Tait v Commissioner of Taxation (Cth) [1963] HCA 39

High Court of Australia Owen J. Tait v Commissioner of Taxation (Cth) [1963] HCA 39

ORDER Appeal dismissed with costs.

Cur. adv. vult.

Oct. 3 Owen J. delivered the following written judgment:—

This is an appeal brought under s. 27 of the Estate Duty Assessment Act 1914-1950 against an assessment of duty on the estate of one Peter Tait who died on 27th September 1951. Prior to and at the date of his death the deceased and his son, Douglas Gray Tait, were partners in equal shares in a pastoral property at Molong in New South Wales on which they carried on business as graziers and sheep breeders. The deed of partnership provided that if either partner should die during the term of the partnership (which was a partnership at will) the survivor should be at liberty to purchase the share of the deceased partner at the "nett value thereof" to be agreed, or, in default of agreement, to be determined by arbitration. In fact the deceased, by a codicil to his will, left his interest in the partnership to the surviving partner, his son, and no question arose therefore as to the exercise of the option. The value of the deceased's interest in the partnership was originally returned by the executors as being £56,426. Various adjustments were later made bringing the final figure to £64,970. The value assessed by the Commissioner was £78,442.

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