| 20/5/2012 |
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| Board of Special Commissioners - Cases |
| Case No. 1/61 |
Decided: 18 November, 1961 |
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An en commandite partner may farm out his work to the partnership's employees and the remuneration paid to them is an allowable deduction - article 10, now 14, Income Tax Act and article 49, now 27, Income Tax Management Act
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Appellant, a member of a partnership en commandite, passed on most of his workload to his sons who were also employed with the partnership in their own right. As remuneration he transferred to them a percentage of his share of the net profits of the partnership. He felt that he was being compensated for the work he ought to have carried out himself through his partnership profit share and the partnership ought not, therefore, to be burdened with the extra expense.
The Commissioner refused to allow relative deductions from appellant's chargeable income. It was contended that, once there did not exist a set distribution of work among the partners, the extra work was actually being carried out on behalf of the partnership and, therefore, at its expense. The transaction at issue was considered to be an application of profits.
The Board disagreed with the Commissioner's line of reasoning. A partner was at full liberty to assign his work to any of the partnership's employees at his expense so long as such work ought not to be carried out by them in the first instance. Indeed had appellant burdened the partnership with the expense, the other partners could have rightfully protested that he was making inappropriate use of the workforce to improve his lifestyle. Moreover, the expense was being incurred directly in the production of the partnership's income and compensation for this work could, under no circumstances, amount to an application of profits.
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