Tait v Federal Commissioner of Taxation [1963] HCA 39; (1963) 109 CLR 349 (3 October 1963)

HIGH COURT OF AUSTRALIA

TAIT v. FEDERAL COMMISSIONER OF TAXATION [1963] HCA 39; (1963) 109 CLR 349

Estate Duty (Cth)

High Court of Australia
Owen J.(1)

CATCHWORDS

Estate Duty (Cth) - Valuation of assets - Share in partnership - Whether to be valued as on winding-up or as going concern - Estate Duty Assessment Act 1914-1950 (Cth).

HEARING

Brisbane, 1963, September 5, 6;
Sydney, 1963, October 3. 3:10:1963
APPEAL under the Estate Duty Assessment Act 1914-1950 (Cth).

DECISION

October 3.
OWEN J. delivered the following written judgment:-
This is an appeal brought under s. 27 of the Estate Duty Assessment Act died on 27th September 1951. Prior to and at the date of his death the deceased and his son, Douglas Gray Tait, were partners in equal shares in a pastoral property at Molong in New South Wales on which they carried on business as graziers and sheep breeders. The deed of partnership provided that if either partner should die during the term of the partnership (which was a partnership at will) the survivor should be at liberty to purchase the share of the deceased partner at the "nett value thereof" to be agreed, or, in default of agreement, to be determined by arbitration. In fact the deceased, by a codicil to his will, left his interest in the partnership to the surviving partner, his son, and no question arose therefore as to the exercise of the option. The value of the deceased's interest in the partnership was originally returned by the executors as being 56,426 pounds. Various adjustments were later made bringing the final figure to 64,970 pounds. The value assessed by the Commissioner was 78,442 pounds. (at p350)

2. It is not disputed that if, at the date of the deceased's death, the partnership had been wound up, the assets sold at market values and the proceeds, after the discharge of the liabilities, distributed equally between the partners, the deceased's share would have amounted to 78,442 pounds, the value put upon it by the Commissioner. For the appellants, however, it was submitted that this is not the method of valuation that should be adopted. The contention is that the value should be ascertained by enquiring what would have been paid for the deceased's interest by a purchaser of that interest on the footing that he would be taken into partnership by the surviving partner and that the business would continue as a going concern although under a new partnership consisting of the surviving partner and the purchaser. In such circumstances, it was said, the purchaser would not be prepared to purchase the deceased's interest at a figure representing its value as on a winding-up but would only be prepared to pay a substantially lesser figure and for several reasons. In the first place the value of the livestock, consisting mainly of stud and flock sheep which, on the basis of a winding-up would realize 33,937 pounds, was shown in the partnership books and income tax returns at 3,288 pounds, that figure representing the "cost price" to which ss. 32 and 34 of the Income Tax and Social Services Contribution Assessment Act refer. The notional purchaser, so it was said, would not be prepared to buy on the basis of the market value of the livestock since the values as shown in the books and income tax returns would continue to be used for income tax purposes and, as and when the livestock were disposed of at a figure in excess of book values, a substantial liability for income tax would arise, of which the purchaser of the deceased's interest would have to bear his share. This potential tax liability would, it was said, reduce substantially the price which could be obtained for the deceased's partnership interest, the amount of that reduction depending (inter alia) upon the rate of tax applicable to the purchaser's income which might or might not include income from sources other than the partnership. Similarly it was put that such a purchaser would not be prepared to pay a price which included the market value of the plant and improvements since that value greatly exceeded the depreciated value at which those assets stood for income tax purposes and future depreciation for income tax purposes would be allowed only on the depreciated values. (at p351)

3. The critical question then is whether the value of the deceased's partnership interest should be determined as on a winding-up following upon a dissolution or whether, as the appellant contends, it is to be ascertained by enquiring what would be paid by a person who proposed to become a partner with the surviving partner for the purpose of carrying on the business. (at p351)

4. In my opinion the method of valuation adopted by the Commissioner is the correct one. On the death of the deceased the partnership was dissolved. The right of the executors was to have the partnership wound up, the assets realized and, after the discharge of the liabilities, the surplus distributed. The amount of the deceased's share of that surplus would be a debt due to the executors (Partnership Act, s. 43), and it is that amount, as it seems to me, that represents the value of the deceased's partnership interest. In Robertson v. Commissioner of Stamp Duties (1958) Qd R 342 the Full Supreme Court of Queensland was called upon to consider a somewhat similar question. Philp J., who delivered the judgment of the Court, after referring to the right of the executors of a deceased partner to have the partnership wound up and the net assets distributed, said: "It is clear that the minimum which the executors would require from a purchaser would be the amount of the testator's share in the result of a winding up. That amount they could get for themselves - why should they be willing to sell for less?" (1958) Qd R, at p 350 . What his Honour there said applies equally to the present case. (at p352)

5. The appeal should be dismissed with costs. (at p352)

ORDER

Appeal dismissed with costs.