346 / 482
GAZETTE.
SEPTEMBER 1989
enacted, the taxpayer Appellant in
the
D.R. case
would now qualify as
a favourite nephew if he spent
more than 24 hours per week in the
business. He could not qualify if he
spent less than that, having regard
to the presence of the other
employee.
Accordingly, a person can be a
favourite nephew and can also have
another employment, business or
profession provided he qualifies
under the time requirement and
provided he fulfils the requirement
in the
AE case
of working under the
direction of the uncle and con-
ferring material benefit upon the
uncle's business.
"Relevant Period"
The nephew
must carry on or assist in the
carrying on of the trade, business
or profession substantially on a full-
time basis for the relevant period.
"Relevant Period" is defined by
Paragraph 9(1) as (1) The period of
five years ending on the date of the
disposition or (2) The period of five
years ending on the coming to an
end of a limited interest where the
interest was limited to the disponer.
"Date of the disposition" is
defined in Section 2 CATA 1976 as,
broadly speaking, the date of death
in the case of an inheritance and
the date of the last act whereby the
disponer bound himself to provide
the property in the case of a gift.
Where there is a will or an intestacy
the date of the disposition will be
the date of death. Accordingly, the
relevant period will be the period of
five years ending on the date of
death. In the case of a gift by way
of voluntary transfer, the relevant
period will be the period of five
years ending on the date of the
deed of transfer.
The second leg of the definition
covers rights of residence, life
interests and interests for a period
certain, where the uncle grants the
interest to himself. It is best
illustrated by examples:-
Example One
Uncle (U), by deed of transfer, gifts
the farm to his nephew (N)
reserving a right of residence in one
room of the farmhouse for his life.
Under Section 28 CATA 1976 there
are t wo inheritances, one on the
date of the gift and one on U's
death. The date of the disposition
is the date of the deed of transfer.
Accordingly, if N has worked for U
for 5 years ending on the date of
the deed of transfer, he will be
treated as a favourite nephew for
the purposes of
both
dispositions.
Example Two
U, by deed of transfer, settles
property on himself for life with
remainder to N. The date of the
disposition is the date of the settle-
ment. If N has worked for U for 5
years ending on the date of death
of U, he will qualify as a favourite
nephew.
Example Three
U, by Will, settles property on his
wife (W) for life with remainder to
N. The date of disposition is the
date of death of U. If N has worked
for U five years ending on the date
of death of U, on the death of W he
will qualify as a favourite nephew.
A peculiar feature of this example
is that N could stop working on the
date of U's death and could still
qualify as a favourite nephew on
W's death some years later. This is
because the relevant period is the
period of 5 years ending on the date
of the
disposition,
which is the date
of U's death.
Example Four
U, by Will, settles property on W for
life with remainder to N. The date
of disposition is the date of death
of U. N only commences to work
after U's death and works for five
years ending on W's death. N will
not qualify for the relief. This is
because the relevant period is the
period of five years ending on the
date of the
disposition.
In this case,
N was working for five years ending
on the date of the
inheritance,
namely the date of W's death. The
interest is not limited to U but to W
and, accordingly, the second leg of
the test does not apply.
The fourth example above has
been considered by the Appeal
Commissioners on at least t wo
occasions. As originally drafted,
Paragraph 9 referred to a period of
five years ending on the
date of the
gift or inheritance.
In Example Four
above, the date of the inheritance
is the date of death of W.
Accordingly, in the
DR case,
the
taxpayer Appellant argued that he
qualified as a favourite nephew as
he worked for five years ending on
the date of the inheritance. This
argument was rejected by the
Appeal Commissioners on the
ground that the nephew was not
working in the business of the
disponer.
The disponer was the
uncle and the uncle had been dead
for some time. Because he had
been dead for some time, the
business could not be considered
to be his business.
The situation in Example Three
was considered by the Appeal
Commissioners in the case of
K.K.
-v- the Revenue Commissioners.
12
In that case, the taxpayer Appellant
worked for his uncle from an early
age. His uncle died in 1941 and left
the farm to his wife for life with
remainder to the
taxpayer
Appellant. The life tenant did not
die until some 40 years later. The
taxpayer Appellant had worked on
the farm for the entire period. The
Appeal Commissioner held that
paragraph 9, as originally drafted,
required that the nephew work for
a period of five years ending on the
date of the inheritance in the trade
of the disponer. In this case, the
date of the inheritance was the
date of death of the life tenant. As
the uncle disponer had been dead
for some 40 years at this time, it
could not be said that the taxpayer
Appellant was working in his
uncle's business. Under Paragraph
9, as newly enacted, the taxpayer
Appellant in this case would be
entitled to relief, as he would have
been working for five years ending
on the date of the disposition. The
date of the disposition would be the
date of death of the uncle.
It should be noted that the period
of five years must be continuous,
subject to reasonable exclusions for
sick leave and holidays. The
nephew cannot for example work
for four years, leave for two years
and come back and work for
another four years.
The new paragraph 9 also
removes the anomaly whereby, if a
gift was subject to a power of
revocation and did not vest in
possession in the nephew, the five
year period did not begin to run
until the power was terminated or
the uncle died.
"Assets of a trade business or
profession, or shares in a private
trading Company".
The property comprised in the gift
or inheritance for which relief is
sought must have been used in
connection with the trade, business
or profession. Thus, if a farmer left
his entire estate to a favourite
nephew and the estate included the
proceeds of life assurance policies
and personal investments, such as
shares in public companies, the
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