J Block SM

Administrative Appeals Tribunal


Decision date: 13 December 1999

J Block (Senior Member) (a) The objection decision in this matter is the disallowance by the Respondent of an objection dated 1 March 1999 against amended assessments issued on 13 November 1998 in respect of the years ended 30 June 1996 and 30 June 1997 and issued on 24 November 1998 in respect of the years ended 30 June 1993, 30 June 1994 and 30 June 1995.

(b) The tax years referred to in sub-clause (a), from the year ending 30 June 1993 to the year ending 30 June 1997 (both inclusive), are collectively referred to as the ``relevant years'' and each is a ``relevant year''. The term ``first relevant year'' refers specifically to the year ending 30 June 1993.

2. (a) The Applicant appeared on his own behalf and Mr Peter Hefford, an officer of the Respondent, appeared for the Respondent.

(b) The Tribunal had before it the T Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 and in addition Supplementary Documents tendered by the Respondent. The Applicant tendered exhibits as follows:

  • Exhibit A1 is a document which was referred to by the Applicant as a business plan in respect of 14 units at 41-43 Blackwood Road, Woodridge, Queensland.
  • Exhibit A2 is a document which was referred to by the Applicant as a business plan in respect of Kambah Place, West Pennant Hills, New South Wales.
  • Exhibit A3 is an invoice by Wymark Registered Insurance Brokers addressed to Mr G Cripps - Cripps Investments.
  • Exhibit A4 is the first page of the tax return for GV and AA Cripps - Cripps Investments for the year ended 30 June 1992.
  • Exhibit A5 is a Certificate of Registration of Business Name in respect of the business name ``Cripps Investments'' registered under the Business Names Act 1962 (Vic) in Melbourne on 31 May 1993.

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  • Exhibit A6 is a letter dated November 8, 1999 by LJ Hooker of Cherrybrook and West Pennant Hills addressed to the Applicant and his wife and enclosing a document entitled ``Listing Activity Report'' in respect of the West Pennant Hills property and billing details in respect of an amount then outstanding for advertisements relating to the proposed sale of the property.
  • Exhibit A7 is a statutory declaration by John Ahern dated 9 September 1999.
  • Exhibit A8 is a letter by John Ahern to GV and AA Cripps dated 17 November 1999.

3. The evidence of the Applicant can be summarised in the following terms:

(a) On 12 June 1988, the Applicant and his wife, Mrs Alison Anne Cripps (referred to as ``Mrs Cripps'' or ``his wife'' or ``the Applicant's wife'') purchased (as joint tenants) 14 two storey townhouses located at 41-43 Blackwood Road, Woodridge in South-East Queensland for an aggregate purchase price of $637,500. These 14 townhouses are collectively referred to in these Reasons as the ``townhouses''. The T Documents include copies of Certificates of Title; volume 6866 (folio 214) and volume 6866 (folio 215) refer respectively to estates in fee simple in Lots 114 and 115 on Registered Plan No. 203372 of the County of Stanley Parish of Yeerongpilly. Those documents indicate that the Applicant and his wife became the registered proprietors on 12 September 1988 and on which date a mortgage was registered; that mortgage was varied on 2 October 1992. The title documents indicate also that Building Unit Plans were subsequently registered.

(b) The Applicant considered at the time (in 1988) that the townhouses at that price represented very good value. They were then fetching rentals of approximately $45 to $55 per week each (see Exhibit A1) and the Applicant thought that with some minimal renovations, they could be let at rentals of $120 per week each.

(c) A loan secured by mortgage was obtained through Pacfin Limited (a mortgage originator) (``Pacfin'') in an amount of the whole of the purchase price of $637,500 plus costs of transfer and also the loan and mortgage, and amounting in all to approximately $700,000. A loan for so high an amount was obtainable because the Applicant and his wife also furnished mortgage security over their home in Cherrybrook, New South Wales (which they also owned as joint tenants) and which was sold some 5 years ago.

(d) Exhibit A1 is, as set out previously, a document referred to by the Applicant as a business plan for the townhouses prepared at or about the time of acquisition. It is based on a number of assumptions as to future interest rates and rents.

(e) Until 1986 the Applicant was resident in Victoria. He then took up residence in New South Wales where he has lived ever since excepting only for two extended stays in other countries, firstly in New Zealand in 1991 and 1992, and thereafter in the United Republic of Tanzania in 1997 and 1998, after he was seconded by British Telecom (his then employer) to Tanzanian Telecommunications Co Ltd. Although the Applicant has both a Bachelor of Jurisprudence and an LLB degree (obtained at Monash University many years ago) his work has been in the area of recruitment training and management of human resources.

(f) The Applicant thought that the townhouses would constitute a good investment having regard to the fact that at that time, and following Expo 88' in Queensland, residential rents in south-east Queensland were high. Unfortunately, so the Applicant informed the Tribunal, the relevant authorities subsequently allowed the construction of large numbers of additional units and in consequence of which there was an oversupply of property and a concurrent fall in obtainable rents.

(g) The townhouses were purchased from an estate agency in which John Ahern is and was a principal (although the actual selling agent was one of his colleagues) and it is John Ahern who has, since acquisition, been entrusted with the management of the townhouses.

(h) The renovations referred to previously were carried out by contractors at an aggregate cost of approximately $20,300; these renovations took some time to complete.

(i) In respect of the Pacfin loan, the rate of interest was fixed originally at 14.5% and that rate was locked in for a subsequent period; rates started falling in 1994 or 1995 and the current rate stands at 6.9%.

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(j) Aproximately nine years ago, the Applicant and his wife purchased a holiday home at Budgewoi in New South Wales for $65,000; that home is referred to as the ``Budgewoi house''. Finance was obtained from the National Australia Bank; however, all moneys owing to National Australia Bank have been repaid and the title deed is now lodged as collateral security with Pacfin in respect of the mortgage of the townhouses, and also the house in West Pennant Hills which is referred to in sub-clause (k) below.

(k) Exhibit A2 indicates that land was purchased in October 1994 in West Pennant Hills and that settlement took place in February 1995. A house was constructed on the land and the total cost (inclusive of the house construction) was $591,000. Additional finance was obtained from Pacfin and so that the aggregate amount owing to Pacfin rose to an amount in excess of $1 million. The Applicant and his wife lived in that house (``the West Pennant Hills house'') for a period, but subsequently it was let. Exhibit A6 indicates that it was listed for sale in June 1998 at a sale price of $695,000; however it was not sold and was subsequently again let out. The Applicant said that if the West Pennant Hills house could be sold for a price of approximately $700,000, the proceeds could be used to reduce the Pacfin loan; in consequence, the interest cost would be substantially reduced and thus produce a positive rather than a negative return overall. Rents for the townhouses are currently at a level which is substantially below that obtained after the renovations had been completed in 1988.

(l) The Budgewoi house was, as set out previously, purchased as a holiday home. However, it was rented out while the Applicant and his wife were in New Zealand in 1991 and 1992; it was also rented out while they were in Tanzania in 1997 and 1998. It has been rented out in 1999, and is currently rented.

(m) As at this date the Applicant and his wife are the owners (subject of course to mortgage over the townhouses and the West Pennant Hills house), as joint tenants, of the townhouses, the Budgewoi house and the West Pennant Hills house, making up 16 properties in all. As set out previously, Mr Ahern is charged with the management of the townhouses.

(n) The Applicant said that he and his wife entered into partnership in 1983 in order to acquire and rent out properties. It was contemplated that the properties would increase in value and would eventually constitute their superannuation or pension when they came to retire. It was for this purpose that the name ``Cripps Investments'' was registered as a business name on 31 May 1983 (Exhibit A5); Exhibit A4 is (as set out previously) the first page of a return for the 1992 year for ``GV and AA Cripps - Cripps Investments''. The Applicant in his evidence initially said that the last partnership return was furnished in respect of the first relevant year, but having regard to Exhibit A4 agreed that the last partnership return was rendered in respect of the 1992 year. Exhibit A4 indicates that in response to the question whether the return was a final return the answer was ``N''; the Applicant thought that that answer indicated that the return might be amended.

(o) The original Pacfin loan was obtained by the Applicant and his wife and they gave a mortgage over the townhouses as security. When the Applicant and his wife returned from New Zealand in 1992, the loan was altered in such manner that the Applicant became the borrower, but on the basis that his wife then became a guarantor. The Applicant said that this occurred in circumstances where his wife had recently had a baby and had no income, and that for this reason the loan, and also the mortgage, were transferred into his name alone. No documents in this respect were produced to the Tribunal. The Tribunal considers it most unlikely that Pacfin would have agreed to release Mrs Cripps as a mortgagor, since to do so would have adversely affected its security structure. Pacfin would, in all likelihood, hardly have been content with a mortgage over the joint tenancy interest of only one of the joint tenants. As to how or why Pacfin agreed to release Mrs Cripps as a borrower but on the basis that she remained liable as a guarantor, was not clarified. Moreover, the Applicant (and also his wife) testified as to the procurement of a certificate of independent legal advice (usually required in these circumstances by lenders) in respect of Mrs Cripps from a solicitor who acted for the Applicant and his wife; such a solicitor would not normally be regarded as independent for these purposes.

(p) Although the partnership currently has only real property, being the 16 properties referred to previously in these reasons, the Applicant testified that it did at one stage in the

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'80s own a laundrette together with a leasehold title referable to that laundrette.

(q) The evidence of the Applicant was that there has since 1983 been a partnership between him and his wife. There is no written partnership agreement. However, a basic term of that agreement is that at the end of each financial year the parties meet with their tax agent, Mr Marshman, and then decide how the profits or losses should be allocated. In all of the relevant years there has, in respect of the properties, been a substantial loss. Because the Applicant has the higher tax rate the whole of the loss has been allocated to him. Mrs Cripps has, from time to time, worked as a physiotherapist on a part-time basis for two or three days a week; her earnings are low by comparison with those of her husband.

4. (a) Certain of the Supplementary Documents were produced to the Applicant in cross-examination. He admitted that in respect of each relevant year his return shows his salary from his full-time employment. In each case part 10 (Partnerships and Trusts) was answered with an ``N''. In each case, part 17 (part 16 in certain of the relevant year returns but in any event referable to rent, premiums, etc) reflects gross rent, interest deductions and other rental deductions, together with the resulting loss. In respect of the first relevant year, by way of example (and the returns for the other relevant years are consistent) the gross amount was $69,192, interest amounted to $92,523, other rental deductions amounted to $40,944, and the overall loss was $64,275. Put succinctly, in all of the relevant years the Applicant dealt with the properties as if he were the sole owner and not a joint owner; moreover these returns contradict the existence of a partnership in relation to the properties.

(b) The Applicant, in support of his contention that there was a partnership between himself and his wife, placed much reliance on the existence of the business name and contended that it was, of itself, a clear indication of the existence of a partnership.

(c) The Applicant testified also as to the fact that he visited the townhouses approximately twice a year and that he phoned or emailed Mr Ahern at least once a month. He said that he had not retained copies of email messages because they would clutter up his computer hard drive. He tendered Exhibits A7 and A8 as evidence of his substantial involvement in the management of the townhouses. The usual procedure before the Tribunal is such that witness statements are submitted prior to the hearing, in respect of all witnesses proposed to be called. The other party then indicates whether that witness is required for cross- examination. In fact no witness statements by the Applicant or his wife were submitted; Mr Hefford did not object to their giving evidence. Mr Hefford also agreed to allow the tender of Exhibits A6 and A7 even though Mr Ahern was not available for cross-examination, but as he put it ``subject to weight''. Mr Ahern's letter and statutory declaration would tend to suggest that the Applicant was engaged in discussions as to the townhouses on a constant basis; that evidence is contradicted to an extent by the fact that contact (two visits a year and one telephone or email communication per month) was limited. And those communications and visits may perhaps have been even more limited while the Applicant and his wife were in Tanzania.

5. (a) I use the term ``partnership'' in these Reasons, unless the context expressly requires otherwise, to denote a general law partnership, and that is one which is a partnership under the Partnership Act 1892 (NSW) (``Partnership Act''). Under that Act, section 1(1) provides that a partnership ``is the relation which exists between persons carrying on a business in common with a view of profit.''

(b) Section 2 of the Partnership Act contains rules for determining whether a partnership exists. I do not think that it is necessary to set out these rules.

(c) Section 24 of the Partnership Act provides that subject to any agreement, express or implied, between the parties, they share equally in profits and contribute equally to losses.

(d) There is of course no doubt that there is, as between the Applicant and his wife, a tax law partnership because they are in receipt of income jointly; the rental income is paid into a joint banking account. There is however a threshold question as to whether it can be said that there was, in the relevant years, a general law partnership between them.

6. The evidence of Mrs Cripps was broadly that she was the passive partner in the partnership in which her husband was the more active partner. She too testified as to the fact that there was a partnership but said that all

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details were arranged and managed by her husband. She had almost no recollection of the circumstances in which she came to be a guarantor rather than a borrower. She said that she visited the townhouses on some occasions but less often than her husband. Her evidence was brief and entirely consistent with that of a wife who attributes responsibility for matters of this nature to her husband.

7. This leads me to consider whether on the evidence there was a partnership under general law. In this context:

(a) A partnership in which neither partner has any fixed entitlement to a share of income in respect of any year seems decidedly odd. A partnership in which the entitlements of the partners can alter from year to year based on performance is not uncommon, but each partner would know what his or her entitlement is at any rate for a particular year even though that entitlement may be varied at some point thereafter.

(b) In this case, the Applicant and his wife had, so it is alleged, a partnership but with no fixed rights as to profit entitlement. At the end of each year the Applicant and his wife decided on entitlements (or to be more precise the attribution of losses) entirely by reference to tax considerations. (Their relationship in respect of the property was analogous with a discretionary trust, where the trustee has a discretion as to allocation of income; of course, a discretionary trust structure would not have been suitable in the light of events subsequent to acquisition, precisely because the loss would have been locked into the trust.)

(c) It is of course clear that the arrangement pursuant to which all of the losses were attributed to the Applicant was beneficial to the family as a whole simply because the aggregate tax was minimised in consequence. Regarded in this light it was not at all surprising that matters were dealt with in this fashion.

(d) The obvious corollary is of course that if and when the rental return ever became positive the situation would presumably be reversed, and so that the net income would be attributed to Mrs Cripps. This too would achieve the best tax result for the family as a whole.

(e) Nor indeed is it surprising that there was no written agreement. It is hard to imagine what in the circumstances could have been inserted in a written document. It would hardly be desirable to state in bald terms and in writing that sharing of profits or losses would be dictated entirely by tax considerations.

(f) It would, in my view, be more apposite to characterise the relationship between the Applicant and his wife as a private family arrangement, but not as a binding partnership agreement. The relationship described above does not appear to fit the statutory definition which connotes the contemplation of profit for the partners.

8. (a) Under section 90 of the Income Tax Assessment Act 1936 (``ITAA''):

  • (1) Net income is defined as follows:
    • `` `net income' , in relation to a partnership, means the assessable income of the partnership, calculated as if the partnership were a taxpayer who was a resident, less all allowable deductions except deductions allowable under section 82AAT of this Act or Division 36 of the Income Tax Assessment Act 1997.''
  • (2) Partnership loss is defined as follows:
    • `` `partnership loss' , in relation to a partnership, means the excess (if any) of the allowable deductions, other than deductions allowable under section 82AAT of this Act or Division 36 of the Income Tax Assessment Act 1997, over the assessable income of the partnership calculated as if the partnership were a taxpayer who was a resident.''

(b) Under section 91 of ITAA, a partnership must furnish a return of its income but is not liable to pay tax thereon; and

(c) Sections 92(1) and 92(2) of ITAA read as follows:

``92(1) [Assessable income; allowable deductions] The assessable income of a partner in a partnership shall include-

  • (a) so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was a resident; and
  • (b) so much of the individual interest of the partner in the net income of the partnership of the year of income as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.

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92(2) [Partnership loss] Where a partnership loss is incurred by a partnership in a year of income, there shall be allowable as a deduction to a partner in the partnership-

  • (a) so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was a resident; and
  • (b) so much of the individual interest of the partner in the partnership loss as is attributable to a period when the partner was not a resident and is also attributable to sources in Australia.''

9. (a) Of course, section 91 of ITAA requires a partnership return in respect of a partnership, and there was as set out previously, clearly a tax partnership. There was then and in any event a legal obligation to furnish partnership returns; a fortiori there would have been such an obligation in respect of a general law partnership. There was no explanation (unless that set out in subclause (b) can be construed as such) as to why the last partnership return was rendered prior to the first relevant year.

(b) The Applicant sought to contend that Mr Marshman (who is referred to sometimes in these Reasons as the ``tax agent'') had simply made an error in that he included the overall loss under the head of rentals rather than under the head of partnership income; he sought to contend furthermore that since the result would have been the same (in that the whole loss would have been attributed to him) there was no need for partnership returns. That explanation cannot be correct as a matter of law; moreover, it tends to contradict the very existence of a partnership during the relevant years, as alleged by both the Applicant and his wife. It must be remembered that in 1992 the loan alteration appears to have taken place and pursuant to which the borrower became the Applicant. It may perhaps have been intended that the Applicant would alone be the borrower but that Pacfin would have essentially the same security structure. For the Applicant to borrow and then to on-lend (at the same rate) to the partnership would have served no useful purpose, because the loss would then have arisen at the level of the partnership. However, if the partnership had fallen out of the picture completely, then the loss would have occurred at the level of the Applicant, but all of the evidence of the Applicant and his wife was to the effect that there was at all times a partnership between them. As to whether that method of dealing with the matter would in such event have achieved the desired object may be open to question having regard to the decision of Senior Member Pascoe in Case 63/96,
96 ATC 578, referred to in more detail later in these Reasons.

10. (a) As set out previously, each of the Applicant and his wife testified as to the creation and continued existence of a partnership. The decision of Beaumont J in
FC of T v McDonald 87 ATC 4541; (1987) 15 FCR 172, which is directly on point, would be distinguishable only if the partnership was in business. The legal situation is clearly set out in the following passage from the judgment of Beaumont J commencing at ATC 4549-4552 FCR 181:

``In this Court, it was submitted on behalf of the Commissioner that the Tribunal should have held that there was no partnership here under the general law; and that the private arrangement arrived at between the respondent and his wife as to the sharing of profits and losses could not alter their respective entitlements for income tax purposes.

It was argued for the Commissioner that the present case was one merely of co- ownership rather than partnership. He relied, in this connection, upon the well-known dictum of Willes J in the early case of
French v Styring (1857) 2 CB (NS) 357 at p 366:

`It in truth amounts to no more than a contract between two tenants in common, whereby the one agrees, in consideration of certain things to be done by the other, to abstain from exercising his rights in respect of the chattel held by them in common. It is no more a partnership than if two tenants in common of a house agreed that one of them should have the general management, and provide funds for necessary repairs, so as to render the house fit for the habitation of a tenant, and that the net rent should be divided between them equally.'

The Commissioner also relied upon the following observations made by Thurlow J in the Exchequer Court of Canada in
Wertman v Minister of National Revenue (1964) 64 DTC 5158 at p 5167:

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`On the evidence in the present case the sum received as rentals from the Park Strand should I think be regarded as having accrued to the appellant and his wife and son predominantly, if not entirely, in their capacity as owners of the property rather than as traders, and I also think that the rentals should be regarded as having accrued predominantly, if not entirely, from the use by tenants of the property in the sense that they represent payments for the tenants' occupation thereof rather than payments arising from the process of letting apartments and providing certain limited services such as heat of which the tenants have the benefit. To my mind while there is a sense in which the rentals can be said to be revenues from a business of letting apartments or operating an apartment building for the purpose of securing rentals, it is a fanciful and unrealistic way of describing them for it puts the emphasis of the description of their source where it does not belong viz., on the mere sine qua non or conduit pipe of the letting activity rather than on the fact that they arise from the use or exercise of the owners' right of occupation of the property by tenants who pay not for the letting but for the use of the property.'

On behalf of the respondent it was submitted that the relevant relationship for present purposes was not that of co-ownership; rather the relationship was that of partnership both under the general law and under the Act. It was further submitted, in the alternative, that even if no partnership exists, the agreement between the respondent and his wife bound the Commissioner as a lawful contract which conclusively governed the relevant legal relations between those parties.

In my opinion, although the case is a difficult one, the Commissioner's arguments are, on the whole, valid. For this purpose, I accept the findings of primary fact made by the Tribunal. I also accept that in the course of the conduct of the proceedings before the Tribunal, the Commissioner's representative withdrew any suggestion that the arrangement made between the respondent and his wife was a sham. I have already noted that sec 260 and the doctrine of `fiscal nullity' are no longer pursued. But, in my view, the respondent was entitled to deduct only one-half of the loss claimed.

It is true that, for the purposes of the Act, `persons in receipt of income jointly' as well as persons carrying on business as partners, are deemed to be `partners' (see the definition in sec 6(1)). Thus, if co-owners, who might not be partners under the general law, receive income jointly, they are treated as `partners' for the purposes of the Act. In the present case, the respondent and his wife were joint tenants, legally and beneficially, of the subject premises. They were in receipt of income jointly from the lettings. By reason of the extended partnership definition, they were deemed to be `partners' for the purposes of the statute.

This circumstance does not, however, advance the respondent's case. `Taxation law recognises the schizoid nature of the partnership as both a distinct firm or profit centre in accounting and economic theory and as a non-entity in general legal theory' (See Fletcher, The Law of Partnership in Australia and New Zealand, 5th ed at p 307.) As Professor Fletcher notes, the Act requires that the accounts of the business (or, in the case of co-owners, notional business) be prepared on the basis that the partnership is a distinct commercial operation; yet no tax is levied on the earnings of the partnership and its income is credited to partners in the appropriate shares and taxed in their hands as part of their income (sec 90, 91 and 92). In the same way, the Act, as it stood at material times, allowed a partner, or a notional `partner', a deduction in respect of `his individual interest in a partnership loss' (sec 92(1)). `Carrying on business in partnership or being a partner confers no special rights or entitlements for taxation purposes' (Fletcher, op cit). As I followed the argument, the respondent acknowledged this. He accepted that if no more appeared in the case than that he and his wife were joint tenants, that is to say, that for the purposes of the general law, they were merely co- owners and not partners carrying on a business in common with a view of profit (see Partnership Act 1892 (N.S.W.) sec (1)), then although their receipt of income jointly

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would deem them to be `partners' for taxation purposes, the respondent would, by virtue of sec 92(1), be allowed a deduction of only one-half of the losses incurred. The respondent's concession was, I think, rightly made. It is common ground that the respondent and his wife were beneficially entitled to the premises as joint tenants. As joint tenants, they were entitled in equal shares to the rents and profits (see Helmore, The Law of Real Property in New South Wales, 2nd ed at p 274). For taxation purposes, the Act takes the taxpayer's income as it finds it, that is to say, subject to the general law in all its aspects. This will pick up the position at law and in equity modified by any relevant legislation, including the provisions of the Act itself (see
MacFarlane v FC of T 86 ATC 4477 at 4486; (1986) 13 FCR 356 at 367. What is relied on by the respondent in claiming to be allowed a deduction for the whole of the losses is his assertion that he and his wife were also partners under the general law (ie they were `true' partners (see
FC of T v Walsh & Anor 83 ATC 4415; (1983) 48 ALR 253; 14 ATR 399 per Fitzgerald J at p 4430; ALR 272-273; ATR 415-416)); and that it was a term of the partnership agreement that he be liable for the whole of the losses of the venture. Alternatively, the respondent says, even if a general law partnership did not subsist, it was a term of the agreement between the respondent and his wife that he be liable for all the losses and his contractual liability was itself sufficient to entitle him to deduct the total amount claimed.

In my opinion, no partnership under the general law subsisted between the respondent and his wife. Their relationship was one of co-ownership, and even if they were deemed to be partners by reason of sec 6(1) of the Act, this circumstance is immaterial for our purposes. As has been noted, their notional `partnership' will carry with it the consequence that they are to be treated as a `partnership' for some purposes. It does not follow that the respondent can deduct the whole of the losses. He may only deduct his individual interest in the `partnership' loss. His `individual interest' is the interest to which a `partner' is solely entitled, as contrasted with his joint interest in the whole (see
FC of T v Whiting (1942-1943) 68 CLR 199 at p 204). It is necessary therefore to determine whether the respondent and Mrs McDonald were merely notional `partners' for the purposes of the Act (ie merely co-owners) or were `true' partners under the general law.

Partnership is the relationship which subsists `between persons carrying on a business in common with a view of profit' (Partnership Act, sec 1). The reference to `business', defined in the statute as including every trade occupation or profession (Partnership Act, sec 45), indicates `a commercial enterprise as a going concern' (see
Hope v The Council of the City of Bathurst 80 ATC 4386; (1980) 144 CLR 1 per Mason J at ATC pp 4389-4390; CLR p 8). Purely domestic transactions are thus excluded from the definition (see Fletcher, op cit, p 28). The `business' must be `carried on'. This suggests some active occupation or profession (see
IR Commr v The Marine Steam Turbine Co. Ltd (1919) 12 TC 174 per Rowlatt J at 179). It also suggests an element of continuity although it has been recognised that it is possible that a single joint venture will suffice (see
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321;
United Dominions Corporation Ltd v Brian Pty Ltd (1984-1985) 157 CLR 1 at p 15; Fletcher, op cit, pp 31-33). On the other hand, in the case of a private individual as distinct from a company, `it may well be that the mere receipt of rents from properties that he owns raises no presumption that he is carrying on a business' (see
American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue (1979) AC 676 per Lord Diplock at p 684).

The well-known statutory rules for determining the existence of a partnership (see the Partnership Act, sec 2) are introduced by Professor Fletcher (op cit, at p 43) in this way:

`The partnership relation is basically contractual (
Pooley v Driver (1876) 5 Ch D 458 at 472 per Jessel MR). Whether it exists in a particular case is determined by assessment of what the parties must be taken to have intended, as evidenced not only by the terms of their express

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agreement but by their conduct towards one another during the course of carrying on the business. No one factor of itself is conclusive. All the facts and relevant circumstances of the relationship between the parties must be considered (
Re Ruddock (1879) 5 VLR (1 P & M) 51). The statutory rules... qualify the terms of the definition and provide guidance for persons interested in separating partnership from non partnership joint ventures and other relationships... which may exhibit similar characteristics.'

One of these statutory rules is that co- ownership of property, including joint tenancy, does not of itself create a partnership as to anything so owned, whether the co-owners do or do not share any profits made by the use thereof (Rule 1). Of co-owners sharing profits, Lindley on the Law of Partnership, 15th ed says (at p 81):

`When, however, co-owners of property employ it with a view to profit, and divide the profit obtained by its employment, the difference, if any, between them and the partners becomes very obscure. The point to be determined is whether, from all the circumstances of the case, an agreement for a partnership ought to be inferred; but this is often an extremely difficult question.

If each owner does nothing more than take his share of the gross returns obtained by the use of common property, partnership is not the result. On the other hand, if the owners convert those returns into money, bring that money into a common stock, defray out of it the expenses of obtaining the returns, and then divide the net profits, partnership is created in the profits, if not also in the property which yields them.'

Fletcher (op cit at p 44), after referring to French v Styring, supra, says (at p 44):

`However, it seems probable that the extent of this concession [ie, that ``bare'' co-ownership does not, of itself, constitute a partnership] has been eroded by changes in the legal appreciation of what constitutes a business. Whereas a century ago most single venture operations would not have been regarded as businesses, it is submitted that few gain making activities will now avoid that designation. To remain within the ambit of the rule, it is probable that the joint activity should require minimal involvement by the co-owners, such as a decision to lease a house property for a term of years rather than operating it as a boarding house, and be designed to cover costs rather than to return profits to the participants.'

This approach is consistent with the approach taken in Wertman, supra.

It is true that the record of discussion referred to the relationship in terms of an `investment' rather than that of a partnership. This is inconclusive. It is well established that the parties' description of their relationship as a partnership or as not a partnership does not determine the legal question to be addressed by the Court (See, eg,
Fenston v Johnstone (1940) 23 TC 29 per Wrottesley J at pp 35-36).

In the present case, a number of indications point to the conclusion that the parties were not carrying on a business, with the consequence that their relationship was that of co-ownership rather than partnership. Their investment involved little, if any, active participation from either party. This was inevitable because the respondent was apparently in full-time employment, and Mrs McDonald was fully committed at home. On the few occasions on which the owners needed to be involved, the respondent and not Mrs McDonald attended to the matter. This was not a case of the active joint participation by the parties in a business activity. Rather, it was a case of a renting out of premises without the provision of other services of the kind discussed in Wertman, supra. In my view, there was here a mere investment in property rather than a partnership in the properties or their profits. This is not, of course, to say that it is not possible for husband and wife to enter into a partnership under the general law with respect to land dealings - see, eg,
Spence v FC of T (1967) 121 CLR 273.

Given the respondent's minor participation in the affair and given Mrs McDonald's apparent lack of commercial expertise and

ATC 2438

her passive role, it is, I think, more accurate to describe them as co-owners in investments rather than as partners in a business operation.

This is not to say that the respondent and his wife were not each entitled to claim one-half of the losses under sec 51(1) of the Act. That provision is not limited to deductions from income derived as being the proceeds of a business. It is `a general provision relating to deductions claimable in relation to expenses, losses or outgoings incurred in gaining or producing any income whatever and not merely in relation to income derived from a business' (See
FC of T v Green (1950) 81 CLR 313 per Latham CJ at p 319).''

(b) The Applicant urged me on more than one occasion to distinguish McDonald's case on the basis that the properties in the present case were greater in number than those in McDonald's case. In McDonald's case, there were two properties, whereas in this case there are (now) 16. However, it must be remembered that the West Pennant Hills house was originally the home of the Applicant and his wife and that the Budgewoi house has been, and may again be, their holiday home (and has been let, in the words of the Applicant, ``sporadically'') and furthermore that the townhouses, although comprising 14 in number, were constructed on two titles purchased at the same time. The fact that there were more individual units and that their value may have been greater than that of the two properties which were relevant in McDonald's case does not, in my view, entitle me to distinguish McDonald's case; as in McDonald's case, we are concerned with real property investments owned by a husband and wife as joint tenants, where the husband is employed on a full-time basis, and where the wife is otherwise engaged (although in this case with both home duties and her part-time job). It is possible that the Applicant had a somewhat greater involvement in the management of the properties than did the taxpayer in McDonald. But he was of necessity an absentee landlord if only because the townhouses were a long way away. In any event it seems to me that if by way of example one share investor takes a greater interest in his investments than does another, and for example phones his broker regularly, that will not convert his investments into a business. The decision of the Federal Court in
FC of T v Shields 99 ATC 4783 was cited to me by the Applicant. That case is clearly distinguishable on its facts. Shields was engaged in arbitrage activities on a very regular and indeed daily basis; his activities moreover required a degree of skill and expertise, such that his activities were held on balance to constitute a business.

(c) During the submission stage, and after he had closed his case, the Applicant tendered a document the relevance of which appears to me to be questionable. I accepted it but informed the Applicant that if he wished to tender further documents, he should apply to reopen his case and re-enter the witness box in order to do so. I indicated also that I would allow such an application but naturally subject to the right of the Respondent to cross-examine as to that additional evidence. I note in general terms that a considerable degree of latitude was allowed to the Applicant as a self- represented litigant; nor indeed do I attribute much weight to his legal qualifications which were obtained a long time ago. Since the maintenance of documents is one of the indicia of a business, the Applicant pointed to a packet (on the bar table) of documents which he said were records in respect of the properties. He said also that he did not propose to tender them, having regard to what I had indicated earlier as regards the tender of documents after the closure of his case. Although it was made clear to the Applicant that an opportunity to reopen would be allowed if desired he did not make such an application or seek to tender his packet of documents. I note in this context (although I do not know what the packet contained) that statements of account, rent rolls and the like received from Ahern would be something which any prudent investor would retain; nevertheless that factor alone would not incline me to hold that a business was being conducted.

(d) (1) The Applicant drew my attention to clauses 15, 16, 17, 23 and 26 of Taxation Ruling TR 93/32 reading as follows:

``15. An important ingredient of the definition is `carrying on a business'. Without this ingredient, there can be no partnership at general law.

16. In determining whether the respondent and his spouse in F.C. of T. v McDonald (1987) 18 ATR 957; 87 ATC 4541 were `true' partners under the general law, Beaumont J said at ATR p 968; ATC p 4550:

ATC 2439

`The reference to ``business''... indicates a ``commercial enterprise as a going concern'': see Hope v Bathurst City Council (1980) 144 CLR 1 at 8; 12 ATR 231 at 236 per Mason J. Purely domestic transactions are thus excluded from the definition: see Fletcher, op cit p 28. The ``business'' must be ``carried on''. This suggests some active occupation or profession: see IRC v The Marine Steam Turbine Co Ltd (1919) 12 TC 174 per Rowlatt J at 179.... On the other hand, in the case of a private individual as distinct from a company, ``it may well be that the mere receipt of rents from properties that he owns raises no presumption that he is carrying on a business.'' see American Leaf Blending Co Sdn Bhd v Director- General of Inland Revenue (1979) AC 676 per Lord Diplock at 684.'

17. Paragraphs 3 to 5 of Income Tax Ruling No. IT 2423 are also relevant in determining whether the letting of property amounts to the carrying on of a business. In particular, paragraph 5 states `An individual who derives income from the rent of one or two residential properties would not normally be thought of as carrying on a business. On the other hand if rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business.'


23. That is not to say that co-owners cannot carry on a business of property rental and therefore be partners at general law. As already noted, whether an activity constitutes the carrying on of a business is a question of fact to be decided on a case by case basis.


26. Whether a partnership exists at general law is of significance for taxation purposes as McDonald's Case at ATR p 967; ATC p 4550 shows: `For taxation purposes, the Act takes the taxpayer's income as it finds it, that is to say, subject to the general law in all its aspects. This will pick up the position at law and in equity modified by any relevant legislation, including the provisions of the Act itself: see MacFarlane v FC of T (1986) 17 ATR 808; 67 ALR 624 at 636'.''

(2) The Applicant asked me to note in particular paragraph 5 of Taxation Ruling IT 2423 (a non-binding ruling) which is referred to in clause 17 of TR 93/32 to the effect that: ``... if rent was derived from a number of properties or from a block of apartments, that may indicate the existence of a business''.

Paragraph 5 of IT 2423 suggests only that a number of properties may indicate the presence of a business; it follows of course that it will not of itself be determinative.

(e) The Applicant contended that his management of the properties was such that the decision in McDonald's case should be distinguished. But leaving aside the fact that little weight can be given to Ahern's evidence, the activities of the Applicant in Sydney (or Tanzania) in relation to properties in South-East Queensland are unlikely to have been any more involved than that of an absentee landlord, albeit a concerned and interested absentee landlord.

(f) The Applicant cited two primary production cases (
FC of T v Walker 85 ATC 4179 and
Ferguson v FC of T 79 ATC 4261) so as to contend that if the small numbers of livestock involved in each of those cases was sufficient to constitute a business so then must the properties here in question constitute a business. However, Walker and Ferguson were concerned with actual farming activities (albeit on a small scale) and are not properly to be compared with the letting out of real property.

11. (a) The decision of Senior Member Pascoe in Case 63/96 (cited in full in clause 9(b) above) was brought to my attention. See in particular clauses 10, 11 and 12 of that decision which read as follows [at 581-582] (and in respect of which emphasis has been added by me):

``10. Some time was spent in both submissions on whether it could be said that the applicant and his wife were in partnership in a general law sense or, as co- owners of property, deemed to be a partnership pursuant to section 6 of the Act as persons in receipt of income jointly. Whilst this question could be seen to be relevant to the decisions in cases such as McDonald and Case X48 (supra) which were sought to be relied upon or distinguished, I doubt that the distinction is relevant in this case. Both those cases involved the question of whether the co-

ATC 2440

ownership of a property constituted a partnership in general law so as to allow the partners to agree to an apportionment of profits or losses on a basis different from their share of the beneficial ownership of the property from which rental income was derived. Here there was no suggestion that the sharing of gross rental, or the expenditure other than interest, should be shared other than equally. The applicant sought to find some support from the decision in
FC of T v JD Roberts and FC of T v Smith 92 ATC 4380. However, here there was no suggestion of the partnership borrowing funds in order to repay capital of the partners. It was a matter of one of the co- owners borrowing funds. Although I do not see that this case turns on whether the relationship was one of partnership under general law, I do find that this relationship was not a partnership as such but simply one of co-ownership of real estate. There was a mere investment in property where the parties could not be said to have been carrying on a business. The very limited personal involvement as absentee landlords could hardly be described as business activities. In this matter I have no difficulty in arriving at the conclusion that there was no relationship which subsisted between the applicant and his wife which could be described as carrying on a business in common. There is nothing in this case which allows it to be distinguished from McDonald, Case 12/95 or Case X48 (supra).

11. In my view, this does not necessarily mean that, as co-owners and persons in receipt of income jointly and, therefore, a deemed partnership for tax purposes, every expense relative to that co-ownership, no matter by whom incurred or paid, must be first brought to account in arriving at the net income of the partnership for the purposes of section 92 of the Act. For example, it would seem that where two people agree to jointly purchase a property for rental purposes and one borrows money solely for the purpose of contributing his or her share of the purchase price, then the interest on that borrowing would be an expense of the borrower and deductible from his or her share of the net rental income. It would not be appropriate that such interest be required to be taken into account in arriving at the net income of the partnership. On the other hand where the parties jointly incur an expense related to the property as a whole such as rates, insurance and interest on borrowings to fund the joint equity, such expenses must be taken into account in arriving at the net income of the partnership notwithstanding that the payment of the expense was made by one of the partners only (see the decision of the Board of Review, cited as Case C66,
71 ATC 297).

12. Consequently, the decision in this case depends upon the answer to the question of whether the interest incurred by the applicant was an expense of deriving his interest in the net income from the joint ownership or whether it was an expense of the joint owners in deriving the rental income and to be taken into account in arriving at the net income of the partnership. Here, I find that it is the latter. It is clear that the test for deductibility of interest paid on borrowed funds is the purpose of the borrowing and the use to which the borrowed funds are put. As said by Hill J in Roberts and Smith (supra) at page 4388:

`... As the cases, including
Kidston Goldmines Ltd v FC of T 91 ATC 4538, all show, the characterisation of interest borrowed will generally be ascertained by reference to the objective circumstances of the use to which the borrowed funds are put.'

In this case the applicant borrowed these particular funds partly to provide a deposit on a private residence in Adelaide and partly to repay existing joint borrowings relative to the Melbourne house. The original borrowing which this replaced was taken out jointly to fund the joint interest in the property. Consequently, the later borrowing which was used to repay the earlier was also a borrowing to fund the joint interest, not the interest of the applicant alone ....''

(b) It seems to me that the decision of Senior Member Pascoe in Case 63/96 was correct; this being so, even if the partnership had been eliminated (which was not the Applicant's case) the result for the Applicant might not have been favourable. It is unnecessary for me to take this aspect any further.

12. In Case X48,
90 ATC 384 Senior Member Balmford referred to the decision in

ATC 2441

with approval and found that physical work was not of itself sufficient. See clauses 15 and 16 of that decision as follows (at 387-388):

``15. Mr Phillips submitted that the parties had done no more than what would ordinarily be required of an owner of property, and that in doing so they had had the additional aim of enhancing their own enjoyment of Blackacre when they came to live there, as they had intended to do.

16. Having considered the evidence, I do not find that the physical work done by the husband and wife on the property is sufficient to take this case out of the ambit of McDonald. If they did any more than was natural for an owner of rental property, it was done for their own domestic purposes. I find that, like the husband and wife in McDonald, they were co-owners of an investment, in which they each owned one- half share, rather than partners in a business operation. Accordingly, by virtue of sec. 92 of the Act, one-half of the losses on the investment was allowable as a deduction to each of them. For the reasons given, the objection decisions under review will be affirmed.''

13. (a) As to penalties, the Respondent in clause 5 of his Reasons for Decision calculated the additional tax in respect of the culpability component, by reducing it from 25% to 10% for the first relevant year but not the other relevant years; moreover, he calculated the shortfall so as to recognise and give credit for corresponding credits in respect of Mrs Cripps and including in respect of certain partial spouse rebates referable to certain of the relevant years. It is apparent from the Respondent's Reasons for Decision that he was prepared to accept that although McDonald's case was decided in June 1987, clarification of the law might only have occurred with the publication of TR 93/32. It is for this reason that he reduced the tax shortfall component for the first relevant year. Moreover, he made allowances in favour of the Applicant for the effect of the amended assessments on Mrs Cripps.

(b) The Applicant has urged me to reduce the culpability component further and in particular because:

  • (1) Paragraph 5 of Ruling IT 2423 suggests that there ``may'' be a business where there are a number of properties;
  • (2) TR 96/16 indicates that a private binding ruling would have been difficult to obtain in relation to the question (which is a matter of fact) of whether or not a business is being carried on; and
  • (3) Most importantly, he relied on the assistance of an experienced tax agent who was his tax agent for many years and who was trusted by him.

(c) The Applicant also referred to the Respondent's Findings under the head of ``Size'' which suggests that, in this particular instance, size might be a factor favouring the existence of a business. However, the next page of the Respondent's Reasons for Decision clearly indicates that he rejected the Applicant's contention as to the carrying on of a business.

(d) Against this must be set the fact that the Applicant is an educated man, who has legal qualifications and which, while they cannot be accorded undue significance having been obtained so long ago, do put him to some extent into a category different from that of an uneducated litigant.

14. My attention was also drawn to the decision of Senior Member Beddoe in Case 34/95,
95 ATC 319 and in particular to clauses 21 to 25 of his decision as follows (at 324):

``21. The explanatory memorandum to the Taxation Laws Amendment (Self Assessment) Bill 1992, the Bill which introduced section 226G to the Act, illuminates Parliament's intended meaning of the phrase `reasonable care'. In that document, at page 80, it is explained that reasonable care `... requires a taxpayer to make a reasonable attempt to comply with the provisions of [the Act] and regulations. The effort required is one commensurate with all taxpayer's circumstances, including the taxpayer's knowledge, education, experience and skill'.

22. Given that the taxpayer's return was prepared by experienced tax agents, who objectively should have known, or at the very least, had the resources to find out, the requirements in respect of the deduction of superannuation contributions, and who furthermore prepared the returns for the particular employer involved, it is difficult

ATC 2442

to find that reasonable care has been exercised.

23. The superannuation contributions made by the taxpayer's employer would have been easily discoverable through simple enquiry. Further, considering the taxpayer's party- ownership of CI Pty Ltd, it is possible he, in fact, had knowledge of those contributions I am, however, unable to make any such finding, as the taxpayer did not give evidence before me. Assuming that the tax agent's usual procedures were followed in the preparation of the applicant's return for the particular tax year in question, it would be reasonable to assume that the taxpayer would have confirmed the details of the return, and a prudent tax agent in the course of such discussion would have enquired as to the accuracy of the assumption that no employer-sponsored superannuation contri- butions were made during the year in question.

24. To support a reduction of the penalty imposed and an exercise of the power contained in section 227 of the Act, the applicant relies on the contention that no loss had in actuality been suffered by the revenue as detection was made prior to the due date for the payment of the tax, that is, 15 April 1994. Further it was the evidence of the tax agent that an amended return would have been lodged prior to 15 April 1994 but for the earlier detection of the error by the Australian Taxation Office.

25. For the reasons set out above and being satisfied the tax shortfall was caused by the failure of the taxpayer or the tax agent to take reasonable care to comply with the Act the objection decision under review is affirmed.''

15. In
Pitcher v DFC of T 98 ATC 2190 I dealt with penalty tax and TR 94/4 as follows (at 2197-2198):

``19. In respect of the penalty:

  • ...
  • (b) In
    Re Carlaw and FC of T 95 ATC 2166 Deputy President B.J. McMahon said in clauses 23 and 24 of his decision:
    • `23. I now turn to the question of penalty tax. Section 226G provides that if a taxpayer has a tax shortfall for a year and the shortfall, or part of it, was caused by the failure of the taxpayer or of a registered tax agent to take reasonable care to comply with the Act or the regulations, then the taxpayer is liable to pay by way of penalty additional tax equal to 25 per cent of the amount of the shortfall or part. To indicate the Commissioner's understanding of the meaning of failure to take reasonable care, Taxation Ruling TR 94/4 was promulgated. Paragraph 6 of that ruling is in these terms-
      • ``The reasonable care test requires a taxpayer to take the care that a reasonable ordinary person would take in all the circumstances of the taxpayer to fulfil the taxpayer's tax obligations. Provided that a taxpayer may be judged to have tried his or her best to lodge a correct return, having regard to the taxpayer's experience, education, skill and other relevant circumstances, the taxpayer will not be liable to pay penalty.''
    • 24. The taxpayer is a truck driver. He made claims for deductions pursuant to advice he received from a qualified tax agent, who had been engaged by his union. If a man in that position is advised that he may make a claim, can it be said that he fails to take reasonable care to comply with the Act if the claim is unsuccessful? I think not. Clearly the mere fact that a claim is made cannot thereby render the conduct of a taxpayer careless, particularly when that claim is reasonably arguable.'
  • (c) Clause 27 of that decision then goes on to state that the professional advice taken by Mr Carlaw had some measure of support:
    • `... from Case U148, from the article of Mr Durack which I have quoted, and from observations made in Edwards and in the RTA case.'
  • (d) In this case I accept that the Applicant sought advice from a qualified tax agent. However, the advice given by the tax agent in relation to the vehicle deduction was erroneous and in fact enjoyed no relevant measure of support. A proper reading of the relevant cases would have shown that, in respect of the vehicle

    ATC 2443

    expenses, the Applicant had little or no prospect of success, and that claim was persevered with even after the Respondent had furnished case authorities in support of his decision to disallow the claimed deduction; the claim, though not a reckless one, was not reasonably arguable.
  • In all the circumstances, I consider that some penalty is appropriate; however, I also consider, having regard to the fact that the Applicant is patently honest, and that the claim for the vehicle expenses arose entirely from mistaken advice by the tax agent, that a penalty at the rate of 25% is excessive. The Respondent has the power to impose a lesser penalty pursuant to s 227 of the ITAA, and accordingly, by virtue of s 43 of the Administrative Appeals Tribunal Act, the Tribunal has the same power. I consider that a penalty of 12½ would be appropriate, and accordingly the penalty is reduced.''

16. (a) This case appears to be one in respect of which the legal structure adopted turned out to be unsuitable. The Applicant and his wife purchased the townhouses in particular as joint tenants in order to fund their retirement. When losses resulted, the most desirable commercial result was to treat the losses as attributable to the Applicant alone, even though this did not accord with the legal structure which had been utilised.

(b) The methodology adopted in respect of returns was to treat the partnership as if it did not exist. Yet each of the Applicant and his wife was adamant as to its existence.

(c) There is mention in the T Documents of the concepts of constructive trust and resulting trust. The former concept was not argued at the hearing, and correctly so in my view. Nor for that matter was the latter concept mentioned, and again in my view correctly. It could not be said that Mrs Cripps held her interest on resulting trust for her husband, since it was Pacfin and not her husband who furnished the relevant moneys which were in any event, borrowed by them both.

(d) As to why the Applicant's returns were furnished so as to ignore the alleged partnership is not clear to me. The Applicant said that the tax agent made an error; however, the tax agent did not give evidence before me and I express no view as to this allegation. The Applicant's objection displays considerable legal ability referring as it does and in some detail, to a number of decided cases. But it is founded on the basic concept of the loss flowing through the partnership, which is not the method through which the losses were claimed. If the tax agent was negligent then of course the Applicant would have a remedy against him pursuant to section 251M of ITAA.

17. As to penalties then there are factors which are both for and against the Applicant. In his favour is the fact that the rulings do suggest that the holding of a number of properties may constitute a business such that the decision in McDonald could be distinguished. I accept also that a private ruling might not have been easy to obtain, at any rate if it was sought only as to the question of whether there was a business. Weighing against the Applicant is the fact that he himself in his returns appears to have ignored the existence of the partnership, and so that whether or not there was a business is of little relevance. On balance, not without some hesitation, and notwithstanding the fact that I consider that the Respondent dealt with this aspect reasonably and even generously, I have come to the conclusion that some small reduction in the shortfall penalty would be appropriate. In respect of the first relevant year the shortfall penalty has been reduced by the Respondent to 10%; that percentage is not disturbed. But in respect of the other relevant years, the culpability penalty is reduced from 25% to 20%. The interest penalty imposed is not, in respect of any relevant year, disturbed.

18. In summary:

(a) There was undoubtedly a tax law partnership; the Tribunal finds, however, that the arrangement between Mr and Mrs Cripps is indicative of a private family arrangement and not a general law partnership;

(b) In any event, the alleged partnership was an investor and not in business and McDonald's case is not distinguishable; and

(c) The Applicant himself in his returns for the relevant years treated the alleged partnership as if it did not exist.

19. Accordingly, and save only that in respect of all of the relevant years, other than the first relevant year, the tax shortfall penalty component of the additional tax is reduced from

ATC 2444

25% to 20%, the objection decision under review is affirmed.

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