CASE Z7

Members:
P Gerber DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 13 November 1991

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Dr P Gerber (Deputy President)

In brief compass, the facts appeared to have occurred in the following order. The applicant has held a joint bank account with his wife since 1963. In the 1988 tax year, that account yielded $2,237 in interest, all of which was returned as the wife's income and assessments issued to both husband and wife ``as returned''. Subsequently, the Commissioner issued an amended assessment on 20 August 1990, assessing all the interest from that account to the husband. For good measure, he added a penalty for incorrect return. When the husband complained to the Tax Office, asserting that all the money belonged to his wife, the respondent issued an amended assessment on 13 December assessing him to half the interest ($1,118) from the joint account. The husband then formally objected, the objection was disallowed, hence this reference. It seems that in earlier years, all the interest from the joint account was returned by

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the wife and accepted by the Commissioner as hers.

2. In his decision on objection, the Commissioner resiled from his earlier position (communicated orally to the taxpayer) that the couple were ``caught'' by the Partnership Act (NSW):

``Consequently, a joint bank account does not of itself create a partnership relationship between the joint depositors or confer on either of them the powers conferred by one person on another in consequence of a partnership relationship arising between them. As such, with joint bank accounts, the question of a distribution of `profit' between `partners' does not arise.

Husband and wife joint account holders cannot consequently decide (as you would suggest) to distribute joint interest income between them other than in equal shares.

Authority for this rationale can be found in the decisions of the former Taxation Board of Review in Case R111,
84 ATC 739 and Case Q35,
83 ATC 154.''

3. The taxpayer requested that the matter be referred to this Tribunal and in due course, the matter came before me at a Preliminary Telephone Conference on 23 September 1991. Being cautious not to disqualify myself, I merely pointed out to the Commissioner that I had always believed - but of course I held no concluded view on the matter - that a joint account was unlike a joint tenancy, and that whatever presumption might arise from such an account, it was open to one of the parties to disclaim any interest in the monies thus held. The Commissioner remained unmoved and the matter was set down for a hearing in November 1991.

4. However, prior to the hearing the Commissioner had ``second thoughts'' and on 18 October 1991 wrote to the applicant advising him that the matter had been reviewed ``and it has been decided the Commissioner will discontinue litigation and allow your objection. An amended assessment giving effect to the decision to allow the objection will issue in due course''.

5. On 12 November 1991, the Commissioner issued a further amended assessment, reversing the previous one, thus putting the parties back in status quo ante. This amended assessment stated:

``This amendment allows your objection of 21 March 1991 in full.

The $300 appeal fee has been refunded and you should receive it shortly.''

6. The Commissioner, having unconditionally surrendered, thought the war was over, put the cat out and went to bed. However, the taxpayer refused to consent to a dismissal of his reference, feeling he had been ``conned''.

7. In the result, there was a ``hearing'' on 13 November 1991 at which the Commissioner produced an amended assessment and tried to present the taxpayer with a cheque for $300 (his filing fee), thus ousting the jurisdiction. However, the taxpayer would have none of it. He had paid his money and insisted, like a true trouper, that the show must go on. It struck me at the time that this was rather like Isaac Newton, having discovered the law of gravity, insisting on taking his apple to the Patent Office. However, rather than debate whether there was still a ``live'' issue before the Tribunal, I had the taxpayer duly sworn. He claimed that all the money in the account belonged to his wife. He was not cross- examined.

8. The evidence being all one way, I briefly set out the law as I believed it to be and gave my decision there and then, setting the Commissioner's decision aside and allowing the objection in full.

9. The taxpayer has now requested a decision in writing as an object lesson to all other husbands who have been taxed on their wives' money.

10. Suffice it to say that the two decisions quoted by the Commissioner do not support the proposition on which he relied. In both cases a husband and wife both derived income from jointly owned property which was leased. In the later case, the husband sought to claim 80% of the loss. The Board, having concluded that there was no partnership, held that:

``... the question is whether there has been an effective assignment of a right to income from jointly owned property by one joint owner as assignor to the other joint owner as assignee.''

(per Senior Member Roach)

11. With the greatest respect, that view is clearly correct on the facts of that case but has no bearing on the issue before me. The earlier

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case is equally irrelevant, dealing with jointly held real estate.

12. The facts in the instant case disclose the following: The husband and wife held a joint account with the Rural Bank of New South Wales. The documents are in classic form. The relationship between a bank and its customers is solely that of debtor and creditor and in the case of a joint account, the contract is between the bank and the parties to it. However, this does not create an irrebuttable presumption that a moiety of the money standing to the credit of the account belongs to one party, the rest to the other. In the instant case, the Commissioner had no evidence whatever before him that half the money belonged to the husband (I am mystified why he initially attributed all the money to the husband). Thus, neither the mutuality of marriage nor the Partnership Act give rise to a presumption that a joint bank account constitutes an association of persons carrying on business as partners or in receipt of income jointly. A joint account - in the absence of any other evidence - means no more that either party has the authority on behalf of and as agent for both to sign cheques or otherwise withdraw from the account. I am satisfied on the evidence that all the money standing to the credit of the joint account belonged at all times to the wife. It follows that the Commissioner misapplied the law and his decision must be set aside.