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The Federal Court (Jessup J) has held that the AAT erred in law in concluding that the assessable income of a departing partner included accounting "timing differences" referable to work in progress. However, the Court was not prepared to say that no part of the "timing differences" should have been included; rather, it remitted the matter to the AAT for determination in accordance with the Court's reasons. Similarly, in upholding the Commissioner's cross appeal, the Court held that the AAT had erred in law in holding that an amount of $500,000 received by the departing partner from the partnership was an undissected lump sum and thus not assessable. This matter was also remitted to the AAT for determination in accordance with law. The Court said that the question in relation to both amounts (the timing differences amount and the amount of $500,000) was how much was included in assessable income pursuant to s 92 ITAA 1936: McNally v FCT [2007] FCA 51 (Federal Court, Jessup J, 2 February 2007).

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