CASE 23/95

Members:
Purvis J

Tribunal:
Administrative Appeals Tribunal

Decision date: 7 April 1995

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Purvis J (Presidential Member)

Factual situation

1. The applicant taxpayer is a Chartered Accountant. In August 1990, the taxpayer and another were admitted to membership of an already existing partnership carrying on business as Chartered Accountants, thereby increasing the number of partners to nine persons. The senior partner after whom the partnership was named stated to the two new partners that the partnership banker wanted to have securities held by it updated, that is, include all of the partners as parties to the security document held by it covering a then existing substantial debt to the bank. The senior partner exercised persuasion over his new admittees, assuring them that he held more than sufficient assets, real estate and otherwise, to cover the amount then owing. ``There is no risk'', he said, ``there is ample coverage''.

2. Under date 14 September 1990, the taxpayer, together with the other eight partners, executed a Bill of Sale, an equitable mortgage over the business in favour of the Commonwealth Bank of Australia by which the partners as ``mortgagor and debtor'' acknowledged an indebtedness of $5,233,433 to the bank.

3. Within a year of his being a partner, the taxpayer became aware of the parlous state of the finances of the partnership and particularly the senior partner. On 5 August 1991, he resolved to leave the partnership, which he did.

4. The property the subject of the Bill of Sale was insufficient to meet the debt as were the other securities held by the bank. On 7 August 1991, demand was made on the taxpayer by the bank requiring payment by him of the amount then outstanding, $4,621,205.92 on or before 13 August 1991, failing which action was to be taken to recover such amount. The debt was not paid, and on 29 November 1991, a Statement of Claim was filed in the Supreme Court of New South Wales and served on the taxpayer claiming payment of $2,944,196.47, being the amount then outstanding to the bank after realisation of assets secured by the Bill of Sale and moneys paid to the bank by other of the partners.

5. Thereafter, negotiations took place between the solicitors for the bank and the taxpayer. It was eventually agreed by the bank that it would accept the sum of $20,000 from the taxpayer in discharge of his obligations under the deed. Discussions between the solicitors for the bank and the taxpayer continued as to other terms and conditions sought to be included in documentation, and it was not until 6 February 1992 that a draft deed was provided by the bank for consideration by the solicitor for the applicant. Further negotiations took place as to the wording and the terms of the agreement. On 21 May 1993, a deed was executed by the bank, the taxpayer and the other Chartered Accountant who had joined the firm at the same time as the taxpayer. So far as it is now relevant to these reasons, the deed recited:

``...

H. The bank claims that it advanced money and/or granted financial accommodation and/or extended financial accommodation to, at the request of, and for the benefit of [ the taxpayer] pursuant to Bill of Sale and Equitable Mortgage over business dated 12 September 1990... and pursuant thereto the bank claims that [the taxpayer is]... indebted to the bank in the sum of $3,467,367.22 as at 10 March 1993 together with interest accruing at the rate of $1,163.71 per day from and including 11 March 1993.

I. [The taxpayer] admits that [he] signed the Bill of Sale but otherwise [he does] not admit the Bank's claims referred to in Recitals... H.

J. The Bank claims that [the taxpayer is] jointly and severally liable with [other of the partners] for all amounts secured by the leases described in Schedules 2 and 3 [to the deed] but this claim is denied by [the taxpayer].

L. [The taxpayer has] denied that [he is] indebted to the Bank for such monies or any part thereof.

...

Q. [The taxpayer claims that the] partnership agreement with [the other partners] whereby [ he]... acquired an equity interest in [the accountancy firm] was unfair and/or hard and unconscionable and/or against the public interest.

R. [The taxpayer has] informed the Bank that [he intends] to defend the Statement of Claim... and [has] also informed the Bank that [he intends] to join the Bank as a

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respondent to proceedings in the Industrial Commission of New South Wales against [ the other partners] pursuant to S. 88F of the Industrial Arbitration Act to seek, inter alia, an order that the Bill of Sale be declared void ab initio on the grounds that it was and is unfair and/or harsh and unconscionable and/or against the public interest.

S. The Bank denies that the Bill of Sale was or is unfair and/or harsh and unconscionable and/or against the public interest.

T. The parties have agreed to enter into this Deed with the purpose of resolving all or any claims and disputes between arising from the matters in recitals A to S hereof and any other matter between them in connection with [the accountancy firm] insofar as the same may or is alleged to involve [the other Chartered Accountant and/or the taxpayer] in any personal liability to the Bank and/or CBFC.

U. Without admission of liability [the taxpayer and the other Chartered Accountant] have offered to pay the sum of $40,000.00 to the Bank in full and final satisfaction of all such claims and disputes referred to in Recital T hereof and that offer has been accepted.''

6. By its operative clauses, the Deed, so far as here relevant, provided that in consideration of the sum of $40,000 being paid by the taxpayer and the other Chartered Accountant to the bank:

``1. The Bank releases [the taxpayer] from any liability at law or in equity [he has] now, or may have in future, to the Bank, jointly or severally, arising out of or in connection with the matters recited in Recital hereof and foregoes any right, claim, suit or demand against [the taxpayer and the other Chartered Accountant] which it has or may have in future against them, at law or in equity, jointly or severally, in respect of, or arising out of, the same.

2. The Bank acknowledges that in so far as the Bill of Sale applies to [the taxpayer and the other Chartered Accountant] this Deed operates as a final discharge of the Bill of Sale for the purposes of Clause 20 of the same and the Bank further acknowledges that this Deed operates as a final discharge of the liability of [the taxpayer and the other Chartered Accountant] to the Bank under the Bill of Sale.

3. [The taxpayer and the other Chartered Accountant] release the Bank from any liability at law or in equity it has now, or may have in future, to [the taxpayer and the other Chartered Accountant] jointly or severally, arising out of or in connection with the matters recited in Recital T hereof and forego any right, claim, suit or demand against the Bank which they have now, or may have in future, against it, at law or in equity, jointly or severally, in respect of, or arising out of, the same.

4. The Bank warrants to [the taxpayer and the other Chartered Accountant] that it has released [six main partners not including the senior partner] from any liability at law or in equity they have now, or may have in future, to the Bank, jointly or severally, arising out of or in connection with the matters recited in recitals A to S inclusive and the Bank further warrants to [the taxpayer and the Chartered Accountant] that it foregoes any right, claim, suit or demand against [the aforementioned other partners not including the senior partner] which it has or may have in future against them, at law or in equity, jointly or severally, in respect of, or arising out of, the same.

5. The Bank and [the taxpayer and the other Chartered Accountant] will approach the Supreme Court of New South Wales as soon as is practicable after this Deed with a joint request that the Court makes orders in accordance with the Short Minutes of Order a copy of which is annexed to this Deed...''

7. Short Minutes of Order to be filed in the Supreme Court provided for the proceedings commenced against the taxpayer to be discontinued.

8. The applicant paid the amount of $20,000 to the bank on or about 19 May 1993, and claims the said amount as a deduction against his income in the year ended 30 June 1993 under and pursuant to s. 70B of the Income Tax Assessment Act as the disposal of a traditional security.

Relevant statutory provisions

9. So far as relevant to these reasons, s. 70B of the Income Tax Assessment Act as it was prior to 1 July 1992 read as follows:

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``70B(1) Expressions used in this section that are also used in section 26BB have the same meanings in this section as in section 26BB.

70B(2) Where a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed, the amount of any loss on the disposal or redemption is allowable as a deduction from the assessable income of the taxpayer of the year of income in which the disposal or redemption takes place.

70B(3) ...''

10. Section 70B was amended by Act No. 224 of 1992, s. 19, by insertion of subsections (4), (5), (6) and (7), the amendments being applicable to disposals of traditional securities occurring on or after 1 July 1992. The subsections so inserted in s. 70B by the 1992 amendment provided:

``70B(4) If:

• (a) a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed; and
• (b) there is a loss on the disposal or redemption; and
• (c) in the case of a disposal or redemption of a marketable security;
  • (i) the taxpayer did not acquire the security in the ordinary course of trading on a securities market; and
  • (ii) at the time the taxpayer acquired the security, it was not open to the taxpayer to acquire an identical security in the ordinary course of trading on a securities market; and
• (d) in the case of a disposal of a marketable security - the disposal did not take place in the ordinary course of trading on a securities market; and
• (e) having regard to:
  • (i) the financial position of the issuer of the security; and
  • (ii) perceptions of the financial position of the issuer of the security; and
  • (ii) other relevant matters;
• it would be concluded that the disposal or redemption took place for the reason, or for reasons that included the reason, that there was an apprehension or belief that the issuer was, or would be likely to be, unable or unwilling to discharge all liability to pay amounts under the security;

a deduction is not allowable to the taxpayer under this section in respect of so much of the amount of the loss as is a loss of capital or a loss of a capital nature.

70B(5) A reference in this section to the disposal by a taxpayer of a security, or the redemption of a security of a taxpayer, does not include a reference to the waiver or release by the taxpayer of:

• (a) the whole or a part of the debt the subject of the security; or
• (b) any other right of the taxpayer under the security.

70B(6) ...

70B(7) In this section:

• ...
• `marketable security' means a traditional security that is covered by paragraph (a) of the definition of `security' in subsection 159GP(1);
• ...''

11. ``Security'' is defined by s. 159GP(1) to mean:

``(a) stock, a bond, debenture, certificate of entitlement, bill of exchange, promissory note or other security;

(b) a deposit with a bank, building society or other financial institution;

(c) a secured or unsecured loan; or

(d) any other contract, whether or not in writing, under which a person is liable to pay an amount or amounts whether or not the liability is secured;''

12. A ``traditional security'' is also defined in the Income Tax Assessment Act where in s. 26BB(1) it states:

```Traditional security' , in relation to a taxpayer, means a security held by the taxpayer that:

• (a) is or was acquired by the taxpayer after 10 May 1989;
• (b)...
• (c) is not a prescribed security within the meaning of section 26C; and
• (d) is not trading stock of the taxpayer.''

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Negotiations and the agreement between the taxpayer and the bank

13. If there was a loss on disposal within the meaning of s. 70B(2) of the Act and the disposal and loss occurred after 30 June 1992, then the Act as amended by Act No. 224 of 1992 would apply. The respondent Commissioner contends that in the event of s. 70B(2) otherwise being applicable, the taxpayer would be precluded from claiming a deduction by reason of the non-deductability of the loss under ss. 70B(4). The taxpayer says that, even though payment was made in the 1993 financial year, the disposal and loss occurred prior to 1 July 1992 and s. 70B(4) does not apply. It is thus necessary to ascertain the time when the disposal (if there was one) and the loss on disposal (if there was one) occurred.

14. The evidence before the Tribunal is that on the day following his retirement from the firm of Chartered Accountants, this on 7 August 1991, the bank made demand on the taxpayer under and pursuant to the Bill of Sale. Proceedings were commenced in the Supreme Court of New South Wales, and by consent, orders made restraining the partners from disposing of assets. On 22 November 1991, indication was given to the Court of settlement having been reached between the bank and some of the partners, not including the taxpayer. On 29 November 1991, a Statement of Claim issued out of the Supreme Court against the partners. On 10 December 1991, the senior partner was declared bankrupt. On 13 December 1991, the solicitors for the taxpayer confirmed with the solicitor for the bank that no steps would be taken to enter judgment against the taxpayer prior to 28 January 1992. On 16 January 1992, the said solicitors confirmed arrangements for a meeting ``to enable the parties to explore all options that may be available to resolve the proceedings...''. On 24 January 1992, the time was further extended for the taxpayer to file a defence to the Statement of Claim. On 6 February 1992, the solicitors for the bank forward to the taxpayer's solicitors ``a draft deed of agreement for your consideration''. It was said by the taxpayer's solicitor during the course of his giving evidence before the Tribunal that prior to the receipt of this draft deed, the bank had indicated a preparedness to accept from the taxpayer $20,000 in full satisfaction of his obligations under the Bill of Sale. Nevertheless, on 9 March 1992, the taxpayer's solicitors wrote to the solicitor for the bank enclosing an ``amended draft deed of release and Short Minutes of Order for approval by you''. The letter continued by saying that ``alterations have been made to your draft deed to more accurately reflect the position concerning our clients as opposed to the position of their former partners, vis-a-vis the bank''. On 16 April 1992, the bank's solicitor notified the taxpayer's solicitor ``that the deed enclosed with that letter [9 March 1992] is unacceptable to the bank insofar as it attempts to incorporate arrangements with CBFC Limited''. A number of amendments were suggested. On 11 July 1992, the bank's solicitor wrote again referring to discussions held in which the taxpayer's solicitors had ``put a proposal on behalf of your clients that the bank indemnify your clients for any contribution they may make to the estate of [the senior partner] on the condition that the indemnity be limited to the proportion of your client's contribution which the bank receives as an unsecured creditor in the estate''. The letter continued by saying, ``I am instructed by the bank to reject that proposal. I am instructed further by the bank that the agreement negotiated between the parties is to be finalised within 21 days with no further counter proposals, failing which my client will enter judgment against your clients''.

15. On 27 July 1992, a further draft deed incorporating changes was forwarded to the solicitor for the bank. On 2 November 1992, the bank's solicitor indicated that ``the deed has been forwarded to my client for its final instructions'', and on 15 December 1992, the solicitor for the bank indicated that the deed was acceptable to the bank, subject to minor corrections. On 23 December 1992, proposed short minutes were forwarded between the solicitors, and on 8 February 1993, the taxpayer's solicitors sought a response to the proposed deed. On 1 April 1993, a Deed of Settlement and Short Minutes were forwarded by the taxpayer's solicitors to the solicitor for the bank seeking execution and approval, the taxpayer's solicitors indicating that they were instructed that their clients would be in a position to settle any time during the week commencing 5 April 1993. On 19 May 1993, the taxpayer's solicitors forwarded to the solicitor for the bank a duly executed Deed of Release and a bank cheque for $40,000.

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16. During the course of his evidence, the solicitor for the taxpayer said that agreement as to the amount of money to be paid, that is, $20,000, was reached prior to receipt by him of the first draft deed. It took until May 1993 to reach agreement in relation to other matters and finalise the wording of the Deed of Release. The solicitor admitted that he attempted to incorporate all that he could into the deed, he wanting to be sure that the taxpayer was ``placed in a different position to the other partners''. No doubt he was seeking to do all he could in the best interests of his client. The deed went through many forms - ``there was a lot of to-ing and fro-ing as to the precise wording of various clauses''. ``It was an aspect that had to be resolved in relation to the financial position of [the taxpayer] that `took time'''. The solicitor said that if the negotiations had fallen through, ``if the thing fell to pieces'', that a Defence would then have been filed to the Statement of Claim on behalf of the taxpayer. There were discussions as to possible further action being taken against the taxpayer, and a clause was in due course inserted. Clause 4 (supra), to protect the taxpayer in respect of that possibility.

17. The Tribunal is satisfied on the basis of the above evidence that if there was a relevant disposal and loss, that the same occurred subsequent to 30 June 1992. Discussions continued between the bank and the solicitor for the taxpayer over the period of time above indicated. There was not an agreement reached until the deed was executed by the parties. There may have been agreement reached as to some aspects of the settlement, but it is clear that the solicitor for the taxpayer was endeavouring to obtain as much protection as he could for his client, all in the context of the taxpayer paying the $20,000. It was not until agreement had been reached in respect of all aspects that the proceedings against the taxpayer were withdrawn and the money paid.

Contentions of the parties

18. The applicant contends that on payment of the $20,000 to the bank pursuant to the settlement reached as to his obligations under the Bill of Sale, he had a right of indemnification against, inter alia, the senior partner. As this partner was then a bankrupt, having been declared so in December 1991, no written release was entered into. But, it is said, on payment to the bank and on obtaining ``the mutual release'', an ``immediate liability'' occurred which was discharged by reason of the bankruptcy.

19. The ``right of indemnification'', it is contended, is a traditional security within the meaning of the definition of ``security '' in s. 159GP(1)(d), and a traditional security in accord with s. 26BB(1) of the Act. This traditional security, according to the taxpayer, was then disposed of by him within the meaning of s. 70B(2) either upon his entering into the Deed of Release, or by reason of the bankruptcy of the senior partner, a debtor, against whom the taxpayer had a right to indemnification.

20. The objection of the applicant was disallowed by the respondent on the basis that the applicant did not have a security within the meaning of s. 159GP(1), and as such, could not claim a deduction for a loss on disposal of a traditional security.

21. At the hearing, the respondent raised three bases upon which it was submitted that the amount of $20,000 was not an allowable deduction under s. 70B of the Act, namely:

• ``(a) The taxpayer did not hold a traditional security within the meaning of s. 70B of the Act.
• (b) If the taxpayer did hold a traditional security, then it was not disposed of within the meaning of the Act.
• (c) The deduction, if any, came within s. 70B as amended. The disposal (if any) arose from the issuers actual or perceived inability or unwillingness to discharge payment obligations and s. 70B(4) does not allow a deduction for a loss that occurred in such circumstances.''

Discussion of the contentions in the context of the Act and decided cases

(a) Traditional security

22. The respondent contended that an implied contract of indemnity acquired upon payment of an amount under a Bill of Sale is not a security as defined in ss. 159GP(1).

23. A Bill of Sale is a contract of indemnity, primary liability being assumed by the parties to it (
Total Oil Products (Aust) Pty Limited v Robinson (1970) 1 NSWLR 701;
Sunbird Plaza Pty Ltd v Maloney & Anor (1987-1988) 166 CLR 245, 254). By entering into the contract of indemnity at the request of the senior partner,

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the taxpayer in this matter became entitled to a right of indemnity from the senior partner, (See
Israel v Foreshore Properties Pty Ltd (In liquidation) (1980) 54 ALJR 421). The right of indemnity, an implied contract of indemnity (see
McColl's Wholesale Pty Limited v State Bank of NSW & Ors (1984) 3 NSWLR 365), it was submitted by the respondent, is not a security within the definition of that word in s. 159GP(1)(a). A right of indemnity is not tradeable in the ordinary course of business on the securities market, and the securities specified, it was said, in the section are all marketable securities. The prerequisites are to be read ejusdem generis and an implied contract of indemnity does not fall within the range of securities there referred to. Subsection (d) of the definition refers to ``any other contract, whether or not in writing, under which a person is liable to pay an amount or amounts, whether or not the liability is secured''. It was said on behalf of the respondent that an implied contract of indemnity is not a security within this part of the definition. It was submitted that the inclusion of a right of indemnity within the meaning of security or by defining security so as to include an indemnity would not be consistent with promoting the purpose or object underlying the Act, and that so construing the section would lead to a result that is unreasonable in the circumstances or one that may lead to a result that is unreasonable given the purpose of the legislation (Acts Interpretation Act s. 15AA, s. 15AB;
Cooper Brookes (Wollongong) Pty Ltd v FC of T 81 ATC 4292, 4306).

24. In the Second Reading Speech referable to the Taxation Laws Amendment Bill (No.3) 1989, it was stated that the purpose of the legislation was to bring to account gains and losses on the disposal or redemption of traditional securities under general income tax law, and that the Explanatory Memorandum noted under the definition of ``security'' that it was defined widely so as to encompass various arrangements that may give rise to a deferral of the payment of income. It is apparent from the wording of s. 70B(4) that a loss of capital or a loss of a capital nature may well have been embraced within the meaning of s. 70B as it stood prior to 1 July 1992, and that s. 70B thus included capital and income where a loss may have been incurred. It is said that the implied contract of indemnity could never give rise to a receipt of income as the amount paid by the taxpayer under the Bill of Sale was capital in nature, and if he were to be repaid this amount by the senior partner, the debtor, it would also be a capital receipt. As earlier indicated, s. 70B encompasses this possibility. Accordingly, the Tribunal is of the opinion that the wording in s. 159GP(1) of the definition of ``security'' is wide enough to embrace an implied contract of indemnity.

25. Thus the taxpayer did have a security within the meaning of s. 159GP(1) and held a security for the purpose of s. 26BB. As such, he might have been able to claim a deduction under s. 70B.

(b) Disposal

26. It is said on behalf of the Commissioner that if there be a security, then there has been no disposal of it, and hence the taxpayer is unable to claim a deduction in the 1993 financial year. Section 26BB(1) of the Act defines ``dispose'' as meaning:

``In relation to a security, means sell, transfer, assign or dispose of in any way the security or the right to receive payment of the amount or amounts payable under the security.''

27. The words ``dispose of'' have received consideration in the context of other provisions of the Income Tax Assessment Act. It is apparent that if the action of the taxpayer in the present matter is to be taken as a disposal, then it is not to the words ``sell'', ``transfer'' and ``assign'' that attention should be given, but to the meaning appropriately to be ascribed to the words ``dispose of'' where appearing in the definition.

28. In
Rose v FC of T (1951) 9 ATD 334 at 336; (1951) 84 CLR 118 at 123, the High Court, in considering the meaning of the words ``dispose of'' in the context of s. 36 of the Income Tax Assessment Act as it then was, said:

``In employing the words `dispose of' s. 36 doubtless meant to include every alienation of trading stock. `Disposition' and `dispose of' are expressions of the widest import.''

29. In
FC of T v Wade (1951) 9 ATD 337 at 340; (1951) 84 CLR 105 at 110, the High Court, when again considering the use of the words ``disposed of'' in s. 36 of the Income Tax Assessment Act as it then was, said:

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``The words `disposed of' are not words possessing a technical legal meaning, although they are frequently used in legal instruments. Speaking generally, they cover all forms of alienation.''

30. Again, in
Henty House Pty Ltd (in voluntary liquidation) v FC of T (1953) 10 ATD 231; (1953) 88 CLR 141. At ATD 236; CLR 151-152, the Court said:

``No doubt the notion primarily conveyed by the words `disposed of' is the notion of a disposition by the taxpayer; but it is not necessarily so confined, and the use of the passive voice, without specific words of restriction referring to the person by whose act the disposal takes place, leaves ample room for a construction in keeping with the general tenor of the section, [s. 59]... In particular, the words `is disposed of' are wide enough to cover all forms of alienation,...''

31. It is clear then that the meaning to be ascribed to the words ``dispose of'' is one consistent with alienation. The words ``sell'', ``transfer'' and ``assign'' all convey this sense of alienation. An extinguishment of a debt, even be it that the bankruptcy of the senior partner has had this effect, will not then satisfy the definition of ``disposal'' for the purposes of s. 70B.

32. The entering into of the Deed of Release did not dispose of the taxpayer's right of indemnity, even be it that by paras. 1 and 2 of the Deed, the bank released the applicant from liability, by para. 3, the applicant released the bank from liability as referred to in Recital T, and by para. 4, the bank warranted to the applicant that it had released the other mortgagor debtors, except the senior partner, from liability. The Bankruptcy Act, s. 58, provides that a debt does not cease to exist on bankruptcy, nor is it alienated. The taxpayer was placed in the position of being able to prove a debt in the bankruptcy. The applicant had, prior to payment by him of the amount owing under the Bill of Sale, a contingent right which may have been provable in the bankruptcy of the senior partner (s. 82(1) of the Bankruptcy Act). The bankruptcy of the senior partner did not cause or lead to a disposal of the applicant's right of indemnity. There has not been a disposal within the meaning of the Income Tax Assessment Act.

(c) Deduction for loss on disposal

33. In the event that I am in error as to there not having been a disposal of a traditional security, it is appropriate to consider the other basis upon which the respondent relies.

34. I have already found that if there was a disposal and loss of a traditional security, that the same occurred subsequent to 30 June 1992. Thus the deduction, if any, comes within s. 70B as amended. A deduction is not allowable for a capital loss on the disposal of a traditional security that is attributable to the inability or unwillingness of the issuer to discharge its obligation to make payments under the security. Section 70B(7) defines a ``marketable security'' as meaning a traditional security that is covered by para. (a) of the definition of ``security'' in ss. 159GP(1). I have already indicated that I am of the view that the right to indemnity was a security not within the meaning of para. (a) of the definition of ``security'' but covered by para. (d) of that definition. Hence, the relevant security was not a marketable security within the meaning of s. 70B. Thus ss. (c) and (d) of s. 70B(4) are not relevant. Even be it that the security was ``a marketable security'', it was not acquired in the ordinary course of trading on a securities market, it was not open to the applicant to acquire an identical security in the ordinary course of trading, and it was not disposed of in the ordinary course of trading (s. 70B(4)(c), (d)).

35. The senior partner was declared bankrupt on 10 December 1991. On the evidence before the Tribunal, the applicant taxpayer was in no doubt when he disposed of the security, if that be the case, that the issuer, the senior partner/ debtor, ``would be likely to be, unable or unwilling to discharge all liability to pay amounts under the security''. Indeed, the applicant's claim to have experienced a loss is supportive of this being the situation.

36. Although not specifically raised by the taxpayer during the hearing, it is noted that if a claim is made that the taxpayer waived or released the whole or a part of the debt the subject of the implied indemnity, or any other right he might have had under the implied indemnity, that s. 70B(5) precludes a deduction for the loss on disposal or redemption being available to him.

37. Section 70B(4) precludes a deduction being allowed to the taxpayer in respect of so

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much of the amount of the loss as is a loss of capital or a loss of a capital nature. No issue was raised by the taxpayer as to the loss being other than that of a capital or of a capital nature.

Decision

38. For the reasons above given, the Tribunal is satisfied that a deduction is not available to the taxpayer within the meaning of s. 70B for any loss on disposal of the implied right of indemnity, the traditional security for the purposes of s. 70B.

39. Accordingly, the decision under review is affirmed.