CATCHWORDS:
TRUSTS AND TRUSTEES – discretionary trust – powers of trustees – legitimacy of accounting approach – trustee entitled to treat unrealised gain on investments as “income” – permissible practice according to commercial accounting standards and principles – trustee validly determined to treat unrealised gain as “income” – acquiescence in annual financial accounts
WORDS AND PHRASES – construction of trust deed – “income”

LEGISLATION CITED:
Income Tax Assessment Act 1936 (Cth) Div 6 & s 97
Trustee Act, 1925 (NSW) s 63

CATEGORY:
Principal judgment

CASES CITED:
Commissioner of Taxation v Bamford [2010] HCA 10; 246 ALR 436
Commissioner of Taxation (Cth) v Sun Alliance Investments Pty Ltd (In Liq) [2005] HCA 70; 225 CLR 488
Commissioner of Taxes (SA) v Executor Trustee and Agency Co of South Australia Ltd (Carden’s Case) [1938] HCA 69; 63 CLR 108
QBE Insurance Group Ltd v Australian Securities Commission (1992) 38 FCR 270
Re Spanish Prospecting Co Ltd [1911] 1 Ch 92
Ronpibon Tin NL and Tongkah Compound NL v Federal Commissioner of Taxation [1949] HCA 15; 78 CLR 47
McBride v Hudson [1962] HCA 5; 107 CLR 604
Sun Insurance Office v Clark [1912] AC 443
Wood v Inglis [2008] NSWSC 1147; 68 ACSR 420
Wood v Inglis [2009] NSWSC 601

TEXTS CITED:
R W Parsons Income Taxation in Australia (1985, Law Book Co), ch 2

DECISION:

Grant leave to appeal from the orders of the Equity Division on 7 July 2009.
Direct a notice of appeal be filed within seven days substantially in the form in the White Books filed adding to that notice the parties joined to the application on 6 May 2010.
Dismiss the appeal.
Order that the appellants pay the respondents’ costs of the appeal, including the application for leave to appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

2009/298412
ALLSOP P
McCOLL JA
MACFARLAN JA
Tuesday 29 June 2010

CLARK v INGLIS

Judgment

ALLSOP P: This is an application for leave to appeal against orders made in the Equity Division (Brereton J) after the hearing of separate issues: Wood v Inglis [2009] NSWSC 601. The appeal, should leave be granted, was heard concurrently. The issues before the learned primary judge and this Court concerned the accounting for income in a discretionary trust set…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Clark v Inglis

Details

AGLC: Clark v Inglis [2010] NSWCA 144
Case: [2010] NSWCA 144
Decision Date: 29 June 2010

CaseChat Overview and Summary

Clark (the appellant) brought proceedings against Inglis (the respondent), the trustee of a discretionary trust, concerning the trustee's distribution of trust income. The dispute centred on whether the trustee had validly determined the trust's income for a particular financial year, specifically whether unrealised gains on investments could be treated as income for the purposes of distribution. The matter was heard in the Court of Appeal of New South Wales.

The primary legal issue before the court was the construction of the trust deed and, in particular, the meaning of the term "income" as it applied to the trustee's powers and obligations. The court was required to determine whether the trustee was entitled, under the terms of the trust deed and in accordance with applicable accounting principles, to treat unrealised gains on investments as income of the trust for the purpose of making distributions to beneficiaries.

The Court of Appeal held that the trustee was entitled to treat the unrealised gain on investments as income. The court reasoned that the trust deed did not define "income" in a way that excluded unrealised gains. Furthermore, the court found that it was permissible, according to commercial accounting standards and principles, for the trustee to treat such gains as income. The court noted that the annual financial accounts, which reflected this approach, had been acquiesced in by the beneficiaries, further supporting the legitimacy of the trustee's actions.

The appeal was dismissed.

Orders