Leonard v Federal Commissioner of Taxation [1919] HCA 23; (1919) 26 CLR 175 (2 June 1919)

HIGH COURT OF AUSTRALIA

Leonard Appellant; and The Federal Commissioner of Taxation Respondent.

H C of A

2 June 1919

Isaacs, Gavan Duffy and Rich J.

Dethridge, for the appellant.

Starke, for the respondent,

The judgment of the Court, which was delivered by Isaacs J., was as follows:—

Isaacs, Gavan Duffy and Rich J.

The question we have to determine is a question of assessment of income, and that depends upon the construction of the Income Tax Assessment Act 1915-1916, which was in force at the material time. We think that the matter is concluded, in the first place, by the rule enacted in sec. 25 of that Act, which provides that "(1) Partners"—and that term is defined in sec. 3 as including "persons who are in receipt of income jointly"—"shall be assessed and liable in respect of the income derived by them as partners as if it had been derived by a single person,"—stopping there for a moment, the section enacts in effect that a partnership shall for the purposes of the Act be deemed to be a single entity; the separate natural personalities of those comprised are merged in one taxable entity, the partnership. The section continues: "without regard to the respective interests therein or to any deductions to which any of them may be entitled under this Act, and without taking into account any income derived by any one of them separately or as partner with any other person." That makes clear and emphasizes what the section has already said as to the single personality of the firm. The section then proceeds: "(2) Each partner shall in addition be separately assessed and liable in respect of (a) his individual interest in the income"—that is, the income of the partnership—"together with (b) any other income derived by him separately"—that means, not derived by him as a member of the firm but outside the firm—"and (c) his individual interests in the income derived by any other partnership"—which again keeps up the provision of the section as to the separate entity of a firm.

If, for instance, the firm of Leonard & Cameron had borrowed the £22,000 from another firm, consisting of (say) Leonard and Smith, it would be perfectly clear that Leonard & Smith as a single entity would have received the £1,100 from Leonard & Cameron, and that Leonard as a member of the firm of Leonard & Smith would then have been taxable for it in respect of the income of Leonard & Smith. But it would be indisputable that that income would have been received by the firm of Leonard & Smith quite independently of Leonard's interest in the firm of Leonard & Cameron. Leonard received the £1,100 as an individual, and he received it in the same way; it does not affect the principle at all.

So that, on the law as enacted in sec. 25, the question must be answered against the appellant.

On the facts of this case it is also clear that, if that section had not been enacted, the general principles of law would have rendered the appellant liable in the same way. We would have arrived at the same conclusion independently of sec. 25 on the facts as they actually occurred. That section, however, makes it clear beyond question.

The questions will be answered by saying that the whole of the sum of £1,100 was rightly included in the assessment, and that the sum of £550 ought not to have been allowed as a deduction.

Questions answered accordingly.

Solicitors for the appellant, Whiting & Aitken.

Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.