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Retired NSW solicitor fails in attempt to recoup income
A retired NSW solicitor unsuccessfully challenged the amount he was paid under a partnership and retirement deed.
Naomi Neilson
Former solicitor Brent Hedges of Curwood Lawyers Partnership, who retired at the end of 2008, failed to appeal a decision made in the Administrative Appeals Tribunal (AAT) to review an assessment of the income he received in the 2009 tax year.
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Brent Hedges and the Commissioner of Taxation clashed in the Federal Court on whether Mr Hedges was entitled to receive capital proceeds for the disposal of his interest in the goodwill of a partnership under his retirement and partnership deeds.
The primary judge of the AAT had found a clause in the partnership deed provided Mr Hedges would be paid a specified amount, which was made up of his proportionate part and calculated in accordance with his partnership interest of 12.75 per cent of goodwill.
The value of this was then calculated at the equivalent of 50 per cent of the annual net trading profit of the partnership and had been averaged over the preceding three years, the primary judge noted.
Under a separate clause, a “set-off mechanism” provides a “convenient method by which the partnership can recover amounts owed by outgoing partners to the partnership on their retirement”.
The AAT also found “notwithstanding that the goodwill payments was liable to be applied to offset Mr Hedges’ obligation to repay the debt due on the capital amount”, the capital proceeds of the capital gains tax event were not reduced by reason of an offset.
Mr Hodges argued in the Federal Court that the AAT judge failed in his assessment of the partnership deed and should have held that there were relevant parts in that deed which were the sources of his right to be “paid an amount of retirement moneys”.
Mr Hodges added the retirement money “did not include moneys in respect of the disposal of [his] share in the goodwill” and the partnership deed applied up until his “departure date”.
However, the Federal Court dismissed his application to appeal and found the only amount which Mr Hedges thought he was entitled to receive “is rejected as a matter of construction of the deeds”.
“The context in the present case is a disposal which occurs as a matter of law upon the retirement of a partner,” the court found.
“It is the retirement of a partner which brings the existing partnership to an end and which results in the remaining partners being taken to have acquired the leaving partner’s interest in each of the assets.
“The obligation of the partners to account to the retiring partner was reflected in equitable principles and did not find its source in contract.”
The case is Hedges v Commissioner of Taxation.
