ADMINISTRATIVE APPEALS TRIBUNAL - TAXATION APPEALS DIVISION

AAT CASE 6621

M B Hogan, Member

24, 26-7 April, 1 February 1991 - Brisbane

Member, M B Hogan The fifteen applications the subject of this hearing arose from assessments issued to two partners in the business of an accountancy practice in a country town (hereafter referred to as "the Partnership"). One partner whom I will identify as "Partner 1" lodged six applications covering the years ended 30 June 1979 to 1984 (both inclusive); the other (hereafter referred to as "Partner 2") lodged five applications covering the years ended 30 June 1980 to 1984 (both inclusive). I will refer to Partner 1 and Partner 2 collectively as "the Partners". The balance of four applications arises from assessments raised under s 99A on the trustees of a superannuation fund (hereafter referred to as "the Fund") in respect of the years ended 30 June 1980 to 30 June 1983 (both inclusive).

2 The applications by each of the Partners up to and including the year ended 30 June 1982 arose out of the disallowance of deductions claimed in respect of contributions by the partnership to the Fund. In the year ended 30 June 1983, in addition to the disallowance of a contribution to the Fund by the Partnership, the Commissioner has disallowed part of the deductions claimed under ss 54, 57AE, 59and 75B in relation to the conduct of a grazing business on a grazing property acquired by the Partners (which business I will hereafter refer to as "the Pastoral Partnership") and, in the year ended 30 June 1984, the Commissioner has maintained his disallowance of the claims for depreciation etc which he rejected in the preceding year. The applications by the Partners in the two latter years include a claim for rectification of these disallowances.

3 It will be seen that there are two diverse and quite distinct matters at issue - one concerning the Fund and the Partnership's dealings with the Fund and the second arising from the acquisition of a property during the year ended 30 June 1983 on which the Pastoral Partnership carried on a business of grazing. The evidence in relation to both matters was heard together at the request of the parties but I propose to deal first with the superannuation matters, giving decisions in respect of those matters, and then proceed to deal with the problems emerging from the acquisition of the grazing property.

Superannuation matters

4 It is not a matter of dispute that the Fund arose from the dissolution of a partnership first formed in August 1977. The accountancy practice on which the partnership was based, was carried on until 1 June 1977 by a sole practitioner whom I will refer to hereafter as "the Accountant". At that date, he took into the practice, as a partner entitled to a one-third share of the profits of the practice, Partner 1. Partner 1 stated that, to the best of his memory he paid the Accountant $7000 for his share of the goodwill of the practice, one half being paid to the Accountant and the balance remaining as an interest free loan to Partner 1. The balance sheet of the partnership as at 30 June 1977, shows that in fact Partner 1 was credited in his capital account at that date with an interest in plant to the value of $116 and goodwill to the value of $7384 and that there was debited to his account a loan of $3750. Goodwill was shown as an asset in the balance sheet at $22,150, the Accountant being credited with goodwill to the value of $14,766. I have laboured this point somewhat because as will subsequently become apparent, the mainspring of the Commissioner's action in relation to the superannuation matters arises from the views he has adopted in relation to the manner in which goodwill was dealt with in later transactions.

5 This partnership continued until 31 July 1977 when the Accountant in consideration of a sum of $7500 ("comprising", as a note on the income tax return for that period shows, "plant 116, goodwill 7384") sold one-half of his interest in the partnership to Partner 2. Thus, a partnership was formed comprising the Accountant, Partner 1 and Partner 2. It is the evidence of all three members of this partnership that, in due course (probably September 1977 according to evidence of the Accountant) a partnership agreement was drawn up and signed by the partners. The copy of the agreement submitted as an exhibit contained fairly standard clauses for day to day operation of the practice. So far as it may be relevant to matters the subject to these applications, it provided for determination of the partnership in the event of any partner giving six months notice in writing, in the event of a partner's bankruptcy, in the event of a partner "having suffered his share to be charged under The Partnership Act of 1891 (Qld) with his separate debt" or by reason of dissolution by the court under that Act. It contained provisions for dissolution by death of a partner. Clause 22 provided for the purchase by the other partners of the share of any partner giving the requisite six months notice and cl 23 provided that, in determining the share of a partner whose share was being purchased under the terms of cl 22, "the goodwill of the said business shall be valued at a sum equal to 60% of gross fees charged to clients of the partnership during the preceding financial year". Two further clauses provided that Partner 1 and Partner 2 were to "be entitled to be credited in the books of the partnership as at the 30th day of June 1979 with an amount equal to 54% of the gross fees charged by the partnership to clients of the business personally introduced by each to the business, such fees being those charged by the partnership relating to lodgment of returns or the accountancy work relating to the year ended 30 June 1978". Clause 27 provided that in the event of determination of the partnership by the giving of six months notice by any partner or by reason of the bankruptcy etc of any partner and the purchase of that outgoing partner's share by the other partners, the outgoing partner would not conduct any business within a radius of 60km from the town in which the practice was situated.

6 The practice flourished, due primarily to the large number of clients introduced by Partner 1 who was well known in the town in which the practice operated. Partner 2 in his evidence estimated the value of fees for the clients he introduced "at about $90,000". The Accountant in his evidence stated that the practice "exploded". According to Partner 1, there was underlying friction between himself and the Accountant. The Accountant's evidence indicates that he and Partner 1 were at least at arm's length. That attitude is reflected in the evidence of Partner 2 when he stated that, in coming to the agreement which led to the setting up of the superannuation arrangements, he had been the principal negotiator because the Accountant and he "talked to each other". It appears from Partner 2's evidence, which I accept as providing the clearest picture in relation to this matter, that there was friction between the Accountant and Partner 1, because the Accountant sought to insist on status as a senior partner. Partner 1's view was that they were all equal. In addition the "explosion" of business introduced by Partner 1 downgraded the importance of the original practice and was changing the basic nature of the practice from catering for primary producers to catering for town-based businesses. Partner 2 described the discussions which took place between the Accountant and him, in the following questions and answers:

Q-Now in the middle of 1979, did discussions occur concerning the continuance of the three-way partnership? A-Yes. Only inasmuch that because the Accountant wanted to be seen as being senior partner and because of the fact of his age and that sort of thing in the eyes of his clients, I wanted to try to get some sort of arrangement where we could give him that position in the firm but still retain him in the firm rather than dissolve and have all those associated problems that you have in a dissolution, especially in a small town, and I wanted to try to have the situation where there was less room for conflict between him and Partner 1 in day to day sort of operations so they could sort of paddle their own boat, if you like, within the existing structure and keep out of each other's hair.

Q-And did a discussion occur between you and Partner 1 and the Accountant? A-I think it was mostly between the Accountant and I.

Q-All right? A-I do not remember Partner 1 having any involvement in it.

Q-Was there any agreement at all reached about the Accountant's status in the firm in this middle of 1979? A-In what way, in terms of?

Q-As to whether he would continue as a partner? A-Well, we eventually agreed. I suggested to him that he become a consultant to the firm and that he would be seen to be-seen to maintain his position in the firm and that to do that he would have to retire from the partnership and become an employee.

Q-All right. What, if any, currency did the position of consultant have in the accounting profession at the time? A-Well, I understand it was quite common. A lot of accounting firms had the situation where various partners were displayed on the letterhead as a consultant. I would have thought it was a fairly common practice.

In the result, agreement was reached whereby the Accountant retired as a partner as from 17 June 1979 and assumed the status of an employed consultant with the Partnership, comprised of Partner 1 and Partner 2. The Partnership, however, though the Accountant was no longer a partner, continued to operate under the same name as the partnership which preceded it.

7 Ultimately, some 16 months after the Accountant retired as a partner, the agreement reached was reduced to writing and signed by all parties-the Accountant however, commenced to be paid as a salaried employee as and from 17 June 1979. The agreement reached was comprised in a deed of assignment under which the Accountant assigned and set over at and from 17 June 1979 "All the one-third share and interest of (the Accountant) in the capital assets and future profits of the partnership … free from all encumbrances unto …" the Partners who accepted and took the share as tenants in common in equal shares. "In full payment" for the assignment, it was agreed between the Accountant and the partners, that the latter two gentlemen, as partners in the Partnership "will employ (the Accountant) as a consultant in the said partnership and will cause a superannuation fund to be established and maintained for the benefit of (the Accountant) for the duration of such employment upon terms and conditions set" out. The conditions set the term of employment as being from 17 June 1979 to 31 July 1984 but to be determined by the earlier death of the Accountant, dissolution of the Partnership, the Accountant's incapacity to work due to ill-health or the Accountant at any time after 17 May 1981, giving one month's notice. The deed included clauses to the effect that:

(a) the employment should not in any way constitute the Accountant a partner,

(b) the salary for the term of the employment was set at $21,500 (in fact, it was later increased marginally),

(d) the Partners as employers "at their cost and expense were to establish and maintain a properly constituted superannuation fund for the benefit of" the Accountant and were "from time to time (to) pay to such superannuation fund by way of annual or more regular contribution such an amount or amounts as will ensure to (the Accountant) upon termination of his employment on 31 July 1984 total benefits from the said superannuation fund of forty-two thousand dollars ($42,000) even if the term of employment should be prematurely terminated by reason of the death or disability of the Accountant."

(e) The final provision guaranteed payment to the Accountant or his personal representatives by the Partners of such amount as, together with the funds available from the trustee of the superannuation fund, would provide a total payment of $42,000 should the Accountant die, be prevented by accident or illness from continuing in employment or at any time after 17 May 1981 voluntarily retire having given a requisite one month's notice.

It is important to note here that the retirement of the Accountant was not effected in any of the modes provided for in the partnership agreement. Accordingly the basis for valuing goodwill set out in that agreement is not directly applicable.

8 Insofar as the superannuation fund requirements of the agreement were concerned, there is evidence in the form of a savings bank passbook that an initial payment of $7403 was deposited on 29 June 1979 in the names of the Partners as trustees of the Fund established by the Partnership. A deed governing the operations of the Fund bearing the date handwritten in ink of "Twenty first day of June 1979" was also submitted. It was later admitted, after challenge from counsel for the Commissioner, that the deed had not been signed until after 27 May 1980; the deed was stamped by the Stamp Duties Office on 2 October 1980. The deed governing the Fund was subsequently to be twice amended but nothing in those amendments bears on the matters at issue here.

9 A photocopy of a minute dated 21 June 1979 of a meeting between the Partners was provided, signed by Partner 1 as "Chairman", recording the intent of the partners to establish a superannuation fund to be known as the Fund and the facts that the Chairman advised that the Accountant had applied for membership and that his employer had consented to his membership. As the formal documents required for application to join the Fund had not at that stage been drafted - the first draft of the deed was not forwarded to the partnership until 26 May 1980 - the accuracy of the report in the minute or of the dating of the minute appears questionable. Nonetheless, I believe that the payment to the savings bank account on 29 June 1979 should be accepted as establishing a Fund for the benefit of the Accountant as agreed between the former partners and as reflected in cl 5(g) of the deed of assignment subsequently executed on 1 October 1980. Subsequently two further members were invited to join the Fund and photocopies of written applications from those employees dated 1 June 1982, were submitted as exhibits. They remained members of the Fund for a period of approximately 12 months. A bank passbook of the Fund records the transfer of accumulated benefits of one of those members to a fund run by a service partnership associated with the Partnership, on 30 May 1983, the accumulated benefits for the other member being similarly transferred on 29 June 1983. These steps gave effect to a resolution of the trustees of the Fund taken on 1 May 1983.

10 The business of the Partnership continued, with the Accountant as an employee, from 17 June 1979 until the Accountant's retirement on 1 July 1983. The Accountant suffered a severe heart attack in September/October 1980 and was absent from the office for some time but resumed duty as an employee and continued so to operate, giving written notice on 18 March 1983 of his intention to retire on 1 July 1983. Minutes were provided of a meeting held on 18 March 1983 between the partners and the Accountant signed by all parties listed as attending and witnessed by a secretary. The minutes note that the written notice of the Accountant's intention to retire was tendered, that the Accountant advised that "he wished to continue on his own in part-time practice and would purchase clients as per list attached for $35,957.50". The Accountant indicated a wish for "office space" in conjunction with the Partnership and the minutes finally record that the Accountant was advised that moneys standing to his credit in the Fund amounted to $85,957.50 and "would be paid on retirement - 1st July 1983". Also tendered were two contracts dated on the same day, each being in terms an "Agreement for sale", one between the Accountant and Partner 1 and the second between the Accountant and Partner 2; each agreement had attached a list of clients which was to be sold by each vendor to the Accountant. The consideration for the sale in each instance was $17,978.75. Each agreement contains a restraint clause under which the Accountant agreed "not to enter into partnership or association with an accountant, nor to act as an agent or manager to any other accountant either directly or indirectly". The clause contains no time or distance limit to the restraint.

11 Also tendered as an exhibit was a letter under the letterhead of the Partnership dated 18 March 1983, addressed to the Accountant advising the benefit payable under cl 18 of the Fund "on 1st July 1983" signed by all four trustees of the Fund and signed in acknowledgment by the Accountant. The letter is not referred to in the minutes of the meeting of the Partners with the Accountant nor in a bundle of minutes of meetings of trustees of the Fund. The whole of the formal arrangements have an air of contrivance and artificiality, not the less so in that, on the sale agreements and the letter from the trustees to the Accountant, the date 18 March 1983 has obviously been typed over a whited-out date in the month of November 1982. Strangely also, no attempt to approach in writing the clients "sold" by the agreements, was made until 25 March 1983 when a circular letter under the letter head of the partnership, bearing the reproduced signatures of the partners and the Accountant was sent to each of the clients nominated, the circular containing a box to be ticked by the client indicating whether he desired to transfer to the Accountant or remain with the Partnership. Yet the Accountant, whose attitude to his former partners was at best arm's length, insisted under cross-examination by counsel for the Commissioner that the possibility of his resigning as a consultant was discussed with the partners for the first time in 1983. He had already in his evidence-in-chief agreed that the date of 18 March 1983 for his resignation notice would be right and agreed that the minutes of the meeting on that date (vide para 10) reflected the agreed terms on which he resigned. His explanation was that:

"I had a health factor to consider … I just wanted something to do. I was not going to tread on anyone's toes, pinch anyone's clients or anything like that …"

He also agreed he was aware, when the minutes of the 18 March meeting were prepared, that clients that he had agreed to purchase had yet to be circulated as to whether they would transfer to him and admitted that he had paid a premium to purchase back his own clients. Under cross-examination, he was to state there had been some discussion with the Partners for an increase in his end benefit from the superannuation fund to $156,500 on condition that he was to pay back to the partners the sum of $100,000. That had been denied by partner 1 under cross-examination and was later to be denied by Partner 2 under cross-examination. Nevertheless as will be seen when I outline the history of the finances and management of the Fund, the Partnership did in the year ended 30 June 1982, make a very large contribution to the Fund primarily designed to finance a benefit at age 65 for the Accountant which an actuary had calculated at $156,520.

12 As I have already noted, the Fund was commenced with a contribution of $7403 to a savings bank passbook in the names of the Partners as trustees of the Partnership superannuation fund made on 29 July 1979. On 3 July 1979, the sum of $5303 was withdrawn from the passbook and Partner 2 who prepared the accounts and income tax returns for the Fund, having regard to notations made by him in the passbook, identified that sum as a loan back to the Partnership. A similar loan back of $2000 was identified in relation to a withdrawal made on 12 July 1979, leaving a balance of $100 in the passbook. That position continued until January 1980, when a programme of regular payments into the passbook of the weekly sum of $650 identified by Partner 2 as being an account of contributions and repayment of the loan, was commenced. The programme of regular weekly payments continued until mid-April 1980 when irregular payments commenced with the result that, with interest, the balance in the passbook built up to the sum of $15,416. Of that sum, $15,000 was withdrawn on 3 July 1980 and placed on term deposit with the bank. Regular contributions to the passbook ensured at the rate of $142.36 per week (made mostly weekly but sometimes monthly or even two monthly) until 26 March 1981, when the balance had built up to an amount of $5482; on that date a further $5000 was withdrawn and placed on term deposit. Regular deposits at the rate of $569.44 ensued for the months of April, May and June and a cheque, noted as "Bal of Cont" for $7773, was deposited apparently on 30 June 1981 when a sum of $9800 was withdrawn and used to purchase Australian Savings Bonds to bring the Fund into line with the requirements to observe the "30/20 ratio", leaving a balance of $163.

13 On 3 July 1981, the term deposits matured and the passbook was credited with the sum of $16,500 ($15,000 deposits and $1500 interest). On the same date, a further $1200 was used to acquire Australian Savings Bonds, $8200 was placed on term deposit with the bank and the sum of $7000 was loaned to the Partnership. No regular payments by way of contribution were made by the Partnership during the year which ended on 30 June 1982. Interest amounting to $1324 was credited in the passbook during the year from investments in Australian Savings Bonds and from the balance on deposit in the passbook, bringing the balance in the passbook at 4 June 1982 to $1920. On 30 June 1982, a cheque from the Partnership for $59,966 was paid into the passbook. Partner 2 identified from his notations that the cheque comprised funds as under:

		$
(i)	Contribution	50,611
(ii)	Interest on funds loaned to Partnership	945
(iii)	Insurance	1,410
(iv)	Repayment of loan by Partnership	7,000

At this juncture, the balance of funds in the passbook stood at $61,886. On 30 June 1982, the following payments and receipts were noted in the passbook:

	$	$
Paid (noted as Insurance)	1,410
Paid (noted as Bonds)	6,500
Proceeds of Term Deposit		8,696
Proceeds of Term Deposit		5,611
Paid (noted as Bonds)	14,300

The effect of these transaction was to reduce the balance in the passbook to $53,984 which was augmented by a further credit of interest of $792 which occurred on 1 July 1982 - apparently from bonds - which increased the passbook balance to $54,713. On that same day, an amount of $54,000 was withdrawn and this amount was identified as being a loan to the Partnership.

14 In the evidence of Partner 1, a document, dated 1 July 1982, addressed to the Trustees of the Fund had been introduced in which the Partners trading as the Partnership acknowledged receipt of $54,000 "lent and advanced to it" and undertook "to repay the said sum of Fifty-four thousand dollars dollars (sic) on demand with interest thereon at the rate of 17.5% pa such interest to be payable annually". The document was signed by each Partner, their signatures being duly witnessed.

15 Evidence was also given by an actuary who identified a photostat copy of calculations bearing his signature, which calculations set the retirement benefit available to the Accountant at age 65 according to the Commissioner's guide lines for a "non-traditional allocated lump sum" fund at $156,520 for the achievement of which a contribution in respect of the Accountant of $48,023 was called for in the year of income. Smaller sums of $888 and $1700 were set by the actuary as the contributions required in respect of the other members of the funds at that time, giving an overall total contribution of $50,611 as noted in the passbook.

16 No explanation as to the reason for consulting the actuary was educed in evidence or cross-examination. It may be that the introduction of two other members to the Fund required the attention of an actuary to set the contributions to be made in respect of those members. However, Partner 1 explained under cross-examination in respect of the contribution for the Accountant, that the Partnership "found out" from the actuary "that we could contribute more because … he was not an associated employee". He went on "we contributed the maximum to get end benefits; to look after our employees, as we always do". Challenged that the decision to increase the Accountant's benefit beyond what the partners were obliged to pay under the agreement, enabled the Partnership to make a large deductible payment to the Fund on 30 June 1982 which was lent back by the Fund to the Partnership enabling the "manufacture" of a tax deduction, Partner 1 said:

"We did make a large contribution to the superannuation fund with the intent of providing end benefits to an employee. We did borrow back from that fund in accordance with the Commissioner's guidelines … and that money was repaid to the fund."

Challenged further, he repeated:

"We claimed a deduction in accordance with the Commissioner's guidelines."

The questions of why the actuary's advice was sought and why the much enhanced benefit was funded, were not pursued with Partner 2.

17 Because the Commissioner in the statement setting out findings on the material questions of fact and giving reasons for his decision, furnished in accordance with s 37(1) of the Administrative Appeals Tribunal Act 1975 (Cth), has relied in part on material pertaining to a partnership supplying office services to the Partnership, I must deal briefly with the facts in relation to that partnership. The partnership (which I will hereafter refer to as "the Services Partnership") commenced to operate from 31 August 1977. The members of the Services Partnership were the wives of the Accountant and the Partners; the wives were equal partners - so much appears from the accounts. No direct evidence was given by any partner as to the operations of this partnership, the Accountant's wife having disposed of her share in the partnership at the time her husband disposed of his share in the Partnership. Returns covering the operation of the Services Partnership for 31 August 1977 to 30 June 1978, 1 July 1978 to 17 June 1979 when the three wives were in partnership and from 18 June 1979 to 30 June 1979 and 1 July 1979 to 30 June 1980 were, however, lodged as exhibits. The returns show that the partnership received its major fees from the provision of general office services, equipment hire and fees from photocopying. All equipment used in the provision of office service was on lease so that the partnership held no assets of substantial value; the service fees provided funds for payment of the lease rentals with a marginal income remaining for division among the partners. The partners contributed $25 each by way of capital and the Services Partnership operated on the basis of a float of funds from the partnership. It appears to have taken over some minor items of plant, primarily fixtures in rented premises such as an airconditioner and a bookshelf and provided in addition a typewriter, two office tables and an office clock. At 17 June 1979, the capital account of each of the two remaining partners was in debit, the overall debit being ($1711) at that time, its "current" liabilities of $7725 exceeding its current assets of $5014. It is apparent from the accounts submitted that the Service Partnership relied entirely on the accounting partnership to provide its operating funds and its sources of income, by permitting the Service Partnership the right to operate within its premises. There was certainly no basis from the material in the accounts submitted on which a calculation of goodwill of any value could be founded; the asset values were nebulous and the right to earn income depended on the good will of the parties controlling the accounting partnership. I reject any argument that the sum received by the Accountant from the Fund was to any degree attributable to the surrender by the Accountant's wife of her share or interest in the Service Partnership.

18 The Commissioner in his "statement setting out the findings on material questions of fact" submitted in accordance with s 37(1)(A) of the Administrative Appeals Tribunal Act that:

(i) the Accountant regarded the payment he received from the trustees of the Fund as consideration for his sale of the remaining one-third of his and his wife's businesses;

(ii) neither the Accountant nor his wife "received any other consideration for the sale of their business"; and

(iii) the Fund "was simply a fund set up to accrue consideration payable to (the Accountant) for his remaining interest and his wife's remaining interest in their respective businesses".

The same line was pursued by counsel for the Commissioner who suggested that the Fund "was merely a trust to pay (the Accountant) for his share of the partnership".

19 This is an oversimplification; it ignores entirely the deed of assignment which enshrines the terms on which the Accountant and his wife disposed of their business interests. It ignores the Accountant's own evidence that it was he in conversation "one Monday morning" who made the first tentative approaches to Partner 2 and that he and his wife voluntarily signed the deed of assignment. The terms were settled between the Accountant and Partner 2; that much is plain from the evidence of Partner 2 and is backed up by the evidence of Partner 1 who under cross-examination was to say that Partner 2 and the Accountant "had all the discussions". It is quite clear from the Accountant's evidence that, at the time, he accepted the package proffered as consideration for his assignment of his share of the partnership business as satisfactory. There is not the slightest suggestion in the evidence that the package he accepted as consideration was negotiated under any sort of duress - it was clearly an arm's length agreement. It is equally clear from the evidence of the Accountant that, remaining on in the practice as an employee, albeit on limited hours and on a not ungenerous salary on his own evidence, and watching the rapid expansion of the practice around him, he became disaffected with the bargain he had struck vide his comments:

"They (the Partners) had a business to build and which they did do, and quite successfully, I would understand but I did not enjoy my stay for the last five (sic) years. As a matter of fact, I got out after four years … because we did not speak to one another."

The Accountant, in his evidence, indicated his view that "goodwill is superannuation"; he believed, on reflection, that the figure of $42,000 represented payment for his goodwill and became disaffected by the fact that the sum remained the same though deferred for five years. Those views are undoubtedly the mainspring of the Commissioner's action in refusing to treat the Fund as a superannuation fund.

20 I reject those views. What must be remembered is that the Accountant was disposing of his share of the practice in the first half of the 1979 year. The goodwill of the practice has to be valued against the facts in relation to, probably, the period to the end of May 1979. Despite the stand the Commissioner took in this matter, no attempt was made by the Commissioner to establish a figure for goodwill in relation to the practice at that date. A report was produced by the Partners, prepared by a chartered accountant in January 1986, of a valuation of the Accountant's share in the partnership in existence at 17 June 1979. The valuation was challenged by counsel for the Commissioner on the basis that it did not conform with the requirements of the partnership deed for valuing goodwill on the retirement of a partner. I have indicated at the end of para 7 that it is my view that, because of the manner in which the Accountant's retirement was effected, cl 23 of the partnership deed was not applicable in the valuation of goodwill on his retirement. The valuation of goodwill provided on behalf of the Partners is, in my view, flawed to the extent that it attempts to follow the rules in cl 23 of the partnership agreement but the evidence of the chartered accountant does provide sufficient material to make it plain that, by any of the standard methods of valuing goodwill, the Accountant's share of goodwill at that date would not achieve a figure of $42,000. The relevant unchallenged evidence from the chartered accountant is that, for the country town where the practice was located, expert advice received by him was that the gross fees would be valued at something less than 50 C in the dollar in attempting to sell the practice and the evidence from his report is that the fees of the practice from 1 July 1978 to 17 June 1979 were $138,000. At best, this suggests a value of approximately $60,000 for the whole practice. The Accountant's share would be $20,000 of which $7000 had already been credited to his account.

21 The underlying reality emerging from the evidence is that the value to the practice of the fees introduced by the Accountant remained virtually static and the large expansion of fees was due to new clients introduced by the Partners. The value of the Accountant to the practice in the period to 17 June 1979 and, to the Partnership, in the period after 17 June 1979 was that the Accountant was seen for local consumption to figure prominently in the conduct of the practice - see the quotation from the evidence of Partner 2 at para 6 above. This is reinforced by the care which the Partners took to retain the name of the Accountant at the front of the name under which the Partnership practised up to his retirement with his name being featured on the letterhead immediately under the names of the partners as being "in association with" the Partners in the conduct of the practice.

22 The Accountant traded his interest in the practice for a guaranteed payment of $42,000 to him in the event of his retirement due to ill-health or exercise of his option to retire at any time after 17 May 1981, or, in the event of his death, to his agents, the whole to be payable in any event by 31 July 1984, plus an employment contract for the period from 17 June 1979 to 31 July 1984 at a salary of $21,500 pa for working a total of 30 hours per week. The deed of assignment of 2 October 1980 which set down in writing the terms of agreement reached in mid-June 1979 for dissolution of the partnership then conducting the practice, required that the sum of $42,000 be accumulated by 31 July 1984 in a superannuation fund to be set up for that purpose. I have already accepted that the effect of depositing a sum of $7403 on 29 June 1979 to an account controlled by the Partners as trustees, had the effect of setting up a fund. I find that the fund so set up was not a mask for the accumulation of moneys to pay the Accountant for a share of goodwill disposed of by the Accountant under the deed of assignment. I find the fund so set up was a superannuation fund as required by the agreement between the parties to be formalised later in the deed of assignment and the superannuation fund deed. The question is whether that fund which I have called the Fund, was so established and administered as to constitute a superannuation fund in terms of s 23F and s 82AAC. Once the overall rejection of the Fund is set aside, the exercise of examining the general conduct and financial administration of the Fund by the trustees must be undertaken on a year by year basis which is the manner in which the Income Tax Assessment Act operates. Counsel for the Commissioner has submitted that "the superannuation fund in fact came into existence only on the execution of the deed" and that the Accountant did not become a member until "the application form to join the fund set up by the deed was signed by the Accountant and the trustee". I accept the force of those submissions but the existence of a deed in writing is not a prerequisite for the establishment of a fund for purposes of s 82AAC. It appears from the text of s 23F, and in particular para (e) of subs (2) of s 23F that a deed in writing may be required to satisfy that section. In the circumstances of these applications, I would be prepared to exercise any powers of the Commissioner under subs (7) of s 23F to overcome difficulties which may arise in relation to strict compliance with s 23F by reason of the unexplained hiatus which arose in the formalisation of the deed governing the fund to be set up for the Accountant.

23 Counsel for the Commissioner has attacked the fund as not being a bona fide superannuation fund for reasons which I will summarise hereunder:

(a) Lending back to the employer of funds as under:

(i) $7000 during the month of July 1979;

(ii) $7000 on 3 July 1981;

(iii) $54,000 on 1 July 1982.

(b) The circumstances of the inclusion of two other staff members as members of the Fund for a period of some 12 months from June 1982 to June 1983 and their transfer out of the Fund in May and June 1983.

(c) The change in contribution rate in respect of the Accountant in the contribution made for the year ended 30 June 1982.

(d) The payment over of some $1572 remaining in the Fund after payment of the Accountant, as trustees' remuneration although there was no provision in the deed for the Fund of such a payment.

24 I have already outlined in some detail at paras 12 and 13 above, the various payments by way of contributions for members of the fund, receipts of interest and the manner in which the funds so received were applied in investments in interest bearing deposits, loans to the Partnership, purchases of Australian Savings Bond to meet the 30/20 ratio requirements. The position is that the loan of $7303 to the partnership in two amounts of $5303 withdrawn on 3 July 1979 and $2000 withdrawn on 5 July 1979 persisted for some six months but was repaid in full by 24 March 1980. There is no evidence of interest ever having been paid on the sum borrowed. Normally, where no interest was paid by the Partnership on a loan of funds from the Fund, the possibility that the Fund was being conducted as a financing arm of the Partnership and in derogation of the rights of members under the Fund would have to be considered. But in the unusual circumstances of this Fund which at this time was being conducted subject only to the outlines in respect of the Fund contained in the deed of assignment (it is accepted that the deed governing the Fund was not signed until after 26 May 1980) - the only end for the Fund at that time being to accumulate the sum of $42,000 by 31 July 1984, I do not believe it is appropriate so to find. In reaching this conclusion, I have had regard to the obvious impecuniousness of the Partners at the stage when the agreement between the parties later formalised in deed of assignment required them to set up the Fund to meet their obligations under the deed - having regard to the general evidence in this case, I would accept without demonstration that the Partners were in no position to part irrevocably with the sum of $7403 at that stage. I have had regard also to the fact that the borrowing was short term only and the steady repayment of the borrowing and the provision of funds to meet the requirements of the necessary contribution for the year ended 30 June 1980, plus the manner in which these funds were then applied. Taking all these matters into account, I am prepared to accept that the Fund in the year ended 30 June 1980 was administered solely for the purpose of providing superannuation benefits as required by the deed of assignment for the employee/member of the Fund in that year. To the extent that it is necessary for me (constituting the tribunal) to exercise the general discretion granted to the Commissioner by subs (7) of s 23F in order to reach that conclusion, I am prepared to exercise that discretionary power. I would adopt the same attitude in respect of the year ended 30 June 1979.

25 As to the year ended 30 June 1981 I can see nothing in the manner in which the finances of the Fund were conducted during that year which would cause me to vary the conclusion in relation to the Fund for the years ended 30 June 1979 and 1980.

26 In relation to the year ended 30 June 1982 the Commissioner has launched a two-pronged attack on the administration of the Fund in that year. In the first instance he draws attention to the loan of $7000 made by the trustees to the Partnership on 3 July 1981. The loan was not evidenced in writing as was a similar loan made in the year ended 30 June 1982, but the evidence of Partner 2, interpreting his notations in the passbooks, establishes that it was so made and was repaid on 30 June 1982, with interest of $945, as part of a cheque for $59,966 deposited in the passbook on that date. The effective rate of interest paid was 13.5% simple. Loans to the partnership were permitted by the deed governing the Fund, broadly at an arm's length rate of interest with an overriding discretion in the trustee to determine the rate. However, on 23 October 1980, the Deputy Commissioner had advised that the Fund was "acceptable for purposes of s 23F" subject to certain general conditions, one being that, in respect of an unsecured loan, the rate of interest should be at least 1.5% in excess of the Commonwealth Bond rate. An extract from the Reserve Bank of Australia Bulletin of October 1981 in the form of a photostat copy of the J3 schedule of Yields on Government Securities in July 1981 for two year term bonds, showed a yield of 13.60%. Counsel for the Commissioner argued that the rate of 13.5% for the year was not in accordance with the Commissioner's requirements in his letter of 23 October 1980. Counsel appeared to equate the theoretical yield rate with the Commonwealth Bond rate and claimed that the rate of 13.5% actually paid was in breach of the Commissioner's specification. I am not persuaded on the material before me that there has in fact been any breach of the Commissioner's requirements - I do not accept that the "theoretical yield rate" of the J3 schedule represents what the Deputy Commissioner loosely described as the "Commonwealth Bond Rates" in his letter of 23 October 1980. Even if it be so, I would, acting as the tribunal, be prepared to exercise the discretion vested in me to excuse a marginal failure to meet the Commissioner's vaguely defined requirements. (Since writing the above, my attention has been drawn to the summary at p 4021 of Vol 1 of the CCH Superannuation and Employment Benefits Guide; there the Commissioner is shown as indicating that, in determining the extent of deductibility of contributions made during the 1981-82 year, the Commissioner specified that a rate of interest from 12.5% to 13.5% was accepted in respect of a loan back by an existing fund whether the fund was exempt or taxed.)

27 However, the attack mounted in respect of the increase in the sum contributed in respect of the Accountant in this year and the use to which the funds so generated were put raises more formidable questions in respect of the administration of the Fund both in the year ended 30 June 1982 and the next year of income. As I have noted in para 13 above, the passbooks show the deposit of a sum of $59,966 to the credit of the Fund on 30 June 1982 by way of a cheque from the Partnership. Of this sum, $50,611 was identified as being by way of contributions to the fund in respect of the Accountant ($48,023) and two other newly admitted members of the Fund whom I will identify as Member 1 and Member 2, the contribution in respect of Member 1 being $888 and of Member 2 $1700. These accord with the levels set for each of these latter two members by the actuary. On the actuary's certificate they are shown as having no level of credit pre-existing in the Fund which must mean that there was no transfer of accumulated benefit from any other fund of which Member 1 or Member 2 had previously been a member.

28 As I have noted in para 14, the sum of $54,000 was lent back to the Partnership on 1 July 1982 at interest at the rate of 17.5% pa. That loan back appears to be within the Commissioner's guide lines for that year. To that extent, the loan back of itself does not appear to me to imperil the status of the fund as being a fund established and maintained solely for the purpose of provision of superannuation benefits for employees in the event of their retirement. But it is the events that occurred in the administration of the Fund for the year ended 30 June 1983 which raise doubts about whether the fund was in fact at the end of the year ended 30 June 1982 and for the year ended 30 June 1983 being administered solely for the provision of such benefits for employees.

29 In the first place there is the difficulty of the lack of any adequate explanation from the Partners for the enormous increase in the contribution in respect of the Accountant for the year. At the end of the year of income ended 30 June 1981, the funds accumulated in the Fund for benefit of the Accountant amounted to $29,947, including a contribution in total in respect of that year of $14,547, considerably larger than the contribution of $7882 made in the year ended 30 June 1980. It will be recalled that, under the deed of assignment, the Partners were obliged to provide only a benefit of $42,000 either by 31 July 1984 or in the event of the Accountant's death or retirement (for reasons outlined in the deed) before that date. Given the Accountant's severe heart attack in September/October 1980, I can accept that it was prudent for the Partners to accelerate accumulation of the required benefit under the auspices of the Fund, hopefully gaining tax benefits in respect of those accelerated contributions. But that does not account for the more than tripling of the 1981 contribution on 30 June 1982. The only explanation the tribunal was given was the cryptic explanation I have quoted in para 16 above.

30 There are, however, problems with that explanation. There is the evidence of the Accountant of a discussion between him and the Partners about a proposal to increase his benefit to a sum of $156,500 and his understanding that the purpose of the increase was to provide tax benefits for the Partners. He went further in stating that it was put to him that, if he were to pay back $100,000 to the Partners (no consideration for the payment being mentioned) then his net benefit would be $56,000. The Accountant indicated he had rejected the offer. Despite the denials by the Partners, I accept the evidence of the Accountant that a discussion in relation to an increased benefit did occur; his evidence is supported by the fact of the increased contribution paid to the Fund in respect of him on 30 June 1982 and the evidence of the actuary and his certificate detailing contributions for an end benefit for the Accountant of $156,250. One other aspect to be noted here is the fact that the loan back to the Partnership of $54,000 on 1 July 1982, represented a loan of virtually the whole of the funds available for investment at 30 June 1982 (other than $31,800 invested in Australian Savings Bonds). After the loan was made, a balance of $713.43 was carried forward the passbook at 1 July 1982.

31 In their consideration of an appeal against the decision of Taylor J in Driclad v FCT (1968) 121 CLR 45; 10 AITR 736, Barwick CJ and Kitto J (at 67-8) considered a claim by the Commissioner that the income of a section of the superannuation fund there under consideration "was not being applied for the purposes of a benefit or superannuation fund for the benefit of employees". In dealing with this representation, their Honours made the following observations which appear to be pertinent to the circumstances in these applications relevant to the loan back to the partnership by the fund:

If the fund was not exclusively for the benefit of employees, then it did not fall within s 23(j) as has recently been held in Compton v FCT (1966) 116 CLR 233. Turning to s 66 we find in that section a very precise requirement that the payments allowed as deductions must be for the purpose of making provision for individual personal benefits of employees and for that purpose only. If, therefore, it were the case that the payments were simply made to the trustees of a fund, and, that the fund had been established from which such benefits are to be provided and for another purpose as well, eg, to return to the company as loans payments made by the company to trustees, we ourselves would think that the income of the fund would not be within s 23(j) nor would payments to the fund be allowable deductions under s 66. So, for instance, if a deed were to contain a clause requiring the trustees to lend to taxpayers the payments made by them to the trustees as and when made, and to do so at favourable rates of interest, we would think that much could be said against treating such a deed as constituting a fund falling within either s 23(j) or s 66.

In this case, evidence has shown that the bulk of the moneys in the hands of the trustees were lent to the taxpayers making the payments, but, although the deed permits this, it does not require it, and attention was not directed to the question whether or not there was, towards the end of a financial year, an arrangement whereby payments were made to avoid tax liability and moneys which would otherwise have had to be found to meet that liability were paid to trustees for the benefit of employees and also for return to the companies as loans, with the advantage of the payments being, by the terms of the deed, ultimately secured to the shareholders of the companies.

In these applications, as in Driclad, supra, virtually the whole of the funds available for investment (apart from the Australian Savings Bonds held to satisfy the 30/20 ratio in an attempt to ensure exemption from income tax for the Fund) were loaned back to the Partnership as from 1 July 1982. The sum loaned was substantially greater than the contributions of $50,611 made to the Fund on 30 June 1982. The loan back was permitted by the deed but not required by the deed. To adapt the words from the above quotation, the payment over by way of loan of the funds generated by the contribution was not, "by terms of the deed, ultimately secured to" the Partners. It does not appear to be open to the tribunal to find, by reason only of the loan of investment funds to the Partnership at an acceptable rate of interest, a positive purpose of benefiting the Partnership subsisting in addition to the purpose of benefiting the members of the Fund, a finding which would give rise to a denial of exemption from income tax to the Fund. In this regard, see also the detailed reasons of Taylor J in Rollason v FCT (Driclad) (1968) 121 CLR 45; 10 AITR 736 (at 61, 62) when his Honour set out his reasons for rejecting the claim of the Commissioner in respect of "the A Section" of the Fund there under consideration, an adverse decision against which the Commissioner failed to appeal.

32 When, however, one looks at the detail of what occurred during the year ended 30 June 1983, further questions arise in relation to the purposes entertained by the trustees in their administration and conduct of the Fund. The Accountant was advised by the trustees of the Fund (who were the Partners and their respective wives) in a letter dated 18 March 1983, that the benefit payable to him on 1 July 1983 would be $85,957.50. The calculation of this benefit was not explained to the tribunal, but, in the event, it appears to be somewhat less than the amount that may have been available to him if the trustees had adhered to the rules set down in the deed governing the Fund.

33 On 1 May 1983, a minute of a meeting of the trustees recorded a resolution to transfer "accrued benefits" of Member 1 and Member 2 to a superannuation fund conducted by the Service Partnership. In the result, a sum of $3719 comprising a contribution in respect of Member 1 ($1415) and Member 2 ($2304), was deposited in the passbook. This contribution brought the total of contributions in respect of each to, Member 1 $2303 and Member 2 $4004. On 30 may 1983, the sum of $5742 was paid out of the passbook, identified in evidence as being in respect of Member 1; on 30 June 1983, the sum of $10570 was paid out in respect of Member 2. Prima facie, these figures indicate that the contributions standing to the credit of each Member's account at 30 June 1982 had attracted an allocation of funds at the rate of 287% (approximately). The payments out (to another superannuation fund) must have been made under the portability provisions contained in cl 45 of the deed, the relevant portion of which I quote:

"45. Portability -
(a) The trustee may at the request of a member and subject to such conditions and indemnities as the trustee may require pay or transfer to the trustee of any other superannuation fund or plan the income from which is exempt from tax under the Act or which is otherwise given concessional tax treatment under such Act, the whole or part of the amount standing to the credit of the member in the fund's books together with any policy or policies of insurance or assurance on the life of such member and the receipt of the trustee of such other superannuation fund shall be a sufficient discharge to the trustee who shall not be responsible for the payment or disposal by the trustee of the other fund of the amounts so paid or transferred and the trustee may certify to the trustees of such other fund the amount which in the opinion of the trustee is fairly attributable to the contributions of the member and his employer respectively."

In my calculation above, I have ignored the possibility of insurance policies as, though there is evidence that an insurance premium of $1410 was paid on 30 June 1982, there is no evidence that policies taken out were life polices in respect of Member 1 and Member 2. The payment appears to have been to secure disability insurance in respect of the Accountant as required by para (g) of cl 5 of the deed of assignment.

34 The "amount standing to the credit of the member in the fund's books" consists of contributions in respect of the members plus any allocations of income emerging in accordance with cl 9 of the deed which I quote hereunder:

9 Allocation of income - Except and subject hereinafter provided:

(a) All interest profits and losses arising from the investment of such of the moneys of the fund as stand to the credit of individual members shall be credited or debited as the case may be to the members' accounts in proportion to the amounts standing to their respective credits at the preceding thirtieth day of June an appropriate adjustment to be made for amounts if any credited or debited to member's accounts since that date and all interest profits and losses arising from the investment of other money of the fund shall be credited or debited to the fund;

(b) The trustee shall hold each of the said policies if any and all moneys thereby assured and all other benefits and advantages to be had recovered and obtained under and by virtue of each of the said policies in trust for the relevant member assured thereunder."

During the year ended 30 June 1983, the Fund earned income by way of interest of $13,822. The balances standing to the credit of members as at 30 June 1982, were:

	$
The Accountant	82,846
Member 1	888
Member 2	1,700

Clause 9 appears to require allocation of the interest earned in proportion to those amounts. The amounts paid out of the Fund by the trustees in respect of Member 1 and Member 2 appear clearly to exceed greatly the amount authorised by para (a) of cl 45 if the allocation had been made in accordance with cl 9 and to have affected adversely the benefit available to the Accountant.

35 The Accountant retired before reaching the age of 65 years. In terms of the deed governing the Fund, the benefit paid to him must have been paid in exercise of the "absolute unfettered discretion" of the trustees" contained in cl 18 of the deed, to pay the member all or any part of the amount standing to the credit of the Accountant in the Fund's books at the time of the member's early retirement. The accounts of the Fund for the year ended 30 June 1983 do not indicate that there was any decision to limit the Accountant's benefit in the exercise of this discretion by payment only of part of the amount standing to credit of the Accountant at 30 June 1983, vide the following statement of accumulated funds extracted from the balance sheet of the Fund at that date:

Accumulated funds	$
Opening balance 1/7/82	85,434
Contribution	3,719
Net profit	13,822
	102,975
Benefits transferred	(16,312)
	$86,663

Of this, $85,957 was paid to the Accountant on 1 July 1983, the balance of $706 being used to meet a deficit arising from administrative payments by way of "trustee remuneration" on the same day. The effective limitation of the benefit of the Accountant to $85,957 has been achieved by the inclusion in the benefits transferred in respect of Member 1 and Member 2 of an unsourced sum amounting to nearly $10,000.

36 Yet none of this, in my opinion, gives rise to material which would support a view that the Fund was being administered in any way which would conflict with the Trustees' obligation under s 23F(2)(a) to maintain the Fund "solely" for the purpose of providing "superannuation benefits for employees in the event of their retirement". The facts are that the Accountant received the full benefit of the enhanced contribution made in respect of him in the year ended 30 June 1982, he was in fact paid the sum of $85,957. He did pay over two amounts in total of $35,957 to acquire clients from the Partnership and his evidence under examination and cross-examination at pp 240 and 261 of the transcript makes it quite clear that he was a willing party to the bargain struck in respect of those clients even though the sum paid was "most generous" to use his own description of it. There is nothing in the evidence in relation to this transaction which indicates that the payment received personally by each of the Partner/trustees of the Fund, was achieved through duress or in any manner which affects their proper conduct as the trustees of the Fund in their dealings with the Accountant. In the final analysis, I am not prepared to find that the Fund was administered and conducted in any way in each of the years ended 30 June 1982 and 1983 in breach of the requirements of subs (2) of s 23F of the Act. Though the matter of the aggrandisement of the benefits transferred in respect of Member 1 and Member 2 remains unexplained, it is a matter which was not brought up and examined with the Partners in the course of their examination and cross-examination. I am not prepared to decide against the trustees of the Fund on the basis of the unexplained increase when it was not pursued in evidence. In any event, it may well be explicable by reason of the unfettered discretion granted to the trustees by cl 18 of the deed governing the Fund.

37 I am not prepared to find that the Fund was, in any relevant year, conducted as other than a superannuation fund because a minor residual sum was paid over as trustee's commission in the final wind-up of the Fund.

38 In summary, then, the decision of the tribunal in relation to the four applications by the trustees of the Fund will be that the decision of the Commissioner on the objection lodged in respect of each year shall be set aside and the applications allowed in full.

39 Though the action of the Commissioner in assessing the income for the Fund for the years covered by the applications, was not stated to be based on any operation of s 260 in the years ended 30 June 1979 and 30 June 1980 or Pt IVA in relation to any later year, counsel for the Commissioner in his submission has raised the possibility of s 260 having application to the superannuation fund "arrangement", or, alternatively, to the superannuation fund deed and those parts of the deed of assignment which refer to the superannuation fund. I reject this view. The deed of assignment, and the superannuation fund and the superannuation fund deed which flowed from it, are, on the evidence of the Partners and the Accountant an arrangement which can plainly be explained "by reference to ordinary business … dealing, without necessarily being labelled as a means to avoid tax" (vide Newton v FCT (1958) 98 CLR 1 at 8; 7 AITR 298). They were the outcome of an agreement hammered out to secure the retirement of the Accountant as a partner, an agreement which, on his own evidence, was the outcome of an approach to Partner 2 by the Accountant.

40 I turn now to deal with the applications by Partner 1 in respect of the years of income ended 30 June 1979 to 30 June 1982 (both inclusive), and, in respect of the year ended 30 June 1983, with that portion of the application which deals with the Partnership claim for deduction in respect of the contributions made to the Fund by the Partnership in respect of Member 1 and Member 2 in that year. The position is somewhat complicated. In the years ended 30 June 1979 and 30 June 1980, the Commissioner, in an assessment issued on 8 July 1980 (in respect of the year ended 30 June 1979) and an assessment issued on 6 October 1982 (in respect of the year ended 30 June 1982), did not vary the amount shown by Partner 1 as his share of the net income of the Partnership by limiting the deductions claimed in those years by the Partnership in respect of contributions to the Fund. Later, after an examination of the affairs of the Partnership, the Commissioner disallowed the whole of the deductions claimed by the Partnership in respect of the Fund and adjusted the assessments of Partner 1 for the 1979 and 1980 year by increasing Partner 1's share of income from the Partnership by adjustments arising from these disallowances. The Commissioner has been seen by his actions to exercise the discretion in para (b) of s 82AAE in the assessments, notice of which issued on 8 July 1980 and 6 October 1982.

41 In the course of his submission on behalf of the Commissioner, counsel adverted to s 82AAE and advanced a general claim that the deduction in any year should, if any deduction were to be allowed, be limited to 5% of the relevant salaries, submitting generally that there were "no special circumstances to justify exercise of the discretion". The relevant question that arises from this submission is whether, in amending the assessments of Partner 1 for the years ended 30 June 1979 and 30 June 1980 it would have been open to the Commissioner to review his overt exercise of the discretion under s 82AAE in the assessments he originally raised. That in turn would depend on whether there had been a full and true disclosure of all the material facts relevant to the issue in the various returns of the Partners, the Partnership and the Fund and any correspondence in relation thereto at the time of the Commissioner making the original assessments. I have examined the relevant exhibits and there is nothing in the material submitted to indicate that, at the time of making the 1979 assessment, the Taxation Office was informed of the terms of agreement under which the earlier partnership had been dissolved on 17 June 1979, and the return of the Fund for that year incorrectly states that "all members have been advised in writing of their rights to benefit"; it was admitted at the hearing that the first drafts of the deed governing the Fund did not emerge until at earliest 26 May 1980 and that documents in the form of an invitation to and an application by the Accountant to join the Fund dated in June 1979 were backdated. There is no evidence of disclosure on these matters before the assessment for the year ended 30 June 1980 was prepared. Accordingly, in my view, the Commissioner was empowered under s 170 of the Act to make the amendments, notices of which issued on 22 May 1986 in respect of the years ended 30 June 1979 and 30 June 1980 and, in particular, had he continued to accept the Fund as a fund providing superannuation benefits (s 82AAC ), would have been authorised to review his exercise of the discretion under para (b) of s 82AAE in the original assessments, notices of which issued on 8 July 1980 (1979) and 6 October 1982 (1980). The issue of the application of the discretion has been raised in each of the objections lodged against the amended assessments and the Commissioner in coming to his decision on the objection must have applied his mind, however transiently, to that question. In these circumstances it is apparent that the tribunal, on review, has the power to exercise the discretion under s 82AAE. The view is confirmed by the recent decision of a Full Court of the Federal Court in Fletcher v FCT (1988) 19 ATR 1765; 88 ATC 4034 the court held at 4846:

Once it is understood that, in exercising his powers under s 186, the Commissioner would have been free to exercise a discretion under s 177F of the Income Tax Assessment Act, it follows that, in reviewing the Commissioner's decision under s 186, the tribunal is free to exercise that same discretion if, upon the material then before it, it seems proper to take that course. There it was conceded by counsel for the Commissioner that, "at no time did (the Commissioner) make a determination against any of the applicants under s 177F(1)" but, after a wide ranging consideration, the court came to the conclusion I have quoted above. I am of the view that the tribunal has the authority to exercise the discretion under para (b) of s 82AAE in reviewing the Commissioner's decisions on objection in each of the years ended 30 June 1979 and 1980. Though the assessments for the years ended 30 June 1981, 30 June 1982 and 30 June 1983 are original assessments, the issue of exercise of the discretion under para (b) of s 82AAE is specifically raised in the objection in respect of each year and it is equally apparent from the decision in Fletcher, supra, that the tribunal is free to exercise the discretion granted by that paragraph in dealing with the later years.

42 In exercising the discretion, I have concluded on the evidence that, in the years 1979, 1980 and 1981 the Fund was being conducted solely for the purpose of accumulating the end benefit of $41,000 required by the terms of the deed of assignment. The obvious plan was to accumulate this on a "sinking fund" basis by a regular annual contribution of $7403 - so much is apparent from the entries in the bank passbooks for most of that period. No explanation was offered at the hearing for the increased contribution of $7882 in 1980, though, from the passbook, it appears to have been caused by an amount paid to round the available funds to an amount of $15,000 for investment in a term deposit and still provide some minimal operating capital in the account. No explanation was offered of the increased contribution in the 1981 year; again it appears that a last minute deposit on 30 June 1981 of a cheque for $7773 was designed to provide sufficient funds to purchase Australian Savings Bonds on the same date to the value of $9800 in order to effect compliance with the "30/20 ratio" by the end of the year of income, and thus, hopefully, to secure the Commissioner's exercise of the discretion to disregard the failure to hold the investment for the whole of the year and achieve exemption from income tax for the Fund. I am prepared to accept that the contribution of $7403 which was the contribution aimed for in each year to fund the desired end benefit was within the Commissioner's guidelines. A request for approval of a contribution of that magnitude was put to the Australian Taxation Office in a letter from the solicitors to the Partnership dated 30 May 1980. Though there was no evidence of a direct reply to that request, there is evidence of a reply by the Taxation Office dated 23 October 1980 which amongst other matters, sought advice of the "current annual salary" of the Accountant in order to calculate "the reasonable end benefit" being provided for him. Thereafter, the Taxation Office allowed deductions in respect of contributions for the Accountant claimed by the Partnership as reflected in the assessment for year ended 30 June 1980 of Partner 1, notice of which issued 6 October 1982 and in assessments of Partner 2 which issued between October 1982 and July 1984. There is no evidence that the Commissioner ever regarded the benefit of $42,000 as other than reasonable. It has been the policy of the Commissioner's numerous circulars on matters pertaining to superannuation to permit deductions for contributions designed to provide what the Commissioner in his letter of 23 October 1980 described as "reasonable end benefit". I would therefore allow a deduction of $7403 to the Partnership for contributions in respect of the Accountant for each of the years ended 30 June 1979, 1980 and 1981. There is no evidence of special circumstances in the contributions in excess of that figure in the 1980 and 1981 years.

43 In relation to the year ended 30 June 1982, I would, on the basis of the undisputed certificate of the actuary, exercise the discretion in respect of the contributions for the persons whom I have designated Member 1 and Member 2. These persons were "arm's length" employees of the Partnership of some status in the organisation. One was the manager of a branch office, some distance from the main office and the other, a senior level technical employee. The projected end benefits are certified as being within the Commissioner's guidelines by the actuary. The problem here is the contribution made to the Fund in respect of the Accountant of $48,023. No explanation of the sudden adoption of an end-benefit in line with the Commissioner's guidelines for a "non-traditional allocated lump sum" fund was given to the tribunal apart from the very cryptic answers I have quoted at para 16 of these reasons. That explanation certainly does not of itself provide "special circumstances" of the type contemplated by s 82AAE, there being no change in circumstances relating to the Accountant such as a sudden large increase in salary. There is a complete departure in the method of funding. Previously contributions had been made on a fairly regular basis throughout the year (apart from year ended 30 June 1979 when the amount was contributed in one lump sum), the apparent aim being to accumulate an annual contribution of $7403 by way of instalments. In the year ended 30 June 1982, only one contribution was made of $50,611 and that on 30 June 1982; the proceeds of that contribution along with other funds was returned to the Partnership on 1 July 1982. Another matter to be noted is that in the final result, the benefit of the enhanced contribution flowed through to the Accountant. That, however, I consider to be a matter going to the bona fides of the Fund as a superannuation fund and not a special circumstance to do with determining the level of contribution to be allowed as a deduction in a particular year of income. Lacking any evidence of specific special circumstances in relation to the year ended 30 June 1982, the conclusion is irresistible that the expenditure was incurred, in reliance on the mathematics of the actuary's calculations, with the purpose of constructing a large tax deduction without any immediate monetary outlay by the Partnership. In this regard, see the evidence of Partner 1 quoted above in para 16 of these reasons. The actuarial certificate is based on an end benefit of seven times the average annual salary of the Accountant for his last three years of employment. That traditionally has been a benefit level reserved for longer term employees. Yet it is the cornerstone of a calculation in respect of an employee with a little more than two years service as such by 30 June 1982 and the prospect, at best, of a further two years service as an employee by 1 July 1984 when his contract for employment would expire. In all the circumstances, I would exercise the discretion under para (b) of s 82AAE to allow a deduction to the Partnership in respect of its contribution for the Accountant of no more than $7403 for the year ended 30 June 1982. In the year ended 30 June 1983, I would allow deductions in exercise of the discretion at no higher rate than the actuary proposed for year ended 30 June 1982 ie 10% of actual salary for the year, the deduction to the Partnership for that year being limited to $2795. No reason was given at the hearing for an increase beyond that level.

44 There is nothing in the evidence before me that would lead me to any different conclusions in relation to the applications of Partner 2 in respect of the contributions to the Fund by the partnership for the years ended 30 June 1980, 30 June 1981, 30 June 1982 and 30 June 1983. The only actual difference between the situation of the Partners on this aspect is that in the case of Partner 2 in each of the years subject to application, the Commissioner has allowed a deduction of the full amount of the contributions made, in determining his share of the net income of the Partnership. But it has not been established that there was a full and true disclosure in respect of any of the years in question. The amended assessments the subject of objection leading to the applications before the tribunal, were open to the Commissioner in terms of s 170 of the Act and the objection in respect of each specifically invites the Commissioner's attention to a claim for exercise of the discretion under para (b) of s 82AAE. It is therefore a matter in which I, as the tribunal, can exercise the discretion in determining the applications as they relate to superannuation. I would allow the same deductions to the partnership as for Partner 1, in calculating Partner 2's share of the net income of the partnership for each year.

45 In summary therefore, the decision of the tribunal will be in the applications of Partner 1, insofar as they concern the disallowance of contributions made by the Partnership to the Fund, that the decisions of the Commissioner on the Partner's objections for the years ended 30 June 1979, 30 June 1980, 30 June 1981, 30 June 1982 and 30 June 1983 shall be set aside and the assessments amended to reduce the taxable income in each of the years of income by:

	$
Year ended 30 June 1979	3,701
" " 30 June 1980	3,701
" " 30 June 1981	3,701
" " 30 June 1982	4,996
" " 30 June 1983	1,398

In relation to the applications of Partner 2, the decision of the tribunal will be that the decisions of the Commissioner on the objections lodged in respect of years ended 30 June 1980, 30 June 1981, 30 June 1982 and 30 June 1983 insofar as they concern the disallowance of contributions by the Partnership to the Fund shall be set aside and the assessments amended to reduce the taxable income in each of the years of income by:

	$
Year ended 30 June 1980	3,702
" " 30 June 1981	3,702
" " 30 June 1982	4,995
" " 30 June 1983	1,397

Pastoral matters

46 I turn now to deal with issues arising in the assessments for years ended 30 June 1983 and 30 June 1984 arising out of the purchase by Partner 1 and Partner 2 as tenants-in-common, under a contract of sale dated 20 April 1983 of a pastoral property reasonably adjacent to the town where the Partnership carried on its accountancy practice and its operation by the Partners through a partnership which I will refer to as the Pastoral Partnership. The purchase was an arm's length transaction and was under a standard contract of sale with an annexure that contained the following clauses which are relevant to the matters in dispute between the Commissioner and the applicants:

"30. The purchasers shall on the date hereof 26 April 1983 enter into possession of the subject land, for the purposes of farming same without liability on the part of the vendor and buildings exclusive of the dwelling house upon the land which is currently occupied by the vendors as their place of residence.

31. The vendors shall render unto the purchasers possession of the dwelling house currently occupied by them upon the date of possession. From that date they shall be tenants of the said property subject to the provisions of the Residential Tenancies Act 1975 as amended and shall pay a weekly rent of ONE DOLLAR ($1.00). It is hereby agreed between the parties that the vendors will vacate the said residence no later than 30 days from the date of settlement.

32. The vendors agree that they shall before the date of settlement spray the present crop of oats with either Tordon or 24D and it is agreed that if at a later date for purposes of identification it be deemed necessary, oral evidence of this clause be allowed to be adduced to prove the provisions of this clause.

33. …

34. It is further agreed between the parties hereto that the schedule hereunder contains a full and complete list of all fixtures, fittings, fencing and fuel tanks and that the value attributed to each item in the schedule hereunder is the true and correct current market value of each item.

Schedule

	$
Unimproved value plus clearing and cultivation	34,200
Standing crop (oats)	800
Fencing (i) boundary	4,000
(ii) internal	7,000
Hay shed	28,000
2nd hay shed	16,000
Machinery shed	1,000
Barn	15,000
Eleven (11) dams (previously Section 54)	38,000
Two bores, mills, tanks and troughing (previously Section 54)	15,000
Stock yards	3,500
Homestead (workers cottage)	5,000
Fuel tanks	500
	$168,000

The contract was "subject to finance", the "approval date" for the $100,000 loan involved being 20 May 1983.

47 On the same date (20 April 1983), a memorandum of agreement covering the purchase of farm machinery was signed by the Partners and the vendors under the contract of sale for the land; delivery of the machinery was to be taken by the Partners on 26 April 1983, the same date as specified in cl 31 of that contract as quoted above. There is evidence also of the purchase of cattle from a person who was later to manage the property on behalf of the Pastoral Partnership and whom I will hereafter refer to as the Grazier, and permit to travel stock on 19 May 1983 from the Grazier's property to the property in process of acquisition by the Partners, the permit being issued on 16 May 1983. There is further evidence of the purchase of additional stock from the vendors of the land on 29 May 1983. Settlement in respect of purchase of the land took place on 8 June 1983, the settlement date being deferred by consent of the parties from 3 June 1983.

48 In the return of income lodged on behalf of the Pastoral Partnership for the period up to 30 June 1983, a deduction was claimed under s 75B in respect of "Water Conservation and Conveying" amounting to $57,299. Depreciation was claimed under s 57AE at the rate of 33 1/3% pa in respect of two hay sheds and a barn, amounting in all to $20,385 and under s 57AJ in respect of fuel tanks in the amount of $518. The figures in respect of all the above claims have been advanced beyond those appearing in cl 34 of the contract of sale by the attribution to each of the items of a proportional share of the legal expenses and stamp duty incurred in connection with the acquisition of the property. Initially, these claims by the Pastoral Partnership were accepted by the taxation office, vide the assessment originally raised against Partner 2 in respect of the year of income ended 30 June 1983, notice of which assessment was dated 18 July 1984. Following a further examination of the affairs of the Pastoral Partnership, the Commissioner issued notice of an amended assessment in respect of that year of income to Partner 2 on 17 June 1986. He had already issued a notice of assessment to Partner 1 on 22 May 1986 in which the claims made in the Pastoral Partnership under s 75B, s 57A and s 57AE were substantially reduced. It is these assessments which have been the subject of objection by the Partners and, following disallowance of their claims in the objections in relation to the Pastoral Partnership, have been the subject of applications by the Partners to have the Commissioner's decision on objection referred to this tribunal.

49 In raising his assessment against Partner 1 and the amended assessment against Partner 2, the Commissioner has rejected the basis adopted by the parties in the contract of sale and embodied in cl 34 of the contract and has adopted values determined by a valuer from the valuation section as an "opening written down value". In an attempt to provide a simplified comparative schedule, I have set the opposing contentions out in a schedule labelled Appendix A attached to these reasons for decision (see p 3491). As will be seen from that document the taxation office has reduced the claims for depreciation by $21,000 and the claims under s 75B by $43,937.

50 In his submission, counsel for the Commissioner put the position that "the expenditure in question (here) is not literally within the section" referring in particular to s 75B(2). He urged that the taxpayer must carry on a business of primary production on land in Australia at the time he incurs the expenditure for which a deduction is claimed under s 75B and referred to the joint decisions of Taylor and Owen JJ in Southern Estates Pty Ltd v FCT (1967) 117 CLR 481; 10 AITR 525 where at (CLR) 491 after agreeing with the conclusion reached by McTiernan J at first instance, they went on to say: "Section 75(1) proceeds upon the basis that at the time the expenditure is incurred the taxpayer is actually engaged in carrying on the business of a primary producer on the land upon which the improvements are effected."

He went on to draw attention to the dissertation by Windeyer J in Southern Estates, supra, at (CLR) 493 on the policy and purpose of s 75. The terms of s 75B(2) closely follow the terminology of s 75 and in the circumstances, I would agree with counsel that the claim should have been rejected in full. I would add for myself the further qualification that it is difficult to accept that the amounts claimed under s 75B can be correctly identified as "expenditure incurred" for purposes specified in s 75B. It appears to me that the expenditure of $168,000 was incurred under a contract of sale in relation to land and was therefore expenditure incurred for the purpose of acquiring title to a parcel of land being the grazing property on which the dams, bores etc were located. I appreciate that, following the decision of the Federal Court in Pearce v FCT (1988) 20 ATR 113; 89 ATC 4064, the values allocated to the dams etc in cl 34 may be seen in terms of s 59(3)(c) as a statutory form of "consideration receivable" for purposes of that section and may, if the discretion under s 60(2) be exercised favourable, form the base for calculation of depreciation allowable to the purchaser in respect of those items. But s 75B has no statutory link with s 59(3)(c). It is difficult to see how, what may be by operation of the statute, a form "consideration receivable" by a vendor for the special purposes of one section, can be transliterated as "expenditure incurred" by the purchaser in terms of a totally unrelated section. The words "expenditure incurred" in s 75B must bear their natural meaning and the mere allocation of an agreed, and, from the evidence, arbitrarily determined, "true and correct market value" does not to my mind transform the expenditure incurred (or any part of it) in the acquisition of title to a parcel of real estate into "expenditure of a capital nature … incurred on … the acquisition … of a structural improvement for the purpose of conveying or conserving water …"

51 If I be wrong in that conclusion, then I would rely on counsel's fall-back argument that the vendors under the contract of sale would have been the first persons eligible to claim a deduction under s 75B - there is evidence in a document submitted to the Australian Taxation Office that those vendors purchased the property on 18 April 1980, four days after s 75B commenced to have application in respect of expenditure incurred for the stated purpose. In such circumstances, para (a) of subs (8) of s 75B would debar the Partners from qualifying for a deduction which would have been allowable to the vendors if s 75B(2) has the meaning contended for by the vendors. If the view I have adopted be right, then it is apparent that the Commissioner's assessments which are the subject of these applications, are based on a mistaken interpretation of the law as it applies to the claims for expenditure on the dams and bores etc (but not the water tanks), the subject of the applications and those assessments cannot now be amended to correct the mistake of law under the legislation applicable to these assessments. Perversely then, in this aspect, the decision of the tribunal may not disturb the advantage already granted to each Partner in the assessments the subject of these individual applications.

52 The problems which emerge in relation to depreciation generally, focus on the Commissioner's decision to exercise the discretion under s 60(2) in the manner which has given rise to these assessments. The Commissioner has rejected "the true and correct market value of each item" as set out in cl 34 of the contract of sale. He has had regard to the values settled upon after inspection by the valuer from the valuation service and to a valuation, contemporaneous with the contract of sale, prepared by a valuer for the finance company apparently approached by the Partners in connection with the purchase of the property. Both of these valuations highlight the unreality in market terms of the values set out in cl 34. The Commissioner has taken the view that he is armed by the discretion invested in him by subs (2) of s 60, in appropriate circumstances, to adopt any value he chooses as the basis of calculation of depreciation for the purchasers. Certainly, ex facie, that is how the discretion reads and the Commissioner has simply substituted the values adopted by the valuation service.

53 In support of the Commissioner's action counsel for the Commissioner advanced the view that it was "appropriate to exercise the discretion because the depreciated values of the vendor under the contract of sale are significantly in excess of the true objective values of the items of property concerned". He went on to claim that "the vendors' written down values were themselves based not in actual costs, but on an apportionment of the purchase price to them", an apportionment he described "as being nearly as artificial as that in cl 34". He argued that the appropriate way to exercise the discretion was "not to give effect to the even more excessive and artificial values assigned in cl 34, but rather to base the cost on the objective value of the improvements" - ie the values determined by the valuation service. I cannot accept this proposal. It means using the discretionary power in relation to the dealings between the applicants and the vendors here, as a catch-up clause to remedy errors caused by unestablished facts in relation to long past transactions. It appears to me that the discretion can only be exercised here in relation to the facts and circumstances established by the evidence in relation to the transaction here under consideration.

54 When one looks at the explanatory memorandum which accompanied the bill which became the Income Tax Laws Amendment Act of 1979 , the reasons given for the introduction of the new subs (2) of s 60 indicate that it was done to overcome difficulties being encountered with the phrase "the actual consideration given" which was being exploited in various arranged dealings vide the following extract from the explanation of cl 10 of the bill where after giving a summary of the operation of s 60(1), the memorandum proceeds-

"Subsection 60(2) qualifies this rule. By reason of it, the limit under subs (1) is not to apply if the Commissioner of Taxation is of the opinion that depreciation based on the actual consideration given by the purchaser should be allowed. Use of the actual consideration might, for example, be appropriate where the parties are dealing at arm's length and agree on a purchase price greater in amount than the amount that would result under subs (1).

"It is necessary that subs 60(2) be amended to reflect the position as it will be following the insertion into the Act, by cll 6 and 11, of new subs 56(4)and 62(3). At present, in a case where it is appropriate for the Commissioner to act under subs 60(2), depreciation to a purchaser of depreciated property must be based on the actual consideration, eg, the actual purchase price. This is in a setting where, basically, ss 56and 62 operate on the basis of the actual cost of property. However, new subss 56(4)and 62(3) will mean that in the circumstances in which they apply an amount lower than actual cost is to be taken as the basis.

"Accordingly, the new subs 60(2) being inserted by subcl (1) of cl 10 will not restrict, to the actual consideration given, the amount resulting from an application of subs 60(2), but will be expressed in more general terms that will allow depreciation to be calculated on the basis of whatever is the base amount under appropriate other provisions."

55 In resorting to the explanatory memorandum on which the treasurer's second reading speech was based, I have regard to the views expressed by Mason J in FCT v Whitfords Beach Pty Ltd (1982) 150 CLR 335; 12 ATR 692; 82 ATC 4031, where at 4041 he stated:

As I said in Wacando v Cth (1981) 37 ALR 317 at 335-6, generally speaking, reference cannot be made to what is said in parliament for the purpose of interpreting a statute. But in my opinion there are grounds for making an exception for the case where a bill is introduced to remedy a mischief. Then, to have regard to the purpose for which the legislation was enacted as stated by the minister in charge of the bill would conform to the rule that extrinsic material is admissible to show the mischief which the statute is designed to remedy, I acknowledge that the inadmissibility of parliamentary debates, as an aid to the construction of statutes is supported by powerful authority: see generally Bitumen & Oil Refineries (Aust) Ltd v Comr for Govt Transport (1955) 92 CLR 200; Australasian United Steam Navigation Co Ltd v Hiskens (1914) 18 CLR 646 at 672; SA v Cth (1942) 65 CLR 373; SA Comr for Prices & Consumer Affairs v Charles Moore (Aust) Ltd (1977) 139 CLR 449; Davis v Johnson (1979) AC 264. But there is a case for treating the minister's statement, particularly when it is not contested, as cogent evidence of the mischief aimed at, evidence certainly as cogent as the extrinsic materials from which the court would draw an inference in many cases. I am conscious that, in the same case, Gibbs CJ expressed a more limited view that he "did not consider it admissible to attempt to discover the intention of parliament in enacting s 26(a) by having regard to statements made by the minister when the bill was introduced".

56 Be that as it may, the one thing that is plain from the linked package of amendments in relation to the depreciation provisions in the bill which ultimately became Act No 51 of 1973, is that the amendment to the terms of s 60(2) was part of a package of amendments having to do with transactions subject to the provisions dealing with depreciation in cases where the transactions were not transactions at arm's length. It seems logical in that context that the discretion should not be utilised as a blunt catch-up provision in relation to a contract that was plainly an arm's length contract to which neither subs (4) of s 59 nor subs (3) of s 62 have any application.

57 The question that emerges, as I perceive it, is whether the circumstances in these applications call for any exercise of the discretion under s 60(2). The applicants have invited the exercise of the discretion by the insertion of the values allocated by cl 34 of the contract of sale of 26 April 1983 as the "original cost" in the depreciation schedule which accompanied the return of the pastoral partnership for the period which ended on 30 June 1983. But that, in my view, is a misconceived invitation. I do not accept that the values allocated in cl 34 represent "the actual purchase price" (to use the words of the memorandum) of any of the improvements listed. To paraphrase Windeyer J in Ferling v FCT (1966) 115 CLR 603; 9 AITR 646; 10 AITR 171, they are simply a set of figures reflecting how the total consideration should be apportioned bearing in mind the incidence of income tax (at (CLR) 613). Where they can be compared individually with the values determined by professional valuers, the unreality of the figures is emphasised. Though, in terms, they may constitute "separate values allocated" for purposes of s 59(3)(c), they can no more be considered individually to represent the actual consideration for each item than the prices apportioned to each item in the contracts and correspondence dealt with in Ferling, supra. Even if some linkage could once have been established per medium of the terms "consideration receivable" (s 59(3)) and "the actual consideration given" as used in s 60(2) before 12 June 1979, it is clear that the purpose of varying the terms of the discretion in subs (2) of s 60 as from that date, was consciously to remove the latter term as one of the parameters to which the Commissioner must address himself in exercising his discretion under the subsection.

58 It is to be noted that, in Ferling, Windeyer J (at (CLR) 609) registered the general view that he did not think the term "actual consideration given" was "… necessarily whatever amount is specified in the agreement as 'the value' if any such amount be written into the agreement". I do not believe that the actual consideration or, to use the words of the memorandum "the actual purchase price" can be established either by reference to cl 34 or to the report of the valuation service or to any of the evidence as to value led during the hearing of these applications. Accordingly, s 60(1) must operate in these applications, vide per Windeyer J at (CLR) 616 in Ferling: "… s 60(1) must take effect unless 'the actual consideration given' for the depreciated property acquired can be determined."

Generally in regard to depreciation, I would direct that the Commissioner's decisions on the objections be set aside and that the matter be remitted to the Commissioner to calculate depreciation where applicable in respect of the plant acquired under contract of sale dated 20 April 1983 in accordance with s 60(1) of the Act. Whether the Commissioner would be authorised by s 170 to make any further adjustments in this respect to the assessments the subject of the applications by the Partners in the years ended 30 June 1983 and 1984, to give effect to the decision I have reached in this aspect, is properly a matter for the Commissioner's consideration. I would note however that, in the notice of objection lodged by each Partner in respect of the year ended 30 June 1983, Ground 47A of each objection invites the application of s 60(1) should it be found that s 60(2) has no application.

59 One other aspect of the Commissioner's adjustments in relation to the general aspects of depreciation remain to be considered. The Commissioner has disallowed a claim for a loss in accordance with s 59(1) in respect of fencing to the value of $3601 claimed to have been scrapped in the period of trading by the pastoral partnership up to 30 June 1983. The evidence led on behalf of that partnership to substantiate the scrapping of internal fencing on 29 June 1983 equal in value to one half of the written down value of that fencing at 30 June 1983 did not displace the onus placed on the applicants to prove that the assessments in question were excessive in that regard. The Grazier who gave the principal evidence in this regard, told counsel for the applicants, after viewing a document in the report from the valuation service, that he could not "exactly remember when fencing was done, to a date, but it would have been done not long after that date" - "that date" being 8 August 1984. Yet the Partnership claimed one-half in value of the internal fencing was demolished by 30 June 1983 and the balance by 30 June 1984. To counsel for the Commissioner, he stated that approximately 75% of the internal fencing on the property, when purchased in April 1983, "was still there" when he finalised managing the property in September 1984. In the circumstances, I can only confirm the Commissioner's decision on objection in this regard. I would note also that the claim for depreciation in respect of the item described as Homestead (worker's cottage) in the depreciation schedule lodged by the Pastoral Partnership was not pursued at the hearing.

60 Finally I turn to deal with the claim advanced by counsel on behalf of the commissioner that depreciation under s 57AE is not available to the Partners in respect of the Hay sheds and Barn shown in the schedule in para 46 and that the claim under s 57AJ in respect of the Fuel tanks shown in the schedule should also be rejected. The argument put for the Commissioner relies on the wording of paras (b)and (c) of subs 57AE(2) - effectively on the wording of para (b) insofar as it states that:

"(b) the depreciation referred to in paragraph (a) shall commence to be allowed to the taxpayer in relation to the year of income … during which the unit is first used for the purpose of producing assessable incomes …"

(Emphasis mine)

Counsel claims the deduction "is not available because the expenditure is too old". I cannot accept this argument. The section, like all sections of the Act, is designed for application on a year to year basis, having regard to the facts of each particular year. The units involved pass the cumulative tests for applicability of the section in paras (a), (b), (c)and (1)(d) of subs (1) in relation to the Partners as taxpayers in relation to the 1983 year of income. The unit of property was acquired jointly by the Partners under a contract entered into before 20 May 1983, thus qualifying for a rate of 33 1/3% of the cost of the unit. Depreciation at that rate "shall commence to be allowed" to the taxpayers qualifying in relation to the units involved under subs (1) of s 57AE during the year of income in which the particular "unit" is first used (by the qualifying taxpayer) for the purpose of producing assessable income …". I appreciate that the direct reference to the qualifying taxpayer is not there in the text of para (b) but I do not believe it is a distortion of the sense of the paragraph so to treat it in that context. I am of the view that the Partners are not barred from access to the deduction by the operation of paras (b)and (c) of subs (2).

61 There is difficulty for the applicants from the requirement of the section that the special rate of depreciation provided in para (a) of subs (2) be based on "the cost of the unit". In my view, as I have already noted, the actual cost of the units cannot be established. In the circumstances, I am of the opinion that it is not possible effectively to apply s 57AE in relation to the units in question. I would find that the basis for calculation of depreciation under the section cannot be established and that depreciation at normal rates under s 54 should be allowed following the application of s 60(1) to establish a base for calculation of depreciation.

62 I would make the same findings in respect of the applicants' claims for deductions under s 57AJ. There is no basis for establishing the cost of the fuel tanks involved in that claim. However, as the Commissioner allowed the claim in full in the applicant's assessments, it cannot be a matter in respect of which the applicant's could or would seek a review by the tribunal of the Commissioner's decision on the objections.

63 There remains one matter to which I believe I must give attention before recording the formal decisions of the tribunal in these applications. In written submissions in reply belatedly lodged on behalf of the applicants, counsel, in support of the claims under s 75B, has advanced the argument that the "expenditure" claimed under that heading was incurred in carrying on a business (or primary production on land in Australia) making the point that "the land concerned had a standing crop of oats on it" and the conclusion that "the business commenced eo instanti on acquisition of the property". I do not accept that the acquisition of a parcel of land on which there is a standing crop automatically establishes the purchaser from the date of the contract as a person who carries on a business of primary production. Nor, I would add, on the material before me, is there the slightest suggestion that the Pastoral Partnership, either through the activities of the Partners or the Grazier or any other agent, carried on a business of primary production on the property acquired under the contract of sale dated 20 April 1983 before at the earliest 19 May 1983, the day specified in the permit to travel stock, adverted to in para 45 of these reasons. That was the earliest date at which any livestock of the Pastoral Partnership may have been depastured on the property. There is some vague evidence from the Grazier that he attended to the spraying of growing crops between "the agreement and the sale and the actual takeover day", but no date was assigned to that exercise. There is, however, insufficient material before me to permit any finding as to when the business of primary production to be conducted by the Pastoral Partnership on the land acquired by the Partners as tenants-in-common, was commenced. I would note here that I believe the claims for deductions made in the income tax returns of the Pastoral Partnership in respect of the matters the subject of these applications, were incorrectly made in those returns. The expenditure which gave rise to the claims was not incurred by the Partners as members of the Pastoral Partnership but by Partner 1 and Partner 2, as individuals, as joint purchasers of a property to be held by them, as tenants-in-common. The deductions should have been claimed in the individual returns of the Partners; the quantum of the claims made would remain unaffected but it does allow the claims to be considered in their correct perspective.

64 In summary the formal decisions of the tribunal in respect of these applications will be:

Applications QT87/2047-50

The decisions of the Commissioner on the objections are to be set aside and the objections will be allowed in full.

Applications QT87/4864-9

The decisions of the Commissioner on the objections for the years ended 30 June 1979 to 1982 (both inclusive) are to be set aside and the applicant's share of the net income of the Partnership is to be reduced in each year as under:

	$
Year ended 30 June 1979	3,701
" " 30 June 1980	3,701
" " 30 June 1981	3,701
" " 30 June 1982	4,996

The decision of the Commissioner on the objection for the year ended 30 June 1983 is to be set aside and the following adjustments are to be made:

(i) Applicant's share of the net income of the Partnership is to be reduced by $1397.

(ii) The applicant's claims for deduction under s 54, s 57AE and s 75B are remitted to the Commissioner for adjustment (where possible) in accordance with the decisions of the tribunal on these matters.

In all other respects, the Commissioner's decision on the objection is confirmed.

The decision of the Commissioner in respect of the objection for the year ended 30 June 1984 is to be remitted to the Commissioner to adjust claims under s 54 and s 57AE (where possible) in accordance with the decisions of the tribunal on these matters. In all other respects, the decision of the Commissioner on the objection is confirmed.

Applications QT88/450-2, QT90/21-2

The decisions of the Commissioner on the objections for the years ended 30 June 1980 to 1982 (both inclusive) are to be set aside and the applicant's share of net income from the Partnership in each year is to be reduced as under:

	$
Year ended 30 June 1980	3,702
" " 30 June 1981	3,702
" " 30 June 1982	4,995

The decision of the Commissioner on the objection for the year ended 30 June 1983 is to be set aside and the following adjustments are to be made:

(i) Applicant's share of the net income of the partnership is to be reduced by $1397.

In all other respects, the Commissioner's decision on the objection is confirmed.

In all other respects, the decision of the Commissioner on the objection is confirmed.