh under the Lisa Marie Walsh Family Trust answers the description of "a share of the net income of" the trust estate under the P.J. Walsh Family Unit Trust for the purposes of sub-s. 94(5) (a). If it does not, then the Commissioner must fail.

The term "trust estate" is not defined in the Assessment Act. It is generally taken to mean the estate which is vested in a trustee, that is the trust property.

In my view this is the meaning of the term in Divisions 5 and 6.

The relevant trust estate held by Syncarpia as trustee under the P.J. Walsh Family Unit Trust was a one-third interest in the real estate venture within co-venturers Wise Investments and Glen Gar Don,which I will assume for present purposes was a partnership between the three within the meaning of the word "partnership" as defined in sub-s. 6(1) of the Assessment Act.

The word "partnership" is defined in sub-s. 6(1) as an association of persons carrying on business as partners or in receipt of income jointly, but does not include a company. The first limb of this definition merely reproduces the

language of most Partnership Acts including The Partnership Acts

(1891) (Qld) which defines "partnership" as the "relation which

subsists between persons carrying on a business in common with a view of profit".

The taxpayer contended that the relation between the three venturers did not fall within either limb of the statutory definition. The Commissioner contended that hoth limbs applied. I do not find it necessary to decide this question because of the view I have formed on the point presently under discussion.

Syncarpia's interest in the partnership was a heneficial interest in the partnership asset, namely the Beaudesert land: - Canny Gabriel Castle: dackson Advertising

Pty." Limited v." Yoltme" sales "(Finance)' pty." Limited (1974) 131 C.L.R. 321 at pp. 327-438," Commissioner of Taxation of

the: Commonwealth of- australia ve. everett (1980) 143 C.L.R.

440 at p. 446. Syncarpia's share in the partnership was a

right to a one-third proportion of the surplus after the ~ sale of the land and payment of the debts and liabilities of

the partnership: - Darby. v. Darby (1856) 3 Drew. 495 at

pp. 503-504; 61 E.R. 992 at p. 995; Rodriguez v. Speyer Bros. (1919) A.C. 59 at p. 68; Bakewell v. Deputy Federal Commissioner

• of Taxation (S:K.) (1937) 58 C.L.R. 743 at p. 770; Commissioner of Taxation of then commonwealth: of AusStralia v. Everett

The partnership came to an end when the land was sold, the liabilities discharged and the net proceeds of sale distributed to each partner. The sum of $19,565.09 was received by Syncarpia in extinguishment of its interest in the partnership It was not received as income from its interest in the

partnership. Thereafter the $19,565.09 became part of the

trust property under the P.J. Walsh Family Unit Trust. It itself became "trust estate". It is not to the point that the profit gained by the partnership from the sale of the land was, for fiscal purposes,net income of the partnership and that Syncarpia's interest in that income was assessable income pursuant to s.90 and sub-s. 92(1). The receipt by Syncarpia of the $19,565.09 was upon the dissolution of the partnership and in discharge of the mutual obligations of the partners. It was the antithesis of the receipt of income from its interest 1n the partnership: See Everett's Case, especially at p. 452, Ewing v. Ewing (1882) 9 App. Cas. 822 at p. 826. The $1768.00 paid by Syncarpia to the trustees of the Lisa Marie Walsh Family Trust was not "a share of the net income of" the trust estate constituted by the $19,565.09 under the P.J. Walsh Family Unit Trust. It was a distribution of the very trust estate itself. In view of this conclusion it 1s unnecessary to consider the other arguments advanced by the parties. I

IN THE FEDERAL COURT OF AUSTRALIA } QUEENSLAND DISTRICT REGISTRY ) Qld G14 of 1983 GENERAL DIVISION )

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

PETER JOSEPH WALSH and BEATRICE JOAN WALSH as trustees for LISA MARIE WALSH TRUST

Fitzgerald J.: This is an appeal by the Commissioner of Taxation from a decision of a single judge of the Supreme Court of Queensland. The respondent-taxpayers were during the relevant year of income trustees for

Supreme Court rejected the Commissioner's contention that certain moneys received in the year of income by the trust, the Lisa Marie Walsh Trust, from a unit trust,

the P.J. Walsh Family Unit Trust, were liable to additional

tax by reason of s.94 of the Income Tax Assessment Act 1936

held five units in the P.J. Walsh Family Unit Trust.

Each unit in the latter trust entitled the holder to a proportionate beneficial interest in the property of that trust and gave a present entitlement to a corresponding share of the income of that trust. The remainder of the units in the P.J. Walsh Family Unit Trust were held by Mr and Mrs

Walsh as trustees for each of their other children and for

The trustee of the P.J. Walsh Family Unit Trust was a company, Syncarpia Pty Ltd. In the year of income ended 30 June 1973, Syncarpia and two- other companies, which were not associated with it or the Walsh Family and with which it had no other business dealings, carried out a transaction at a profit. The three companies purchased a substantial area of land. Most of the purchase price was borrowed from a bank with which the three companies opened an account in their joint names and upon which they were jointly and severally liable to the bank. Each of the three companies provided one-third of the remainder of the purchase price. The land was transferred into their names as tenants in common in equal shares and was subject to a mortgage from them to the bank from which

they had borrowed. One month after their contract to

purchase was settled, and only about 10 weeks after

it was signed, the three companies entered a contract to sell the land at a quite substantial profit. The sale was settled a month later. The proceeds were paid into the joint bank account. The overdraft was paid out and the mortgage was released. The net proceeds after deduction of costs and expenses were divided equally

between the three companies. Syncarpia Pty Ltd received

st its one-third of the profit as trustee for the P.J. Walsh Family Unit Trust. Had the transaction resulted in a loss, it was intended that the loss would have been shared between

The profit received by the P.J. Walsh Family Unit Trust was distributed to its unit holders. The amount received by the trustees of the Lisa Marie Walsh Trust

Because Lisa Marie Walsh was the sole beneficiary under the Lisa Marie Walsh Trust and was presently entitled to the whole of its income although a minor, the trustees of the Lisa Marie Walsh Trust were, by virtue of s.98 of the Act, assessable and liable to pay tax upon the sum of $1768.00 received by the Lisa Marie Walsh Trust from the P.J. Walsh Family Unit Trust if it constituted income of the trust estate of the Lisa Marie Walsh Trust. That was not disputed. What was and is in question is the Commissioner's contention that further tax is payable by the trustees of the Lisa Marie Walsh Trust by reason of s.94 of the Act: see sub-s. 94(11). In the adjustment sheet which accompanied the assessment, the Commissioner relied on sub-s. 94(1). In the Supreme Court, he relied on a different or at least a wider basis. Before this Court the Commissioner's argument was founded only on

At the relevant time, the income year ended 30 June 1973, s.94, which is in Part III Division 5 of the Act "Partnerships", '

(a) a share in the net income of a partnership of a year of income is included in the assessable income of a partner in the partnership, not being -

(i) a company; (ii) a person in the capacity of a trustee; or

(iii) a person who was under the age of sixteen years

on the last day of the year of income of the part- nership; and

{b) the partnership is so constituted or controlled, or its operations are so conducted, that the partner has not the real and effective control and disposal .of that share or of a part of that share,

this section applies to that share or that part of that share, as the case may be.

(2) Subject to the succeeding provisions of this section, where -

(a) a partnership is so constituted or controlled, or its opera- tions are so conducted, that a partner in the partnership, being a trustee of a trust estate, has not the real and effective control and disposal of his share in the net income of the partnership or of a part of that share (which share or part of a share, as the case may be, is in this sub-section referred to as "uncontrolled partner ship income"); and

(b) in calculating in accordance with section 95 the net income of that trust estate or of any other trust estate, there is included in the assessable income of the trust estate any uncontrolled partnership income,

then - (c) if - (i) a beneficiary, not being a company or a person in relation to whose share of the income of the trust estate sub-section (4) applies. is presently entitled

to the whole of the income of the trust estate other wise than in the capacity of a truste2; or

(ii) there is no part of the net income of the trust estate that is included in the assessable income of a beneficiary in pursuance of section 97 or in respect of which the trustee is assessed and liable to pay tax in pursuance of section 98,

. this section applies to the portion of the net income 'of the trust estate that was derived from uncontrolled part- nership income;

(d) if a beneficiary, not being a company or a person in rela- tion to whose share of the income of the trust estate sub- section (4) applies, is presently entitled to a share of the income of the trust estate otherwise than in the capacity of a trustee, this section applies to so much of that share of the net income of the trust estate as bears to that share the same proportion as the portion of the net income of the trust estate that was derived from uncontrolled part-

nership income bears to the net income of the trust estate; and

(e) if there is a part of the net income of the trust estate that is not included in the assessable income of a beneficiary in pursuance of section 97 and in respect of which the trustee is not assessed and is not liable to pay tax in pursuance of

. section 98, this section applies to so much of that part of the net income of the trust estate as bears to that part the same proportion as the portion of the net income of the trust estate that was derived from uncontrolled partnership income bears to the net income of the trust estate.

(3) Subject to the succeeding provisions of this section, where a share in the net income of a partnership of a year of income is included in the assessable income of a partner in the partnership who was under the age of sixteen years on the last day of the year of income of the partnership, this section applies to that share but, if, during the year of income of the partnership, the partner rendered any services in the production of assessable income of the partnership, this section applies to that share reduced by an amount that, in the opinion of the Commissioner, would constitute reasonable remuneration by way of

salary or wages for those services if they had been performed by an employee of the partnership.

(4) Subject to the succeeding provisions of this section, where, in calculating in accordance with section 95 the net income of a trust estate, not being the trust estate of a prescribed trust, there is included in the assessable income of the trust estate a share in the net income of a part- nership of a year of income and a beneficiary who was under the age of sixteen years on the last day of the year of income of the partnership

is presently entitled to, or to a share of, the income of the trust estate, this section applies - ad .

(a) if the beneficiary is presently entitled to the whole of the income of the trust estate - to the portion of the net income

of the trust estate that was derived from the share of the trust estate in the net income of the partnership; or

{b) if the beneficiary is presently entitled to a share of the income of the trust estate - to so much of that share of the net income of the trust estate as bears to that share the same proportion as the portion of the net income of the trust estate that was derived from the share of the trust estate in the net income of the partnership bears to the net income of the trust estate,

but, if, during that year of income of the partnership, the beneficiary rendered any services, without remuneration, in the production of assessable income of the partnership, this section applies to the portion of the net income of the trust estate referred to in paragraph (a) or the part of the share of the net income of the trust estate referred to in paragraph (b), as the case may be, reduced by an amount that, in the opinion of the Commissioner, would constitute reasonable remuneration by way of salary or wages for those services.

(a) where - ~ (i) the assessable income of a trust estate includes the net income or a share of the net income of another trust estate; and

(ii) the assessable income of the other trust estate by reference to which that net income is calculated included income of a particular class (including an amount that is to be deemed by an application or applications of this paragraph to be income of a particular class),

the assessable income of the first-mentioned trust estate shall be deemed to include income of that class of an amount equal to so much of the net income or share of the net income of the other trust estate that is included in the assessable income of the first-mentioned trust estate as bears to that net income or share of that net income the same proportion as the portion of the net income of the other trust estate that was derived from income of that class bears to the net income of the other trust estate; and

(b) the portion of the net income of a trust estate that is derived from income of a particular class that is included in the assessable income of the trust estate is the amount Temaining after deducting from the income of that class that is included in the assessable income of the trust estate -

(i) any prescribed deductions that relate exclusively to that income of that class;

Gi) so much of any other prescribed deductions (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to that income of that class; and

(iii) the amount that bears to the prescribed deductions (being apportionable deductions) the same propor-~ 'tion as the amount that, but for this sub-paragraph, would be the portion of the net income of the trust estate that is derived from that income of that class bears to the sum of the net income of the trust estate and those last-mentioned prescribed deduc- tions.

(6) Where the assessable income of a trust estate includes, or, by virtue of paragraph (a) of the last preceding sub-section, is to be deemed to include, income of a particular class but the Commissioner is of the opinion that it would be unreasonable to treat each part or share of the net income of the trust estate that is included in the assessable income of a beneficiary, or on or in respect of which the trustee is assessed and liable to pay tax, as including a proportionate part of the portion of the net income of the trust estate that is derived from income of that class, the amount- -

(a) that is the amount of a part or share of the net income of the trust estate to which this section applies by virtue of paragraph (d) or (e) of sub-section (2), or paragraph (b) of sub-section (4); or

(b) that is, by virtue of paragraph (a) of the last preceding sub-section, the amount of the income of that class that is to be deemed to be included in the assessable income of another trust estate,

is, in lieu of the amount that, but for this sub-section, would be the amount of that part or share of that net income or the amount of that income of that class, as the case may be, such amount as the Com- missioner considers reasonable in the circumstances.

(7) A reference in sub-section (3) or subsection (4) to a share in the net income of a partnership does not include a reference to a share in the net income of a partnership -

(a) that is not carrying on a business; (b) that does not derive any income other than interest, divi- dends, rent or royalties; and

(c) in which all the partners own jointly or in common the property from which the income of the partnership 1s derived.

(8) Where the Commissioner is of the opinion that, by reason of special circumstances, it would be unreasonable that this section should apply to any income, this section does not apply to that income.

(9) Where the assessable income of a taxpayer, other than a tax- payer in the capacity of a trustee, includes jncpme to which this section applies, the taxpayer shall be assessed and is lable to pay further tax, at the rate declared by the Parliament for the purposes of this section,

upon the portion of his taxable income that is derived from income to which this section applies.

(10) For the purposes of the last preceding sub-section, the portion of the taxable income of a taxpayer that is derived from income to which

'this section applies is the amount remaining after deducting from the

income to which this section applies that is included in his assessable income -

(a) any deductions allowed or allowable in his assessment that relate exclusively to the income to which this section applies that is included in his assessable income;

(b) so much of any other deductions allowed or allowable tz his assessment (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to the income to which this section applies that is included in his assessable income; and

{c) the amount that bears to the apportionable deductions allowed or allowable in his assessment the same proportion as the amount that, but for this paragraph, would be the portion of his taxable income that is derived from income to which this section applies bears to the sum of his taxable income and those apportionable deductions.

(a) section 98 applies in relation to the net income of a trust estate or a share of that net income; and

(b) this section applies to a portion of that net incomeé or of that share of that net income, as the case may be,

the trustee of the trust estate shall be assessed and is Itable to pay further tax, at the rate declared by the Parliament for the purposes of this section, upon that portion of that net income or of that share of that net income, as the case may be, reduced by an amount equal to so much of the sum of the concessional deductions that are taken into account for the purposes of section 98 in relation to that net income or that share of that net income as bears to that sum the same proportion as that portion of that net income or of that share of that net income bears to that net income or that share of that net income, as the case may be.

(a) section 99 applies in relation to the net income of a trust estate or a part of that net income; and

(b) this section applies to a portion of that net income or of that part of that net income, as the case may be,

the trustee of that trust estate shall be assessed and is liable to pay further tax, at the rate declared by the Parliament for the purposes of this section, upon that portion of that net income or of that part of that net income, as the case may be. (13) In this section - " prescribed deductions ", in relation to a trust estate, means the deductions that are 2ifowable in calculating in accordance with seetiun $5 the net mcome of the trust estate;

" prescribed trust" means a trust that resulted from -

(a) a will, a codicil or an order of a court that varied or modified the provisions of a will or codicil; or

(b) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate;

"share in the net income of a partnership", in relation to a

partner, means the individual interest of the partner in the net income of the partnership and any income derived by the partner from the partnership otherwise than as a partner. "

Counsel for the taxpayer launched a sustained attack

on s.94, including a submission that sub-s. 94(5}) made no

However, it seems to me possible to identify, in broad

outline, the general scheme of s.94 as it stood during the

period now in question although the extent to which the

details of the legislative purpose found expression in the

statutory language, and more particularly whether the section

applied to the subject transaction, will, of course, be matters

Sub-sections (9} to (12) inclusive were the charging provisions in the sense that it was those sub-sections which provided for additional tax to be payable in the specified circumstances. Sub-section (9), which was complemented by sub-s. (10), related to the situation in which the assessable income of a taxpayer other than

a trustee included income to which s.94 applied; sub - -s. (11) related to the situation in which the net income of a trust estate included

of that estate were assessable by virtue of s.98; and sub-s. (12) related to the situation

in which the net income of a trust estate included income to which s.94 applied but it was s.99 and not s.98 which imposed the liability on the trustees. It is sub-s. (11) which is of present significance.

class of income to which s.94 applied. All four were concerned with partnership income. The effect of each was qualified by sub-s. (7) in a manner which 1s not presently directly material. Sub-sections (1) and (3) concerned partnership income where the partner was not a trustee (cf. sub-s. (9)). Sub-sections (2) and (4) concerned partnership income which formed part of the income of a trust estate (cf. sub<-ss. (11) and (12)). Of these provisions, only sub-s. (4) falls for detailed consideration in these proceedings.

I do not think that it was nonsensical as was suggested. The submission was made for the taxpayer that sub-s. 94({5) omitted to specify

what consequences were to ensue "Where" sub-paragraphs (a) and (b) were fulfilled. However, that seems to me to mistake the role of sub-s. 94(5) which was broadly analogous to the role played by sub-s. (10). Sub-section (5) was concerned with partnership income which constituted income of a trust estate (cf. sub-ss. (2), (4), (11) and (12)), while sub-s. (10) was concerned with partnership income received by a partner who was not a trustee (cf. sub-ss. (1), (3) and (9)). The functions of sub~s. (5) included the expansion of what was income to which s.94 applied.

(iv) Sub-section (13) defined certain of the terms used in s.94. None of the definitions assume importance on the facts of the present matter.

(v) Sub-sections (6) and (8) gave the Commissioner discretions in respect of the application of s.94. Neither discretion was exercised in respect of the subject assessment.

It was common ground that the Commissioner could not succeed by reference to sub-s. 94(4) alone but needed to rely also on sub-s. (5). Paragraphs {a) and (b) of sub-s. (5) both referred to "income of a particular class", a phrase which was nowhere defined, and depended for their operation upon a meaning being attributed to that phrase. In the Supreme Court, Shepherdson J. held against the Commissioner because, in his view, it would have offended established rules of construction to give such an uncertain provision in a taxing statute a meaning which would expose a taxpayer to liability. Whilst his Honour's reasons have obvious force, and the imprecise and otherwise unskilled drafting is to be deplored, I would prefer to leave the question open. The assumption implicitly underlying para. 94(5) (a) (ii) is that the assessable income of a trust estate may be income of a "particular class", e.g. rent, royalties, dividends or perhaps a share in the net income of a partnership, or indeed whatever the "particular class" may be. That assumption does not

appear inherently objectionable. Nor is there any reason

why, when a trust makes a distribution and what is distributed is income in the hands of the recipient, that income of the recipient should not be "deemed"

of the same "particular class" as was the income of

the trust estate which made the distribution, with whatever consequences, for or against the taxpayer,

as may follow. It is, of course, necessary to attend

to the actual language of sub-s. 94(5) to see whether

it accomplishes this or some other and if so what object. -My remarks thus far are confined to the question whether the sub-section's failure to define the concept of

for finding in favour of the taxpayer and dismissing

Before dealing further with s.94 of the Act, it ought be noted that the Commissioner's argument was founded upon the following propositions, each of which needed to be determined in his favour before

(i) a partnership, within the meaning of sub-s. (6)(1) of the Act,existed between Syncarpia and the other two companies which were tenants in common of the land;

(ii) as a partner in that partnership, Syncarpia's assessable income relevantly consisted of its interest in the net income of that partnership by reason of ss. 90 and 92 {t) of the Act;

(iii) however, Syncarpia was a partner in its capacity as trustee of the P.J. Walsh Family Unit Trust so that its assessable income as a partner in the partnership was derived by it in its capacity as trustee of the P.J. Walsh Family Unit Trust;

(iv) therefore, the assessable income of the trust estate of the P.J. Walsh Family Unit Trust within the meaning of Division 6 of Part III of the Act relevantly consisted of the assessable income of Syncarpia as a partner in the partnership, i.e. Syncarpia's interest in the net income of the partnership;

(v) therefore, the net income of the trust estate of the P.J. Walsh Family Unit Trust relevantly consisted of Syncarpia's interest in the net income of the partnership, less any deductions provided for in the definition of "net income" in s.95 of the Act;

(vi) Mr and Mrs Walsh as trustees of the Lisa Marie Walsh Trust were beneficiaries of the trust estate of the P.J. Walsh Family Unit Trust who were not under any legal disability and who were presently entitled to a share of the income of the trust estate of the P.J. Walsh Pamily Unit Trust;

(vii) therefore, by virtue of s.97 of the Act, the assessable income of Mr and Mrs Walsh as trustees of the Lisa Marie Walsh Trust relevantly consisted of the share of the net income of the trust estate of the

Briefly stated, the Commissioner's claim is that, given

the correctness of the propositions above, it has been shown

(a) the assessable income of the P.J. Walsh Family Unit Trust included income of a

particular class, namely, a share (Syncarpia's interest) in the net income of a partnership;

(b) a share of that net income of the trust estate of the P.J. Walsh Family Unit Trust was included in the assessable income of the trust estate of the Lisa Marie Walsh Trust.

The Commissioner submitted that the requirements of sub-paragraphs (i) and (11) of paragraphs 94(5) (a) of the Act had therefore been satisfied. Further, according to the Commissioner, by that paragraph the assessable income of the trust estate of the Lisa Marie Walsh Trust was deemed to include "income of that class" (i.e. a share in the net income of the partnership) "of an amount"

The next stage, according to the Commissioner, requires reference to sub-s. 94{4). He said that, by the operation of sub-s. (5), in the calculation of the net income of the Lisa Marie Walsh Trust estate in accordance with s.95, there was deemed to be included in the assessable income of that trust estate a share in the net income of the partnership. If that were so, then, since the beneficiary Lisa Marie Walsh, was under the age of 16 years but presently entitled, the consequence of sub-s. 94(4) was that s.94 applied to a portion of the net income of the trust estate of the Lisa Marie Walsh Trust, the portion being calculable

It is plain that there are problems occasioned by s.94 even in relation to the extremely simple transaction which gave rise to these proceedings. This matter raises only a fraction of the difficulties created, one would think quite unnecessarily, by the language of the section. For example, the present proceedings do not raise any question under para 94(5), either as to apportionment or as to the operation

and effect of the latter part of sub-para. 94(5) (a) (ii),

which seems to envisage that a series of consecutive distributions of income may be within the scope of the provision. I do not wish to say anything which might unnecessarily inhibit any later consideration of its

We were pressed with the Treasurer's Explanatory Memorandum to Parliament, which accompanied the Bill by which s.94 was introduced into the Act, as an aid to construction. It may be that such material is admissible for the purpose of disclosing the object of the section, thus providing a basis in appropriate cases for the implementation of s.15AA of the Acts Interpretation Act in addition, of course, to the rules of the common law which permit and require due regard to legislative intention which

is manifest despite inappropriate phraseology: see, e.g.

Tickle Industries Pty Ltd v. Hann (1974) 130 C.L.R. 321, 330;

Cooper Brookes (Woollongong) Pty Ltd v. F.C.T. (1981) 55

A.L.d.R. 434; Shah v. Barnet Borough London Council (1983)

1 All E.R. 226, 238. However, it seems to me obvious that such an approach is worth little and indeed will seriously impede the efficient operation of the courts, adding to costs, length of hearings and delays in the judicial system if the extrinsic material itself is unclear and requires debate as to its meaning. Further, even if the extrinsic material

dees reveal the legislative purpose, there will continue

to be boundaries beyond which the words used will not stretch

even where it is known that they were intended to do so.

I have found it unnecessary to form a concluded opinion as to the meaning and effect of s.94. In my view, the Commissioner failed to make good the series of propositions, detailed above, upon which his attempt to resort to s.94 depended. Without suggesting that all or any of the Commissioner's other propositions are correct, it is sufficient that propositions (iv) and (v), which are central to the Commissioner's case, are unsustainable. In

F.C.T. v. Totledge Pty Ltd (1982) 82 A.T.C. 4168, the

Commissioner sought to uphold assessments upon a trustee on the basis, inter alia, that there was no "trust estate" for the purposes of Part III Division 6 of the Act so that the assessments were justifiable pursuant to s.25 of the Act. The argument was rejected because the Full Court was Satisfied that there was such a trust estate: see pp. 4177-4178. In the present case, however, the point taken

by the Commissioner in F.C.T. v. Totledge, supra, is, in my

opinion valid and destructive of the Commissioner's case.

I shall attempt to demonstrate why as briefly as possible.

Sub-section 6(1) of the Act defines "partnership" to mean, unless the contrary intention appears, an association of persons carrying on business as partners or in receipt of income jointly, but not to include a company. There is no definition in the Act of "carrying

on business" although "business" is defined in sub-s. 6(1)

to include "any profession, trade, employment, vocation or calling" but not to include "occupation as an employee". Because the first part of the definition of "partnership"

in sub-s. 6(1) of the Act speaks of carrying on business

"as partners", it seems that it imports the requirements

of a partnership under the general law. Sub-section (5) (1)

of the Partnership Acts 1891, as amended, (Q1d), provides that partnership is the relation which subsists between persons carrying on a business in common with a view of profit. Section 6 of the Queensland Partnership Acts requires

that regard be had to rules which it sets down in determining

On any view of the matter, there was no partnership for present purposes unless Syncarpia and the other two companies constituted an association of persons (i.e. legal persons) which were:

I propose to assume that there was a partnership and to

consider the consequences of a partnership under each

If, in their isolated land dealing for profit, Syncarpia and its co-venturers were carrying on business in partnership, the only asset of such partnership . was the land. The partners held the legal title to the land as tenants in common. However, the land as a whole was, on this hypothesis, a partnership asset. The interest of each partner, including Syncarpia, was not, or was not merely, a legal tenancy in common in the land but a beneficial interest in the whole land commensurate with its right to a proportion of the surplus after the sale

of the land and the payment of partnership debts and

liabilities: F.C.T. v. Everett (1979) 54 A.L.J.R. 196

If there was such a partnership, it was its interest in the partnership which Syncarpia held on trust and which constituted the presently relevant trust estate of

the land. It paid off its debts, principally at least what it had borrowed to purchase the land. It was left

of the partnership by virtue of sub-s. 26(a) of the

Act (as the Commissioner contended), or the proceeds of

sale were income of the partnership by virtue of sub-s. 25(1), the profit constituted the partnership's "net income" as defined in s.90 of the Act. Syncarpia's "assessable income" relevantly consisted of its interest in the profit;

sub-s. 92(1) of the Act. Because Syncarpia was a partner

in its capacity as trustee of the P.J. Walsh Pamily Unit Trust, its assessable income as a partner in the

partnership was derived by it in its capacity as trustee

Upon the division between the partners of the partnership profit from the sale of the partnership asset, the partnership came to an end. Further, the relevant trust estate of the P.J. Walsh Family Unit Trust (the interest in the partnership held by Syncarpia as trustee of the P.J. Walsh Family Unit Trust) then ceased to exist. Although, for income tax purposes, the partnership profit was net income of the partnership and Syncarpia's interest in the partnership profit was assessable income, Syncarpia did not receive its share of the partnership profit as income from, i.e.,as it is sometimes put, as the fruit of, its interest in the partnership. Syncarpia received its

share of the partnership profit in satisfaction and

extinguishment of its interest in the partnership which as I have said, was the relevant trust estate of the P.d. Walsh

The other basis upon which the Commissioner contended that, for income tax purposes, a partnership existed between Syncarpia and the other two companies was that they were in receipt of income jointly. The assumption upon which it is necessary to consider this aspect of the matter is, of course, that a partnership did not otherwise exist; that is to say, Syncarpia and the other two companies were not, in the transaction relating to the land, carrying on business as partners

Thus, it is not immediately relevant that, where there is a true partnership (i.e. a partnership which satisfies the requirements of a general law and not merely the latter part of the definition in sub-s. 6(1) of the Act), the gross income of the partnership is earned jointly by the partnership, the outgoings of the partnership are joint outgoings of the partners, and the profits of the partnership are the profits of the partners: see

Rowe v. F.C.T. (1982) 82 A.T.C. 4243. The hypothesis,

for the moment, is that there was an isolated transaction by three tenants in common resulting in the sale of their land at a profit. Sub-section 25(1) of the Act therefore has no current relevance; the material income of the

partnership was not the gross proceeds of the sale of the

land. The only income which might have been received

jointly by Syncarpia and its co-venturers for present purposes is the profit arising from the sale: ss. 26(a)

The only asset of any such partnership was again the land. Again, the partners held the legal title to the land as tenants in common. There is nothing in the Act of which I am aware which attributes to such a notional partnership for income tax purposes any of the consequences of a true partnership under the general law. Each of the partners accordingly also held the beneficial title to its interest in the land as a tenant in common. Syncarpia of course held its interest in the land on trust for the P.J. Walsh Family Unit Trust. It was its interest in the land which, on this hypothesis, constituted the presently relevant trust estate of the P.J. Walsh Family

The partnership, or at least the partners, sold the land. The partners paid off their joint debts, and were left with the profit. That profit was income of the partnership by virtue of sub-s. 26(1) of the Act and constituted the partnership's "net income" as defined in s.90 of the Act. Therefore, Syncarpia's "assessable income" relevantly consisted of its interest in the profit (sub-s. 92(1) of the Act). However, Syncarpia was a partner in its capacity as trustee of the P.J. Walsh Family Unit Trust so that its assessable income as a partner in the partnership was derived by it in its capacity

Once again, upon the division between the partners of the partnership profit from the sale of the partnership asset, the partnership came to an end. Further, the relevant trust estate of the P.J. Walsh Family Unit Trust, (Syncarpia's interest in the land which it held as trustee for the P.J. Walsh Family Unit Trust) then ceased to exist as such. Although, for income tax purposes, the partnership profit was net income of the partnership and Syncarpia's interest in the partnership proper was assessable income, Syncarpia did not receive its share of the partnership profit as income from, i.e. as the fruit of, its intérest in the land. Syncarpia received its share of the partnership profit in return for its interest in the land which, as I have said, was the relevant trust estate of the

In Everett's Case, supra, a partner in a firm of solicitors assigned to his wife for valuable consideration a proportion of his share in the partnership including his right to a share in the profits. A majority of the High Court (Barwick CJ, Stephen, Mason and Wilson JJ) held that the assignment created a trust of the portion of the share in the partnership in favour of the assignee. The majority rejected a contention (which as in Totledge, supra, was advanced by the Commissioner) that the assignee's share of the profits was not income of a trust estate. At p.199

2nd col. G to p.200 1st col. E, their Honours said:

"The appellant's contention is that the income payable to the respondent's wife

was not, as the majority in the Federal Court held, 'the net income of a trust estate' within the meaning of s.95 of

the Act. The argument is based very largely on the proposition founded on the judgment of Kitto J. in Stewart Dawson Holdings Pty Ltd v. Commissioner of Taxation (1965) 39 A.L.J.R. 300, at p.301, that income derived by a trustee from his own property or by means of his personal exertion, 'income with respect to which a trust arises at the moment of derivation', does not answer the statutory description. Kitto J. was making the point that when a person establishes a trust of his future income simpliciter,

the income when it is derived is the subject matter or corpus of the trust, not the fruit of it. To use the terminology of s.95,

it is because the income is the 'trust estate' that it cannot be-'the net income of' that trust estate. His Honour's remarks do not touch the case where an immediate trust is established of a proprietary right which yields or earns future income. Then the income is accurately described as income

of a trust estate. For reasons which we have already given, this is the situation which obtains here.

Likewise, the observations of Rich and Dixon JJ in Howey v. Federal Commissioner of Taxation (1930), 44 C.L.R. 289, at p.293, where a rather different question was considered, have no application here. Their Honours were dealing with a case in which the appellant did not hold the trust estate in virtue of which the income arose. After referring to the statutory definition of 'trustee' in the Income Tax Assessment Act 1922-1928, their Honours said:

'... it is therefore difficult to apply the definition in order to overcome the effect of the references in sec. 31 to 'income

of the trust estate.' These references suggest that the person who answers the description 'trustee' must stand in some relation to the proprietary right in virtue of which the income arises, even although he

of which the income arises is vested in the respondent as trustee."

For the reasons already advanced, Syncarpia as trustee of the P.J. Walsh Family Unit Trust did not here receive its share of the partnership profit in virtue of its interest in the partnership or the land but in "exchange" for it. The income was the proceeds of realization of the trust estate and became the trust estate of that trust, so that it could not have been

Accordingly, in my opinion, all else aside, the Commissioner's argument foundered on propositions (iv) and (v) supra. There is no reason to consider any of the other questions which might have arisen. The appeal

I certify that this and the 22 preceding pages are a true copy of the Reasons for Judgment herein of his Honour