Collie and Commissioner of Taxation (Taxation)
[2024] AATA 440
•12 March 2024
Collie and Commissioner of Taxation (Taxation) [2024] AATA 440 (12 March 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers:2010/2647, 2010/2648, 2010/2649, 2010/2650, 2010/2651, 2010/1791, 2010/1792, 2010/1793, 2010/1794, 2010/1795, 2010/1796
Re:Ian Collie
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President F D O'Loughlin KC
Date:12 March 2024
Place:Melbourne
The objection decisions under review are set aside and remitted to the Commissioner to be remade in accordance with these reasons.
...........................[SGD].............................................
Deputy President F D O'Loughlin KC
Catchwords
Income Tax (Cth) — Scheme to reduce tax — identification and calculation of tax benefit — Dominant purpose — Penalty.
Legislation
Income Tax Assessment Act 1936 (Cth) Part IVA, 177c(1) 177D
Income Tax Assessment Act 1997 (Cth), s 6-5.
Taxation (Unpaid Company Tax Assessment) Act 1982 (Cth)Cases
Re Briggs; ex parte Deputy Commissioner of Taxation (1986) 14 FCR 249
CPH Property Pty Ltd v F. C. of T. (1998) 88 FCR 21
Epov v F. C. of T. (2007) 65 ATR 399
Essenbourne Pty Ltd v F. C. of T. (2002) 51 ATR 629
F. C. of T. v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49
F. C. of T. v AXA Asia Pacific Holdings Ltd (2010) 189 FCR 204
F. C. of T. v Black [1990] FCA 267; (1990) 25 FCR 274, at [1990] FCA 267
F. C. of T. v Lenzo (2008) 167 FCR 255
F. C. of T. v Mochkin (2003) 127 FCR 185
F. C. of T. v Peabody (1994) 181 CLR 359
F. C. of T. v Trail Bros Steel & Plastics Pty Ltd (2010) 186 FCR 410
F. C. of T. v Spotless Services Limited (1996) 186 CLR 404
Futuris Corporation Ltd v F. C. of T. [2010] FCA 935
Futuris Corporation Limited v F. C. of T. 2010 ATC 20-206
Hart v F. C. of T. [2018] HCASL 273
Hart v F. C. of T. No 4[2018] FCAFC 61; (2018) 261 FCR 406
Hart v F. C. of T. (No 4)[2017] FCA 572
Macquarie Finance Ltd v F. C. of T. [2004] FCA 1170
Macquarie Finance Ltd v F. C. of T. (2005] 146 FCR 77
McCutcheon v F. C. of T. (2008) 168 FCR 149
Minerva Financial Group Pty Ltd v F. C. of T [2024] FCAFC 28
RCI Pty Limited v F. C. of T.[2011] FCAFC 104
Vincent vF. C. of T. (2002) 124 FCR 350
REASONS FOR DECISION
Deputy President F D O'Loughlin KC
BACKGROUND
These reasons concerning whether the applicant has demonstrated the assessments made for the 1997, 1998, 1999, 2000, and 2001 Years[1] invoking Part IVA of the 1936 Assessment Act[2] ought be set aside. The principal reason advanced by the applicant is that there was no relevant tax benefit within the meaning of s 170C of the 1936 Assessment Act as it stood before the 2012 amendments. The subsidiary argument advanced is that the dominant purposes of the schemes identified by the Commissioner were not to enable the applicant to have the tax benefit contended for.
[1]A 12 month period ending on 30 June in any calendar year.
[2]The Income Tax Assessment Act 1936 (Cth).
The disputed assessments involve facts and considerations that to a degree overlap with those reviewed in the Hart litigation[3] in so far as those considerations concerned the IET NVI Schemes. That is, the disputed assessments involve consideration of:
(a)how, and to whom, consulting trusts’ business profits were moved through a complex scheme without any tax burden being born ultimately to those involved in those businesses and/or their related or connected entities; and
(b)who should pay tax on the taxable income referrable to those profits and distributions.
[3]Hart v F. C. of T. [2018] HCASL 273, Hart v F. C. of T. No 4 [2018] FCAFC 61; (2018) 261 FCR 406 and Hart v F. C. of T. (No 4)[2017] FCA 572.
Annexure A to these reasons is a table of entities and Annexure B is a table of evidence and other materials before the Tribunal.
THE DISPUTE IN OVERVIEW
CHPT[4] connected consulting trusts’ profits were largely generated through giving advice and/or providing services in relation to structures and arrangements designed, potentially with additional objectives, to avoid tax liabilities. Those profits were processed through what has been described as a NVI Scheme and did not bear tax.
[4]The Cleary Hoare Practice Trust, the trustee of which conducted a regulated legal practice business principally in Queensland.
The applicant contends he had good reason not to own any assets or earn any income personally. The applicant took steps to bring about the outcome that he did not own any assets of material value or earn any income personally. Those steps produced, according to the applicant, the effect that the applicant did not derive or otherwise become responsible for any assessable or taxable income of any trust through the substantive provisions of s 25(1) of the 1936 Assessment Act[5] and 6-5 of the 1997 Assessment Act,[6] or s 97 of the 1936 Assessment Act. And with heavy reliance of what fell from the Peabody decision,[7] the applicant also contends that there was no relevant tax benefit for him within the meaning of s 170C of the 1936 Assessment Act as it was before the 2012 amendments. Further contentions are advanced concerning relevant purposes for Part IVA analysis and penalties.
[5]The Income Tax Assessment Act 1936 (Cth).
[6]The Income Tax Assessment Act 1997 (Cth).
[7]F. C. of T. v Peabody (1994) 181 CLR 359.
The Commissioner:
(a)has assessed the applicant personally in respect of a proportion of the taxable income of the IETs[8] for the 1997, 1998, 1999, 2000, and 2001 Years; and
(b)now defends the assessments he has issued on the basis that Part IVA of the 1936 Assessment Act applies to include the respective shares of the IET taxable income in the applicant’s assessable income for those Years;[9] and
(c)imposed penalty which he now says should be set at the 50% rate and remission is not appropriate.
[8]Income Earning Trusts that participated in the various NVI schemes, namely the Annesley Trust, the Balmoral Income Trust, the Barcelona Trust, the CHC Discretionary Trust, the CHC Services Trust, the Falcon Income Trust, the Hawk Income Trust, the LM Income Trust, the Packard Income Trust, the Parramatta Trust, the Randwick Trust, and the Wilston Income Trust, with whom the applicant and the CHPT were connected.
[9]In the sense of contending that the applicant needs to establish that these provisions do not apply.
Table 1 sets out the disputed amounts assessed and carried forward loss re-calculations.
Table 1
Year
Taxable income returned
Disputed tax benefit/adjustment (increase) to assessable income
1997
$0
$414,462
1998
$2,000
$1,079,190
1999
$0
$1,273,216
2000
$10,000
$2,920,703
2001
$20,000
$1,443,525
2002
$30,000
$415,000
TOTAL
-
$7,546,096
The income that the Commissioner has assessed to the applicant was a proportion of the taxable income of trusts which derived income from consulting activities, mostly consulting to independent clients advancing tax minimisation and avoidance structures and transactions.
The basis upon which the applicant says there was no relevant tax benefit is that it could not reasonably be predicated that in the absence of the scheme identified by the Commissioner that he would have received or been liable to taxation in respect of the amounts of assessable income comprising the tax benefit in heavy reliance of what fell from the Peabody[10] decision that it could not be predicated which if any taxpayer would have been so liable to be assessed.
[10]F. C. of T. v Peabody (1994) 181 CLR 359.
The present disputes have a long history. Table 2 below sets out some of the relevant events in that history.
Table 2
Date
Relevant Document/Event
15 November 2001
The Commissioner advised that he intended to conduct an audit. It can be presumed that ATO activities had commenced earlier than this. The letter contained 10 pages of detailed questions concerning a variety of audits. [11]
17 December 2001
The Commissioner issued a Notice of Assessment for 2001 Year[12]
14 January 2002
The Commissioner issued a Notice of Assessment for 2000 Year[13]
24 August 2005
The Commissioner’ issued his Position Paper[14]
16 February 2006
The Commissioner’s issued s 177F of Part IVA Determinations for 1997-2001 Years.[15]
17 February 2006
The Commissioner issued Notices of Assessment for 1997-1999 Years.[16]
17 February 2006
The Commissioner issued Notices of Amended Assessment for 2000-2001 Years.[17]
20 March 2006
The applicant lodged Objections to the Notices of Assessment for the 1997-2001 Years[18]
1 March 2010
The Commissioner issued a Notice of Decision on Objections[19]
7 May 2010
The applicant commenced the present proceedings.[20] The present applications were held in the Tribunal pending the outcome in the Hart litigation. Following the High Court’s refusal of special leave to appeal in that litigation, the present matters were reactivated in the Tribunal.
[11]T34, pp 580-590.
[12]T8, pp 316.
[13]T12, pp 320.
[14]T88, p 1010.
[15]T14-T18, pp 366-370.
[16]T20-T23, pp 417-420.
[17]T24-T25, pp 421-422.
[18]T26-T30, pp 423-558.
[19]T31, pp 559,568.
[20]T1, pp 1-2.
THE ISSUES TO BE RESOLVED AND THEIR RESOLUTION
The issues to be resolved are whether:
(a)the applicant had assessable amounts in respect of the IET taxable income for the 1997 and later Years pursuant to Part IVA; and
(b)penalty set at the 50% rate is appropriate; and
(c)it is appropriate to remit any penalty.
For the reasons that follow:
(a)the applicant also had assessable amounts in respect of the IET taxable income for the 1997 and later Years pursuant to Part IVA, but those amounts were less than the commissioner determined to be the relevant tax benefits; and
(b)penalty set at the 50% rate is appropriate applied to the corrected shortfalls; and
(c)it is not appropriate to remit any penalty.
EXPERT EVIDENCE LED
The applicant led evidence from another experienced lawyer who was asked to opine on two questions:
(a) Question 1
In the context of s. 177C(1)(a) of the Income Tax Assessment Act 1936 (Cth), would it be reasonable to expect that, if the scheme had not been entered into, the relevant income would have been included in the assessable income of the applicant?
(b) Question 2
Assuming that satisfying the applicant's onus of proof in a Part IVA case means not only proving that, absent the scheme, it would not be reasonable to expect that he would have derived the income, who, could it be reasonably expected, would have derived it?
The evidence given addressed the questions in a manner supportive of the applicant’s case. The Tribunal is not assisted by this evidence in deciding the matters in dispute. No weight is given to it.
FACTS
The applicant’s personal circumstances and their impact on his taxation position.
The principal reason advanced by the applicant in support of his contentions that he ought not be assessed as he has been are that for asset protection reasons he did not derive any of the disputed income, that he was not entitled to any trust income, and that Part IVA does not apply to him. He says that his personal circumstances were such that arrangements were put in place and steps were taken to ensure he did not personally derive any income or own any assets of material value from well before the NVI Schemes were entered. Those steps and arrangements included the NVI Scheme referred to in more detail below that had at its core a system of arranging for distributions by trust entities that did not have any pattern of distribution so that it could not be predicated who, apart from the actual recipient or beneficiary of a distribution, would have been such a recipient or beneficiary. As noted above, with heavy reliance of what fell from the Peabody decision, the applicant contends that this means there was no relevant tax benefit within the meaning of s 170C of the 1936 Assessment Act as it stood before the 2012 amendments. The subsidiary Part IVA rebuttal argument advanced is that the dominant purposes of the schemes identified by the Commissioner were not to enable the applicant to have the tax benefit contended for.
At the core of the applicant’s case is the proposition that in his circumstances it could not reasonably be expected that any income would be appointed to him or that he would own any assets of value beneficially. The applicant outlined his personal circumstances and a history of dealings and events upon which, according to the applicant, it could reasonably be concluded that, if choices were available to him, income would not be appointed to him, and he would not require assets of material value. The applicant tells his story and contends (as the case may be) in the following terms.
(a)The applicant commenced legal studies in February 1967.[21]
[21]Collie Affidavit [11].
(b)The applicant completed Articles of Clerkship with a Melbourne law firm in February 1968 to December 1971.[22]
[22]Collie Affidavit, [12].
(c)The applicant was admitted as a Barrister and Solicitor of the Supreme Court of Victoria on 6 April 1972.[23]
[23]Collie Affidavit, [15].
(d)The applicant was employed as a solicitor in Melbourne between April 1972 and October 1977.[24]
[24]Collie Affidavit, [16].
(e)The applicant commenced a Melbourne law practice on his own account in October 1977.[25]
[25]Collie Affidavit, [21].
(f)Together with a chartered accountant the applicant established Corporate Structures Pty Ltd.[26] Corporate Structures was involved in implementing share trading partnerships, company share transactions (including ‘dividend stripping’) and loss company transactions relying upon, amongst other things, a number of judgments of the High Court.[27]
[26]Collie Affidavit, [22].
[27]Collie Affidavit, [27].
(g)Virtually all of the fee-paying clients of the applicant’s legal practice were companies of which he was a director, and that remained the case until 2002.[28]
[28]Collie Affidavit, [30].
(h)Notwithstanding that the business of Corporate Structures was not being conducted by the applicant personally, in or around April 1988 the ATO issued amended income tax assessments against him assessing him to primary tax of $7,236,211.06, plus penalties of $9,545,170.00, covering the 1978 to 1982 Years. The applicant subsequently lodged objections on grounds including that the income assessed had not been derived by him.[29]
[29]Collie Affidavit, [44].
(i)Subsequently, and after a number of negotiations over a period of time, a settlement was agreed to by the applicant and the Commissioner of Taxation evidenced by Deed of Settlement, dated 10 June 1988. The included that the applicant pay $250,000.00 by 1 March 1990, withdraw his tax objections and Corporate Structures would forego certain prior year losses. In return, the ATO accepted that carry-forward losses (totalling approximately $1,400,598.00 as at 30 June 1987 $1,527,652.56, as at 30 June 1988 were available to companies and trusts associated with the applicant.[30] The ATO also agreed to amend assessments served on the applicant’s father under the Taxation (Unpaid Company Tax Assessment) Act 1982 (Cth) which, by April 1998, had resulted in a claimed tax liability of more than $440,000.00. The applicant’s willingness to sign the deed was conditional on that agreement.[31] The assets to be relied upon to secure the fund for the applicant to pay the settlement amount were all owned by associated entities and those entities, along with other associated entities (12 in total), were required by the ATO to be parties to the Deed of Settlement in a manner akin to them being guarantors.[32]
[30]Collie Affidavit, [45].
[31]Collie Affidavit, [46].
[32]Collie Affidavit, [47].
(j)In late 1990, and after the applicant had withdrawn his objections, the ATO commenced proceedings in the Supreme Court of Victoria claiming the full amount of tax and penalties against the thirteen parties to the deed. Following a four-day hearing, on 9 November 1995, judgment for the ATO was obtained in the sum of $23,214,371.52 against the applicant, but the proceedings against the remaining twelve defendants were struck out.[33]
[33]Collie Affidavit, [50].
(k)In April 1996, the applicant commenced defamation proceedings in the Supreme Court of Queensland against the AGS and Messrs Frost, Lenczner and Pollard. Those proceedings were subsequently transferred to the Supreme Court of Victoria.[34]
[34]Collie Affidavit, [53].
(l)The ATO proceedings and the defamation proceedings were the subject of a settlement on terms including no further action by either side and payment of own costs. In addition, the ATO confirmed by separate letter dated 9 September 1997 that the applicant and associated companies were ‘considered to have fully satisfied their obligations under the Income Tax Assessment Act 1936 in respect of the relevant years.’ The Terms of Settlement and separate letter were executed 8 September 1997 and 9 September 1997 respectively. The defamation proceedings were finally resolved by deed executed in 2000.[35]
[35]Collie Affidavit, [58].
(m)The Australian Securities Commission also commenced action against the applicant and Mrs Collie in 1992 under the then Corporations legislation.[36]
(n)In 1996, the ANZ bank issued proceedings against the applicant and his wife claiming an amount in excess of $6,000,000 pursuant to personal guarantees.[37]
(o)The litigation that the applicant was involved in meant that for most of the 1990s and into 2002, the applicant was potentially exposed to a significant risk of adverse outcomes both as to results and costs from that litigation for all of that time.[38]
(p)The litigation influenced the applicant’s thinking when the various arrangements that are the subject of the present proceedings were planned and implemented. More particularly:[39]
(i)well prior to his moving to Queensland, it was axiomatic to the applicant that any involvement on the applicant’s part in any business venture be undertaken via trusts with corporate trustees consistent with his approach to such matters for over 15 years. The various legal proceedings against him emphasised to his mind, the sense in continuing with that approach;
(ii)the establishment of Comlaw Consultants and the Canowindra Trust in December 1992 pre-dated by more than three years the development and first utilisation (for third party trusts only) of the NVI Scheme in the 1996 Year;
(iii)the distribution of trust income to the Canowindra Trust and the distribution onwards of that income to trusts with losses commenced in FY 1994 again well before the 1997 Year being the first year the subject of these proceedings;
(iv)at no time material to the years the subject of these proceedings did the applicant personally derive (or was otherwise entitled to receive) any income derived by the IETs; and
(v)the utilisation by the Income Earning Trusts of the NVI Scheme in the 1997 – 2001 Years did nothing to change the fact that the applicant personally would not have derived any of the relevant income had NVI not be relied upon.
[36]Collie Affidavit, [65].
[37]Collie Affidavit, [63].
[38]Collie Affidavit, [70].
[39]Collie Affidavit, [71].
The Tribunal accepts the events contended for happened, and that the applicant had the perspectives as outlined, and that the applicant’s personal asset holding and income earning arrangements are one rational response to those circumstances.
The applicant’s move to Queensland
The applicant met hart in 1976. Through that connection the applicant moved to Queensland with his family in December 1992. A Brisbane family home was purchased (by Mrs Collie alone) in November 1993.[40]
[40]Collie Affidavit [31] and [32].
The applicant was admitted to practice as a solicitor of the Supreme Court of Queensland on 24 February 1995.[41] Notwithstanding his admission, and descriptions of his role suggesting that he was a consultant of Cleary Hoare, the applicant’s involvement with the CHPT related to his role as a director of Comlaw Consultants, CHC and associated entities and he neither generated income for Cleary Hoare, nor derived any fees for any services provided to Cleary Hoare or entities associated with it other than the Comlaw group of companies and trusts.[42]
[41]Collie Affidavit [37]
[42]Collie Affidavit [97].
On or about 1 December 2002, the applicant became a principal of the CHPT. Before that time the applicant had not been a salaried solicitor of CHPT, or otherwise remunerated by CHPT.[43]
[43]Collie Affidavit [97].
Entities associated with the applicant.
In the years before and during the period the applicant was involved with CHPT affiliated entities, he had involvements in numerous property and agricultural enterprises typically through trusts.[44] The Woodbury Farm Trust, the Tarragunda Trading Trust, the Tarragunda Property Trust, the CGH Trust, and the Aberford Trust were among them. They were discretionary trusts allowing appointment of income and capital among beneficiaries linked to either the applicant or his family members.
[44]Collie Affidavit [35] and [36].
Some of those ventures had accumulated losses available to be carried forward. Others had produced capital profits which were, at least indirectly, available to the applicant and his family for investment and other uses.
The Tarragunda Trading Trust had carried forward tax losses. Table 3[45] shows the details.
[45]Collie Affidavit [80] and [81].
Table 3
Year
Profit/(Loss) for Year
(Loss brought forward)
(Loss carried forward)
1994
($101,894.00)
($101,894.00)
1995
($118,245.00)
($101,984.00)
($220,141.00)
1996
($122,418.00)
($220,141.00)
($342,559.00)
1997
($11,328.00)
($342,559.00)
($353,887.00)
1998
$120,422.00
($353,887.00)
($233,465.00)
1999
($56,386)
($233,465.00)
($289,851.00)
2000
$113,107.00
($176,744)
($307,355.00)
2001
($130,591.00)
($176,744)
($307,355.00)
Cleary Hoare and its connected consulting trusts.
Cleary Hoare as a Firm, then a partnership of individuals, was established in or around 1980.
In late 1992 and early 1993 the then partners of Cleary Hoare, and Hart in their trustee capacities, established Comlaw Consultants and the Comlaw Trust. The applicant became a director of Comlaw Consultants in October 1993.[46]
Between approximately 1993 and 1996, the Comlaw Trust carried on business that included, among other activities, marketing and facilitating tax planning arrangements and ‘products’.[47] The tax planning arrangements and products included facilitating the acquisition of entities with substantial tax losses in return for a fee. The fees generated by this business produced profits which were distributed to further trusts and then to trusts with carried forward losses.[48]
[47]T-36 at 597. Collie Affidavit [94].
[48]Collie Affidavit [96].
On or about 30 June 1996, the Comlaw Trust ceased its business operations.
On or about 19 September 1996, the principals of Cleary Hoare, and the applicant and Hart established CHC and the CHC Discretionary Trust. As trustee of the CHC Discretionary Trust CHS carried on a similar business to Comlaw Consultants.
Development of the NVI Scheme
In 1995, the Commonwealth government announced its intention to make changes to the tax legislation governing the treatment of prior year tax losses. The applicant perceived the effect of the changes (which took effect in 1998) to render some of the arrangements and products previously advanced to clients commercially unviable but enhanced the NVI's commercial viability by leaving open opportunities to utilise unrelated company tax losses.[49]
[49]Collie Affidavit [98].
In 1995, Hart began developing the NVI Scheme.
In February 1996, Hart and the applicant received a written advice from senior counsel regarding, relevantly, the application of Part IVA of the 1936 Assessment Act. Annexure C is a copy of a summary of that advice.
The 1996 Year tax planning arrangements included the NVI Scheme for the first time, by third party clients.[50]
[50]Collie Affidavit [95].
Establishment of the Income Earning Trusts
To facilitate execution of the NVI scheme, between approximately 1 May 1994 and 23 March 2000, the CHPT principals and the applicant and Hart established or caused the IETs to be established:
(a)the Annesley Trust, settled by deed dated 1 May 1994;
(b)the CHC Discretionary Trust, settled by deed dated 20 September 1996;
(c)the LM Income Trust, settled by Hart by deed dated 9 May 1997;
(d)the Parramatta Trust, settled by deed dated 2 February 1998;
(e)the Barcelona Trust, settled by deed dated 4 May 1999;
(f)the Hawk Income Trust, settled by deed dated 8 June 1999;
(g)the Wilston Income Trust, settled by deed dated 23 March 2000;
(h)the Balmoral Income Trust, settled by deed of trust dated 15 June 2000;
(i)The Falcon Income Trust, settled by deed dated 8 June 1999;
(j)The Randwick Income Trust, settled by deed dated 23 March 2000;
(k)The CHC Services Trust, settled by deed dated 30 July 1999;
(l)The Packard Income Trust, settled by deed dated 15 June 2000;
The IETs were controlled by their trustees and in turn by their trustees’ directors. None was controlled by a single person, and none was controlled by the applicant.[51] They all could be controlled by the group made up of the CHPT principals and the applicant exercising the various powers and capacities they had as directors of various entities. There can be little doubt that the IETs were capable of being managed and controlled by the group comprising the CHPT principals and the applicant.
[51]Collie Affidavit [110(a)].
IET Income generating activities.
During the 1997 to 2001 Years:
(a)the CHC Discretionary Trust in conjunction with the other IETs carried on the business of marketing and facilitating tax planning arrangements and ‘products’, that included:[52]
[52]Collie Affidavit [106].
(i)Facilitating access to losses of entities who had incurred or sustained them but had not used them;
(ii)the NVI Scheme;
(iii)Employee Welfare Fund arrangements;
(iv)Capital Gains Tax products;
(v)Non-complying Super Fund arrangements; and
(vi)Distributable Surplus Arrangements; and
(b)in his role as a director of CHC or its related or connected entities the applicant participated in the conduct of these business activities listed above;[53] and
(c)the income generated by these activities was returned by one or more of the IETs and processed through the IET NVI Schemes.
[53]Collie Affidavit [109].
Table 6 below details both the income returned by the IETs and what the Commissioner says is revealed by his examination of relevant records as the income received.
In each of the 1997 to 2001 Years the income returned by each of the Income Earning Trusts was channelled through the NVI scheme arrangements described in the Commissioner’s identification of the various schemes. A portion of the amounts originating in the 1997 to 2001 NVI Schemes was advanced by the relevant NVI related capital trusts or finance trusts as loans to the Aberford Trust and used by the trustee of that trust to repay amounts owing to the CGH Trust.[54]
Shelter entities that participated in the NVI schemes
[54]Collie Affidavit [111(c)].
RTH
RTH was registered on 6 June 1972 under the name “Kingsgrove Liquorland Pty Ltd”. The directors of RTH were:
(a)Richard Arnold (since 27 February 1995);
(b)Carol Woods (since 6 June 1972); and
(c)Stephen Woods (since 6 June 1972).
In each of the 1997 to 2001 Years, RTH proceeded on the basis that it had tax losses sufficient to offset the amounts of any gifts or distributions made to RTH as part of the NVI schemes that were implemented in those years.
Comvat
Comvat was registered on 23 June 1995. The directors of Comvat are:
(a)Richard Arnold (since 31 January 1996); and
(b)Robin Wise (since 11 April 1996).
In each of the 1997 to 2001 Years, Comvat proceeded on the basis that it had tax losses sufficient to offset the amounts of any gifts or distributions made to Comvat as part of the NVI schemes that were implemented in those years.
APC Fund
APC Fund was registered on 29 June 1999. The directors of APC Fund were:
(a)the applicant (from 29 June 1999 to 4 February 2010);
(b)Jocelyn Keogh (from 29 June 1999 to 29 March 2007);
(c)Barry Maffescioni (from 29 June 1999 to 3 December 2004);
(d)Peter Matheson (from 1 July 2005 to 4 February 2010);
(e)Trevor Turner (from 3 December 2004 to 4 February 2010);
(f)Peter Martin (from 1 July 2005 to 12 September 2008); and
(g)Ian Gulliver (from 1 July 2005 to 16 November 2006).
The APC Fund proceeded on the basis that it was a tax-exempt entity.
Foresight
Foresight was established as a tax-exempt entity on 29 June 1999.
Foresight was a beneficiary of the Mosman Fixed Trust.
Five Dock Investments was the trustee for Foresight.
In the 2001 Year, Foresight proceeded on the basis that it was a tax-exempt entity.
Assets acquired by the applicant’s family and entities connected to his family
The Commissioner identifies material asset acquisitions by entities with connections to the applicant. Annexure D sets out the details.
ISSUES
The issues to be determined are:
(h)Whether the amount of $414,462, or some lesser amount, should be included in the applicant’s assessable income for the 1997 Year pursuant to Part IVA of the ITAA 1936 (1997 Pt IVA Issue).
(i)Whether the amount of $1,079,190, or some lesser amount, should be included in the applicant’s assessable income for the 1998 Year pursuant to Part IVA of the ITAA 1936 (1998 Pt IVA Issue).
(j)Whether the amount of $1,273,216, or some lesser amount, should be included in the applicant’s assessable income for the 1999 Year pursuant to Part IVA of the ITAA 1936 (1999 Pt IVA Issue).
(k)Whether the amount of $2,920,703, or some lesser amount, should be included in the applicant’s assessable income for the 2000 Year pursuant to Part IVA of the ITAA 1936 (2000 Pt IVA Issue).
(l)Whether the amount of $1,443,525, or some lesser amount, should be included in the applicant’s assessable income for the 2001 Year pursuant to Part IVA of the ITAA 1936 (2001 Pt IVA Issue).
(m)Whether each of the amounts referred to in paragraphs 203 to 207 above should be included in the applicant’s assessable income for the relevant Years pursuant to s 6-5 of the ITAA 1997 (Ordinary Income Issue).
(n)Whether penalties were correctly imposed at 50% of the tax shortfall amounts under the former s 226 of the ITAA 1936 for the 1997 to 2000 Years and under s 284- 145 of Schedule 1 to the TAA 1953 for the 2001 Year (Penalties Issue).
Schemes contended for by the Commissioner.
The Commissioner contends that the applicant entered into or carried out schemes in each year involving the steps set out below. The terms in which the Commissioner has articulated the schemes are taken from his SFIC[55] which substantially replicate his objection decision. Because of the complexity of the steps contended to be the scheme, the schemes are also set out into a diagrammatical form.
[55]With apparent typographical errors corrected.
The Commissioner identifies the 1997 Scheme in the following terms.[56]
[56]T2 pp 227-233 and Commissioner’s Amended SFIC dated 4 September 2020 [210]-[217].
210.Based on the documents and information that have been provided to the Commissioner by the Applicant and his advisors, the Commissioner contends that the matters, steps and transactions set out in paragraphs 211 to 215 below comprised a “scheme” within the meaning of s 177A of the ITAA 1936 in the 1997 income year (1997 IET NVI Scheme).
211.On 9 May 1997, the LM Income Trust, the Zebra Fixed Trust and Zebra Unit Trust were settled.
212.On 30 May 1997, the Annesley No. 3 Trust and Annesley Corporate Trust were settled.
213.On 6 June 1997, the following events occurred:
(a)By written resolution, the directors of Haven Sea as trustee for the Annesley Trust resolved to distribute $305,000 to Haven Sea as trustee for the Annesley No. 3 Trust;
(b)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $170,000 to Haven Sea as trustee for the Annesley No. 3 Trust;
(c)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $145,000 to Haven Sea as trustee for the Annesley No. 3 Trust;
(d)By written resolution, the directors of Haven Sea as trustee for the Annesley No. 3 Trust resolved to distribute $1,200,000 to Lake Mylor as trustee for the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note for $1,191,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Lake Mylor;
(e)Haven Sea as trustee for the Annesley No. 3 Trust issued a bearer promissory note for $1,191,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the Annesley Corporate Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(f)Lake Mylor as trustee for the Annesley Corporate Trust issued an “Authority to Pay” which purported to authorise and direct Haven Sea as trustee for the Annesley No. 3 Trust to pay $9,000 to the “Cleary Hoare Trust Account”;
(g)By letter dated 6 June 1997, RTH advised Lake Mylor that RTH had decided to make a gift of $1,191,000 to Lake Mylor in its capacity as trustee for the LM Income Trust;
(h)The letter referred to in (g) above stated that RTH would provide a bearer promissory note for $1,191,000 in satisfaction of its gift to Lake Mylor;
(i)RTH issued a bearer promissory note for $1,191,000. Receipt of the bearer promissory note was acknowledged by Lake Mylor as trustee for the LM Income Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(j)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to accept the gift of $1,191,000 from RTH by way of delivery of a bearer promissory note drawn by RTH. The directors further resolved that Lake Mylor as trustee for the LM Income Trust would subscribe for 11,991 “B” units at $100 each in the Zebra Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(k)By a document titled “Application for Units”, Lake Mylor as trustee for the LM Income Trust applied for 11,991 units in the Zebra Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(l)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust noted that an application for 11,991 units at $100 each had been received from Lake Mylor as trustee for the LM Income Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 11,991 units to Lake Mylor as trustee for the LM Income Trust;
(m)Lake Mylor as trustee for the Zebra Unit Trust issued to Lake Mylor as trustee for the LM Income Trust a “unit certificate” for 11,991 “B” units in the Zebra Unit Trust;
(n)By written resolution, the directors of Lake Mylor as trustee for the Annesley Corporate Trust noted that (1) Lake Mylor had received, in its capacity as trustee for the LM Income Trust, a gift of $1,191,000 from RTH; (2) RTH was the fixed beneficiary of the Zebra Fixed Trust, with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust; and (3) the Annesley Corporate Trust had received an interim income distribution of $1,200,000 from the Annesley No. 3 Trust, of which $9,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $1,200,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee for the Zebra Fixed Trust, or as otherwise directed by the trustee for the Zebra Fixed Trust;
(o)By written resolution, the directors of Lake Mylor as trustee for the Zebra Fixed Trust noted that the trust had received an interim income distribution of $1,200,000 from the Annesley Corporate Trust, of which $1,191,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $1,191,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(p)RTH was recorded as a fixed beneficiary of the Zebra Fixed Trust;
(q)An undated document from RTH addressed to Lake Mylor as trustee for the Annesley Corporate Trust and to Lake Mylor as trustee for the Zebra Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust to Lake Mylor as trustee for the Zebra Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $1,191,000 that was drawn by RTH and delivered to Lake Mylor as trustee for the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust in respect of the application for “B” units in the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust; and
(ii)in respect of any gift that Lake Mylor as trustee for the Zebra Unit Trust resolved to make to Lake Mylor as trustee for the Zebra Capital Trust;
(r)The sum of $9,000 was paid to the “BDO Nelson Parkhill Trust Account”.
214.On 30 June 1997, the following events occurred:
(a)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $550,375 to Haven Sea as trustee for the Annesley No. 3 Trust;
(b)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $89,625 to Haven Sea as trustee for the Annesley No. 3 Trust;
(c)By written resolution, the directors of Haven Sea as trustee for the Annesley No. 3 Trust resolved to distribute $700,000 to Lake Mylor as trustee for the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note for $700,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Lake Mylor;
(d)Haven Sea as trustee for the Annesley No. 3 Trust issued a bearer promissory note for $700,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the Annesley Corporate Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(e)By letter dated 30 June 1997, RTH advised Lake Mylor it advised that RTH had decided to make a gift of $700,000 to Lake Mylor in its capacity as trustee for the LM Income Trust;
(f)The letter referred to in (e) above stated that RTH would provide a bearer promissory note for $700,000 in satisfaction of its gift to Lake Mylor;
(g)RTH issued a bearer promissory note for $700,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the LM Income Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(h)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to accept the gift of $700,000 from RTH by way of delivery of a bearer promissory note drawn by RTH. The directors further resolved that Lake Mylor as trustee for the LM Income Trust would subscribe for 7,000 “B” units at $100 each in the Zebra Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(i)By a document titled “Application for Units”, Lake Mylor as trustee for the LM Income Trust applied for 7,000 units in the Zebra Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(j)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust noted that an application for 7,000 units at $100 each had been received from Lake Mylor as trustee for the LM Income Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 7,000 units to Lake Mylor as trustee for the LM Income Trust;
(k)Lake Mylor as trustee for the Zebra Unit Trust issued to Lake Mylor as trustee for the LM Income Trust a “unit certificate” for 7,000 “B” units in the Zebra Unit Trust;
(l)By written resolution, the directors of Lake Mylor as trustee for the Annesley Corporate Trust noted that (1) Lake Mylor had received, in its capacity as trustee for the LM Income Trust, a gift of $700,000 from RTH; (2) RTH was the fixed beneficiary of the Zebra Fixed Trust, with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust; and (3) the Annesley Corporate Trust had received a final income distribution of $700,000 from the Annesley No. 3 Trust by way of delivery of a bearer promissory note. The directors further resolved to make a final income distribution of $700,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee for the Zebra Fixed Trust, or as otherwise directed by the trustee for the Zebra Fixed Trust;
(m)By written resolution, the directors of Lake Mylor as trustee for the Zebra Fixed Trust noted that the trust had received a final income distribution of $700,000 from the Annesley Corporate Trust by way of delivery of a bearer promissory note. The directors further resolved to make a final distribution of income in the amount of $700,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(n)RTH was recorded as a fixed beneficiary of the Zebra Fixed Trust;
(o)An undated document from RTH addressed to Lake Mylor as trustee for the Annesley Corporate Trust and to Lake Mylor as trustee for the Zebra Fixed trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust to Lake Mylor as trustee for the Zebra Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $700,000 that was drawn by RTH and delivered to Lake Mylor as trustee for the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust in respect of the application for “B” units in the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust; and
(ii)in respect of any gift that Lake Mylor as trustee for the Zebra Unit Trust resolved to make to Lake Mylor as trustee for the Zebra Capital Trust;
(p)The Zebra Capital Trust was settled on 1 July 1997.
215.On 2 July 1997, the following events occurred:
(a)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust resolved (1) to make a gift of $1,191,000 out of capital of the trust to Lake Mylor as trustee for the Zebra Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $1,191,000 issued by Haven Sea as trustee for the Annesley No. 3 Trust;
(b)By written resolution, the directors of Lake Mylor as trustee for the Zebra Capital Trust resolved (1) to accept the gift of capital of $1,191,000 from Lake Mylor as trustee for the Zebra Unit Trust; and (2) to accept delivery of the bearer promissory note from Haven Sea as trustee for the Annesley No. 3 Trust in satisfaction of the gift;
(c)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust resolved (1) to make a gift of $700,000 to Lake Mylor as trustee for the Zebra Capital Trust; and (2) that the gift be satisfied by delivery of a promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust;
(d)By written resolution, the directors of Lake Mylor as trustee for the Zebra Capital Trust resolved (1) to accept the gift of capital of $700,000 from Lake Mylor as trustee for the Zebra Unit Trust; and (2) to accept delivery of the promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust in satisfaction of the gift.
216.In the 1997 income year, payments were made from bank accounts held or operated by CHC and/or Comlaw Consultants to or for the benefit of the Applicant and/or to entities controlled by or associated with the Applicant, which included at least Balaclava Park, Tarragunda Pastoral and/or Woodbury Park.
217.The payments referred to in the preceding paragraph were recorded in the statements and records pertaining to inter alia, the Cleary Hoare Practice Trust.
[46]Collie Affidavit [93]
The Commissioner’s diagrammatic form of the scheme he identifies is shown below.
At [213(f)] of his description of the scheme $9,000 is paid to the Cleary Hoare Solicitors Trust account. That is shown in the diagram. At [213(r)] of his description of the scheme $9,000 is paid to the BDO Nelson Parkhill Trust Account. This latter $9,000 is not shown in the diagram. It can be assumed that this amount found its way to those behind the loss company.
The Commissioner identifies the 1998 Scheme in the following terms.[57]
[57]T2 pp 236-243 and Commissioner’s Amended SFIC dated 4 September 2020 [234]-[244].
234.Based on the documents and information that have been provided to the Commissioner by the Applicant and his advisors, the Commissioner contends that the matters, steps and transactions set out in paragraphs 235 to 242 below comprised a “scheme” within the meaning of s 177A of the ITAA 1936 in the 1998 income year (1998 IET NVI Scheme).
235.On 9 May 1997, the LM Income Trust, the Zebra Fixed Trust and Zebra Unit Trust were settled.
236.On 30 May 1997, the Annesley No. 3 Trust and Annesley Corporate Trust were settled.
237.On 1 July 1997, the Zebra Capital Trust was settled.
238.On 2 February 1998, the Parramatta Trust was settled.
239.On 9 June 1998, the following events occurred:
(a)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $375,260 to Haven Sea as trustee for the Annesley No. 3 Trust;
(b)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $257,470 to Haven Sea as trustee for the Annesley No. 3 Trust;
(c)By written resolution, the directors of Iapetus as trustee for the Parramatta Trust resolved to distribute $51,500 to Haven Sea as trustee for the Annesley No. 3 Trust;
(d)By written resolution, the directors of Haven Sea as trustee for the Annesley No. 3 Trust resolved to distribute $677,000 to Lake Mylor as trustee for the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note for $675,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Lake Mylor;
(e)Haven Sea as trustee for the Annesley No. 3 Trust issued a bearer promissory note for $675,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the Annesley Corporate Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(f)Lake Mylor as trustee for the Annesley Corporate Trust issued an “Authority to Pay” which purported to authorise and direct Haven Sea as trustee for the Annesley No. 3 Trust to pay $2,000 to the “Cleary Hoare Trust Account”;
(g)By letter dated 9 June 1998, RTH advised Lake Mylor that RTH had decided to make a gift of $675,000 to Lake Mylor in its capacity as trustee for the LM Income Trust;
(h)The letter referred to in (g) above stated that RTH would provide a bearer promissory note for $675,000 in satisfaction of its gift to Lake Mylor;
(i)RTH issued a bearer promissory note for $675,000. Receipt of the bearer promissory note was acknowledged by Lake Mylor as trustee for the LM Income Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(j)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to accept the gift of $675,000 from RTH by way of delivery of a bearer promissory note drawn by RTH. The directors further resolved that Lake Mylor as trustee for the LM Income Trust would subscribe for 6,750 “B” units at $100 each in the Zebra Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(k)By a document titled “Application for Units”, Lake Mylor as trustee for the LM Income Trust applied for 6,750 units in the Zebra Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(l)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust noted that an application for 6,750 units at $100 each had been received from Lake Mylor as trustee for the LM Income Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 6,750 units to Lake Mylor as trustee for the LM Income Trust;
(m)Lake Mylor as trustee for the Zebra Unit Trust issued to Lake Mylor as trustee for the LM Income Trust a “unit certificate” for 6,750 “B” units in the Zebra Unit Trust;
(n)By written resolution, the directors of Lake Mylor as trustee for the Annesley Corporate Trust noted that (1) Lake Mylor had received, in its capacity as trustee for the LM Income Trust, a gift of $675,000 from RTH; (2) RTH was the fixed beneficiary of the Zebra Fixed Trust, with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust; and (3) the Annesley Corporate Trust had received an interim income distribution of $677,000 from the Annesley No. 3 Trust, of which $2,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $677,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee for the Zebra Fixed Trust, or as otherwise directed by the trustee for the Zebra Fixed Trust;
(o)By written resolution, the directors of Lake Mylor as trustee for the Zebra Fixed Trust noted that the trust had received an interim income distribution of $677,000 from the Annesley Corporate Trust, of which $675,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $677,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(p)RTH was recorded as a fixed beneficiary of the Zebra Fixed Trust;
(q)An undated document from RTH addressed to Lake Mylor as trustee for the Annesley Corporate Trust and to Lake Mylor as trustee for the Zebra Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust to Lake Mylor as trustee for the Zebra Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $677,000 that was drawn by RTH and delivered to Lake Mylor as trustee for the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust in respect of the application for “B” units in the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust; and
(ii)in respect of any gift that Lake Mylor as trustee for the Zebra Unit Trust resolved to make to Lake Mylor as trustee for the Zebra Capital Trust.
240.On 30 June 1998, the following events occurred:
(a)By written resolution, the directors of Haven Sea as trustee for the Annesley Trust resolved to distribute $260,000 to Haven Sea as trustee for the Annesley No. 3 Trust;
(b)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $2,092,400 to Haven Sea as trustee for the Annesley No. 3 Trust;
(c)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $154,062 to Haven Sea as trustee for the Annesley No. 3 Trust;
(d)By written resolution, the directors of Iapetus as trustee for the Parramatta Trust resolved to distribute $143,780 to Haven Sea as trustee for the Annesley No. 3 Trust;
(e)By written resolution, the directors of Haven Sea as trustee for the Annesley No. 3 Trust resolved to distribute $3,295,000 to Lake Mylor as trustee for the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note for $3,290,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Lake Mylor;
(f)Haven Sea as trustee for the Annesley No. 3 Trust issued a bearer promissory note for $3,290,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the Annesley Corporate Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(g)Lake Mylor as trustee for the Annesley Corporate Trust issued an “Authority to Pay” which purported to authorise and direct Haven Sea as trustee for the Annesley No. 3 Trust to pay $5,000 to the “Cleary Hoare Trust Account”;
(h)By letter dated 30 June 1998, RTH advised Lake Mylor it advised that RTH had decided to make a gift of $3,295,000 to Lake Mylor in its capacity as trustee for the LM Income Trust;
(i)The letter referred to in (j) above stated that RTH would provide a bearer promissory note for $3,290,000 in satisfaction of its gift to Lake Mylor;
(j)RTH issued a bearer promissory note for $3,290,000. Receipt of the note was acknowledged by Lake Mylor as trustee for the LM Income Trust and by Lake Mylor as trustee for the Zebra Unit Trust;
(k)RTH issued a bearer promissory note for $0. Receipt of the note was acknowledged by Lake Mylor as trustee for the LM Income Trust;
(l)By written resolution, the directors of Lake Mylor as trustee for the LM Income Discretionary Trust resolved to accept the gift of $3,290,000 from RTH by way of delivery of a bearer promissory note drawn by RTH. The directors further resolved that Lake Mylor as trustee for the LM Income Trust would subscribe for 32,900 “B” units at $100 each in the Zebra Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(m)By a document titled “Application for Units”, Lake Mylor as trustee for the LM Income Trust applied for 32,900 units in the Zebra Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(n)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust noted that an application for 32,900 units at $100 each had been received from Lake Mylor as trustee for the LM Income Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 32,900 units to Lake Mylor as trustee for the LM Income Trust;
(o)Lake Mylor as trustee for the Zebra Unit Trust issued to Lake Mylor as trustee for the LM Income Trust a “unit certificate” for 32,900 “B” units in the Zebra Unit Trust;
(p)By written resolution, the directors of Lake Mylor as trustee for the Annesley Corporate Trust noted that (1) Lake Mylor had received, in its capacity as trustee for the LM Income Trust, a gift of $3,290,000 from RTH; (2) RTH was the fixed beneficiary of the Zebra Fixed Trust, with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust; and (3) the Annesley Corporate Trust had received an interim income distribution of $3,295,000 from the Annesley No. 3 Trust, of which $5,000 was by way of cheque payable as directed by Lake Mylor and the balance by way of delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $3,295,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee for the Zebra Fixed Trust, or as otherwise directed by the trustee for the Zebra Fixed Trust;
(q)By written resolution, the directors of Lake Mylor as trustee for the Zebra Fixed Trust noted that the trust had received an interim income distribution of $3,295,000 from the Annesley Corporate Trust by way of delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $3,295,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(r)RTH was recorded as a fixed beneficiary of the Zebra Fixed Trust;
(s)An undated document from RTH addressed to Lake Mylor as trustee for the Annesley Corporate Trust and to Lake Mylor as trustee for the Zebra Fixed trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Haven Sea as trustee for the Annesley No. 3 Trust to Lake Mylor as trustee for the Zebra Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $3,290,000 that was drawn by RTH and delivered to Lake Mylor as trustee for the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust in respect of the application for “B” units in the Zebra Unit Trust by Lake Mylor as trustee for the LM Income Trust; and
(ii)in respect of any gift that Lake Mylor as trustee for the Zebra Unit Trust resolved to make to Lake Mylor as trustee for the Zebra Capital Trust.
241.On 1 July 1998, the following events occurred:
(a)The Zebra Capital Investment Trust was settled.
(b)By written resolution, the directors of Lake Mylor as trustee for the Zebra Unit Trust resolved (1) to make a gift of $3,290,000 out of capital of the trust to Lake Mylor as trustee for the Zebra Capital Investment Trust; and (2) that the gift be satisfied by way of delivery of two bearer promissory notes for the total amount of $3,290,000 issued by Haven Sea as trustee for the Annesley No. 3 Trust;
(c)By written resolution, the directors of Lake Mylor as trustee for the Zebra Capital Investment Trust resolved (1) to accept the gift of capital of $3,290,000 from Lake Mylor as trustee for the Zebra Unit Trust; and (2) to accept delivery of the bearer promissory notes from Haven Sea as trustee for the Annesley No. 3 Trust in satisfaction of the gift.
242.On or about 3 July 1998, the amount of $7,000 was paid to the Acsis Investment Trust on behalf of RTH. Of that amount, $5,000 related to the 1998 IET NVI Scheme and $2,000 related to another NVI scheme in the 1998 income year.
243.In the 1998 income year, payments were made from bank accounts held or operated by CHC and/or Comlaw Consultants to or for the benefit of the Applicant and/or to entities controlled by or associated with the Applicant, which included at least Balaclava Park, Tarragunda Pastoral and/or Woodbury Park.
244.The payments referred to in the preceding paragraph were recorded in the statements and records pertaining to inter alia, the Cleary Hoare Practice Trust.
The Commissioner’s diagrammatic form of the scheme he identifies is shown below.
At [239(f)] of his description of the scheme $2,000 is paid to the Cleary Hoare Solicitors Trust account. At [240(g)] $5,000 is paid to the Cleary Hoare Solicitors Trust. That is shown in the diagram. At [242] of his description of the scheme $7,000 is paid to the Acsis Investment Trust on behalf of RTH. This latter $7,000 is not shown in the diagram. It can be assumed that this amount found its way to those behind the loss company.
The Commissioner identifies the 1999 Scheme in the following terms.[58]
[58]T2 pp 246-254 and Commissioner’s Amended SFIC dated 4 September 2020 [261]-[276].
261.Based on the documents and information that have been provided to the Commissioner by the Applicant and his advisors, the Commissioner contends that the matters, steps and transactions set out in paragraphs 262 to 274 below comprised a “scheme” within the meaning of s 177A of the ITAA 1936 in the 1999 income year (1999 IET NVI Scheme).
262.On 9 May 1997, the LM Income Trust was settled.
263.On 2 February 1998, the Parramatta Trust, the Orient Fixed Trust and the Orient Unit Trust were settled.
264.On 13 August 1998, the Tambo Trust and the Tanker Trust were settled.
265.On 4 May 1999, the Morocco Fixed Trust, Barcelona Trust and Morocco Unit Trust were settled.
266.On 31 May 1999, the following events occurred:
(a)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $1,121,000 to Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $148,750 to Gainsoar as trustee for the Condor Trust;
(c)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to distribute $54,700 to Gainsoar as trustee for the Condor Trust;
(d)By written resolution, the directors of Iapetus as trustee for the Parramatta Trust resolved to distribute $40,000 to Gainsoar as trustee for the Condor Trust;
(e)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to distribute $1,417,000 to Iapetus as trustee for the Tanker Trust. The resolution stated that the distribution was to be by bearer promissory note for $1,417,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Iapetus;
(f)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $1,420,000. Receipt of the note was acknowledged by Iapetus as trustee for the Tanker Trust and by Iapetus as trustee for the Orient Unit Trust;
(g)Iapetus as trustee for the Tanker Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $3,000 to the “Cleary Hoare Trust Account”;
(h)By letter dated 31 May 1999, RTH advised Iapetus that RTH had decided to make a gift of $1,417,750 to Iapetus in its capacity as trustee for the Parramatta Trust;
(i)The letter referred to in (h) above stated that RTH would provide bearer promissory notes for a total of $1,417,750 in satisfaction of its gift to Iapetus;
(j)RTH issued a bearer promissory note for $1,417,000. Receipt of the bearer promissory note was acknowledged by Iapetus as trustee for the Parramatta Trust and by Iapetus as trustee for the Orient Unit Trust;
(k)RTH issued a bearer promissory note for $750. Receipt of the bearer promissory note was acknowledged by Iapetus as trustee for the Parramatta Trust;
(l)By written resolution, the directors of Iapetus as trustee for the Parramatta Trust resolved to accept the gift of $1,417,750 from RTH by way of delivery of bearer promissory notes drawn by RTH. The directors further resolved that Iapetus as trustee for the Parramatta Trust would subscribe for 14,170 “B” units at $100 each in the Orient Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(m)By a document titled “Application for Units”, Iapetus as trustee for the Parramatta Trust applied for 14,170 units in the Orient Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(n)By written resolution, the directors of Iapetus as trustee for the Orient Unit Trust noted that an application for 14,170 units at $100 each had been received from Iapetus as trustee for the Parramatta Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 14,170 units to Iapetus as trustee for the Parramatta Trust;
(o)Iapetus as trustee for the Orient Unit Trust issued to Iapetus as trustee for the Parramatta Trust a “unit certificate” for 14,170 “B” units in the Orient Unit Trust;
(p)By written resolution, the directors of Iapetus as trustee for the Tanker Trust noted that (1) Iapetus had received, in its capacity as trustee for the Parramatta Trust, a gift of $1,417,750 from RTH; (2) RTH was the fixed beneficiary of the Orient Fixed Trust, with the result that the Orient Fixed Trust qualified as a beneficiary of the Tanker Trust; and (3) the Tanker Trust had received an interim income distribution of $1,420,000 from the Condor Trust, of which $3,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $1,420,000 to the Orient Fixed Trust by delivery of the promissory note to the trustee for the Orient Fixed Trust, or as otherwise directed by the trustee for the Orient Fixed Trust;
(q)By written resolution, the directors of Iapetus as trustee for the Orient Fixed Trust noted that the trust had received an interim income distribution of $1,420,000 from the Tanker Trust, of which $1,417,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $1,417,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(r)RTH was recorded as a fixed beneficiary of the Orient Fixed Trust;
(s)An undated document from RTH addressed to Iapetus as trustee for the Tanker Trust and to Iapetus as trustee for the Orient Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Gainsoar as trustee for the Condor Trust to Iapetus as trustee for the Orient Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $1,417,000 that was drawn by RTH and delivered to Iapetus as trustee for the Orient Unit Trust by Iapetus as trustee for the Parramatta Trust in respect of the application for “B” units in the Orient Unit Trust by Iapetus as trustee for the Parramatta Trust; and
(ii)in respect of any gift that Iapetus as trustee for the Orient Unit Trust resolved to make;
(t)The amount of $2,250 was paid to the Acsis Investment Trust.
267.On 8 June 1999, the Hawk Income Trust was settled.
268.On 29 June 1999, the following events occurred:
(a)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $650,750 to Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to distribute $217,250 to Gainsoar as trustee for the Condor Trust;
(c)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to distribute $1,500,000 to Iapetus as trustee for the Tambo Trust. The resolution stated that the distribution was to be by bearer promissory note for $1,480,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Iapetus;
(d)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $1,480,000. Receipt of the note was acknowledged by Iapetus as trustee for the Tambo Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(e)Iapetus as trustee for the Tambo Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $20,000 to the “Cleary Hoare Trust Account”;
(f)By letter dated 29 June 1999, Comvat advised Iapetus that Comvat had decided to make a gift of $1,480,000 to Xenaberry in its capacity as trustee for the Barcelona Trust;
(g)The letter referred to in (f) above stated that Comvat would provide a bearer promissory note for $1,480,000 in satisfaction of its gift to Xenaberry;
(h)Comvat issued a bearer promissory note for $1,480,000. Receipt of the bearer promissory note was acknowledged by Xenaberry as trustee for the Barcelona Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(i)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to accept the gift of $1,480,000 from Comvat by way of delivery of bearer promissory note drawn by Comvat. The directors further resolved that Xenaberry as trustee for the Barcelona Trust would subscribe for 14,800 “B” units at $100 each in the Morocco Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(j)By a document titled “Application for Units”, Xenaberry as trustee for the Barcelona Trust applied for 14,800 units in the Morocco Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by Comvat;
(k)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust noted that an application for 14,800 units at $100 each had been received from Xenaberry as trustee for the Barcelona Trust together with the bearer promissory note drawn by Comvat. The directors further resolved (1) to accept the promissory note from Comvat as payment for the application monies; and (2) to issue 14,800 units to Xenaberry as trustee for the Barcelona Trust;
(l)Xenaberry as trustee for the Morocco Unit Trust issued to Xenaberry as trustee for the Barcelona Trust a “unit certificate” for 14,800 “B” units in the Morocco Unit Trust;
(m)By written resolution, the directors of Iapetus as trustee for the Tambo Trust noted that (1) Iapetus had received, in its capacity as trustee for the Barcelona Trust, a gift of $1,480,000 from Comvat; (2) Comvat was the fixed beneficiary of the Morocco Fixed Trust, with the result that the Morocco Fixed Trust qualified as a beneficiary of the Tambo Trust; and (3) the Tambo Trust had received an interim income distribution of $1,500,000 from the Condor Trust, of which $20,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $1,500,000 to the Morocco Fixed Trust by delivery of the promissory note to the trustee for the Morocco Fixed Trust, or as otherwise directed by the trustee for the Morocco Fixed Trust;
(n)By written resolution, the directors of Xenaberry as trustee for the Morocco Fixed Trust noted that the trust had received an interim income distribution of $1,500,000 from the Tambo Trust, of which $1,480,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $1,500,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(o)Comvat was recorded as a fixed beneficiary of the Morocco Fixed Trust;
(p)An undated document from Comvat addressed to Iapetus as trustee for the Tambo Trust and to Xenaberry as trustee for the Morocco Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Gainsoar as trustee for the Condor Trust to Xenaberry as trustee for the Morocco Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $1,480,000 that was drawn by Comvat and delivered to Xenaberry as trustee for the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust in respect of the application for “B” units in the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust; and
(ii)in respect of any gift that Xenaberry as trustee for the Morocco Unit Trust resolved to make.
269.On 30 June 1999, the following events occurred:
(a)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust resolved (1) to make a gift of $1,480,000 out of the capital of the Morocco Unit Trust to Starwire as trustee for the Tambo Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $1,480,000 issued by Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Starwire as trustee for the Tambo Capital Trust resolved (1) to accept the gift of capital of $1,480,000 from Xenaberry as trustee for the Morocco Unit Trust; and (2) to accept delivery of the bearer promissory note issued by Gainsoar as trustee for the Condor Trust in satisfaction of the gift;
(c)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $347,550 to Gainsoar as trustee for the Condor Trust;
(d)By written resolution, the directors of Gainsoar as trustee for the Hawk Income Trust resolved to distribute $1,565,000 to Gainsoar as trustee for the Condor Trust;
(e)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to distribute $1,837,000 to Iapetus as trustee for the Tanker Trust. The resolution stated that the distribution was to be by bearer promissory note for $1,837,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Iapetus;
(f)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $1,837,000. Receipt of the note was acknowledged by Iapetus as trustee for the Tanker Trust and by Iapetus as trustee for the Orient Unit Trust;
(g)Iapetus as trustee for the Tanker Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $20,000 to the “Cleary Hoare Trust Account”;
(h)By letter dated 30 June 1999, RTH advised Iapetus that RTH had decided to make a gift of $1,837,000 to Iapetus in its capacity as trustee for the Parramatta Trust;
(i)The letter referred to in (h) above stated that RTH would provide a bearer promissory note for a total of $1,837,000 in satisfaction of its gift to Iapetus;
(j)RTH issued a bearer promissory note for $1,837,000. Receipt of the bearer promissory note was acknowledged by Iapetus as trustee for the Parramatta Trust and by Iapetus as trustee for the Orient Unit Trust;
(k)By written resolution, the directors of Iapetus as trustee for the Parramatta Trust resolved to accept the gift of $1,837,000 from RTH by way of delivery of bearer promissory notes drawn by RTH. The directors further resolved that Iapetus as trustee for the Parramatta Trust would subscribe for 18,370 “B” units at $100 each in the Orient Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(l)By a document titled “Application for Units”, Iapetus as trustee for the Parramatta Trust applied for 18,370 units in the Orient Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by RTH;
(m)By written resolution, the directors of Iapetus as trustee for the Orient Unit Trust noted that an application for 18,370 units at $100 each had been received from Iapetus as trustee for the Parramatta Trust together with the bearer promissory note drawn by RTH. The directors further resolved (1) to accept the promissory note from RTH as payment for the application monies; and (2) to issue 18,370 units to Iapetus as trustee for the Parramatta Trust;
(n)Iapetus as trustee for the Orient Unit Trust issued to Iapetus as trustee for the Parramatta Trust a “unit certificate” for 18,370 “B” units in the Orient Unit Trust;
(o)By written resolution, the directors of Iapetus as trustee for the Tanker Trust noted that (1) Iapetus had received, in its capacity as trustee for the Parramatta Trust, a gift of $2,050,000 from RTH; (2) RTH was the fixed beneficiary of the Orient Fixed Trust, with the result that the Orient Fixed Trust qualified as a beneficiary of the Tanker Trust; and (3) the Tanker Trust had received an interim income distribution of $1,857,000 from the Condor Trust, of which $20,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $1,857,000 to the Orient Fixed Trust by delivery of the promissory note to the trustee for the Orient Fixed Trust, or as otherwise directed by the trustee for the Orient Fixed Trust;
(p)By written resolution, the directors of Iapetus as trustee for the Orient Fixed Trust noted that the trust had received an interim income distribution of $1,857,000 from the Tanker Trust, of which $1,837,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $1,837,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(q)RTH was recorded as a fixed beneficiary of the Orient Fixed Trust;
(r)An undated document from RTH addressed to Iapetus as trustee for the Tanker Trust and to Iapetus as trustee for the Orient Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Gainsoar as trustee for the Condor Trust to Iapetus as trustee for the Orient Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $1,837,000 that was drawn by RTH and delivered to Iapetus as trustee for the Orient Unit Trust by Iapetus as trustee for the Parramatta Trust in respect of the application for “B” units in the Orient Unit Trust by Iapetus as trustee for the Parramatta Trust; and
(ii)in respect of any gift that Iapetus as trustee for the Orient Unit Trust resolved to make.
270.On 1 July 1999, the following events occurred:
(a)By written resolution, the directors of Iapetus as trustee for the Orient Unit Trust resolved (1) to make a gift of $1,417,000 out of capital of the trust to Starwire as trustee for the Starwire Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $1,417,000 issued by Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Starwire as trustee for the Starwire Capital Trust resolved (1) to accept the gift of capital of $1,417,000 from Iapteus as trustee for the Orient Unit Trust; and (2) to accept delivery of the bearer promissory note from Gainsoar as trustee for the Condor Trust in satisfaction of the gift.
271.On or about 5 July 1999, the amount of $20,000 was paid to the Acsis Investment Trust on behalf of RTH and/or Comvat.
272.On or about 6 July 1999, the amount of $20,000 was paid by to the Acsis Investment Trust on behalf of RTH and/or Comvat.
273.On 30 July 1999, the following events occurred:
(a)By written resolution, the directors of Iapetus as trustee for the Orient Unit Trust resolved (1) to make a gift of $1,837,000 out of capital of the trust to Starwire as trustee for the Starwire Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $1,837,000 issued by Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Starwire as trustee for the Starwire Capital Trust resolved (1) to accept the gift of capital of $1,837,000 from Iapteus as trustee for the Orient Unit Trust; and (2) to accept delivery of the bearer promissory note from Gainsoar as trustee for the Condor Trust in satisfaction of the gift.
274.On 3 August 1999, the Tambo Capital Trust and Starwire Capital Trust were settled.
275.In the 1999 income year, payments were made from bank accounts held or operated by CHC and/or Comlaw Consultants to or for the benefit of the Applicant and/or to entities controlled by or associated with the Applicant, which included at least Balaclava Park, Tarragunda Pastoral and/or Woodbury Park.
276.The payments referred to in the preceding paragraph were recorded in the statements and records pertaining to inter alia, the Cleary Hoare Practice Trust.
The Commissioner’s diagrammatic form of the scheme he identifies is shown below.
At [266(g)] of his description of the scheme $3,000 is paid to the Cleary Hoare Solicitors Trust and at [266(k)] RTH issued a bearer promissory note for $750 which was as acknowledged by Iapetus as trustee for the Parramatta Trust. That is shown in the diagram. At [266(t)] $2,250 was paid to Acsis Investment Trust. This latter $2,250 is not shown in the diagram. It can be assumed that this amount found its way to those behind the loss companies. At [268(e)] and [269(g)] a cheque of $20,000 each was paid to the Cleary Hoare Solicitors Trust for a total of $40,000. That is shown in the diagram. At [271]-[272] of his description of the scheme $40,000 is paid to the Acsis Investment Trust. This latter $40,000 is not shown in the diagram. It can be assumed that this amount found its way to those behind the loss companies.
The Commissioner identifies the 2000 Scheme in the following terms.[59]
[59]T2 pp 260-268 and Commissioner’s Amended SFIC dated 4 September 2020 [293]-[311].
293.Based on the documents and information that have been provided to the Commissioner by the Applicant and his advisors, the Commissioner contends that the matters, steps and transactions set out in paragraphs 294 to 309 below comprised a “scheme” within the meaning of s 177A of the ITAA 1936 in the 2000 income year (2000 IET NVI Scheme).
294.On 9 May 1997, the LM Income Trust was settled.
295.On 13 August 1998, the Tambo Trust was settled.
296.On 4 May 1999, the Barcelona Trust, the Morocco Fixed Trust and Morocco Unit Trust were settled.
297.On 18 May 1999, the Condor Trust was settled.
298.On 8 June 1999, the Falcon Trust was settled.
299.On 30 July 1999, the following events occurred:
(a)By written resolution, the directors of Starwire as trustee for the Falcon Income Trust resolved to distribute $930,000 to Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to make an interim distribution of $930,000 to Iapetus as trustee for the Tambo Trust. The resolution stated that the distribution was to be by bearer promissory note for $916,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Iapetus;
(c)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $916,000. Receipt of the note was acknowledged by Iapetus as trustee for the Tambo Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(d)Iapetus as trustee for the Tambo Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $14,000 to the “Cleary Hoare Trust Account”;
(e)By letter dated 30 July 1999, Comvat advised Iapetus that Comvat had decided to make a gift of $916,000 to Xenaberry in its capacity as trustee for the Barcelona Trust;
(f)The letter referred to in (e) above stated that Comvat would provide a bearer promissory note for $916,000 in satisfaction of its gift to Xenaberry;
(g)Comvat issued a bearer promissory note for $916,000. Receipt of the bearer promissory note was acknowledged by Xenaberry as trustee for the Barcelona Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(h)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to accept the gift of $916,000 from Comvat by way of delivery of a bearer promissory note drawn by Comvat. The directors further resolved that Xenaberry as trustee for the Barcelona Trust would subscribe for 9,160 “B” units at $100 each in the Morocco Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(i)By a document titled “Application for Units”, Xenaberry as trustee for the Barcelona Trust applied for 9,160 units in the Morocco Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by Comvat;
(j)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust noted that an application for 9,160 units at $100 each had been received from Xenaberry as trustee for the Barcelona Trust together with the bearer promissory note drawn by Comvat. The directors further resolved (1) to accept the promissory note from Comvat as payment for the application monies; and (2) to issue 9,160 units to Xenaberry as trustee for the Barcelona Trust;
(k)Xenaberry as trustee for the Morocco Unit Trust issued to Xenaberry as trustee for the Barcelona Trust a “unit certificate” for 9,160 “B” units in the Morocco Unit Trust;
(l)By written resolution, the directors of Iapetus as trustee for the Tambo Trust noted that (1) Xenaberry had received, in its capacity as trustee for the Barcelona Trust, a gift of $916,000 from Comvat; (2) Comvat was the fixed beneficiary of the Morocco Fixed Trust, with the result that the Morocco Fixed Trust qualified as a beneficiary of the Tambo Trust; and (3) the Tambo Trust had received an interim income distribution of $930,000 from the Condor Trust, of which $14,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $930,000 to the Morocco Fixed Trust by delivery of the promissory note to the trustee for the Morocco Fixed Trust, or as otherwise directed by the trustee for the Morocco Fixed Trust;
(m)By written resolution, the directors of Xenaberry as trustee for the Morocco Fixed Trust noted that the trust had received an interim income distribution of $930,000 from the Tambo Trust, of which $916,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $930,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(n)Comvat was recorded as a fixed beneficiary of the Morocco Fixed Trust;
(o)An undated document from Comvat addressed to Iapetus as trustee for the Tambo Trust and to Xenaberry as trustee for the Morocco Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Gainsoar as trustee for the Condor Trust to Xenaberry as trustee for the Morocco Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $916,000 that was drawn by Comvat and delivered to Xenaberry as trustee for the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust in respect of the application for “B” units in the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust; and
(ii)in respect of any gift that Xenaberry as trustee for the Morocco Unit Trust resolved to make.
300.On 31 July 1999, the following events occurred:
(a)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust resolved (1) to make a gift of $916,000 out of capital of the trust to Starwire as trustee for the Tambo Capital Investment Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $916,000 issued by Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Starwire as trustee for the Tambo Capital Investment Trust resolved (1) to accept the gift of capital of $916,000 from Xenaberry as trustee for the Morocco Unit Trust; and (2) to accept delivery of the bearer promissory note from Gainsoar as trustee for the Condor Trust in satisfaction of the gift.
301.On 3 August 1999, the Tambo Capital Investment Trust was settled.
302.On 17 September 1999, the following events occurred:
(a)By written resolution, the directors of CHC as trustee for the CHC Discretionary Trust resolved to distribute $1,497,250 to Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Lake Mylor as trustee for the LM Income Trust resolved to distribute $148,750 to Gainsoar as trustee for the Condor Trust;
(c)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to distribute $105,000 to Gainsoar as trustee for the Condor Trust;
(d)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to make an interim distribution of $1,750,000 to Iapetus as trustee for the Tambo Trust. The resolution stated that the distribution was to be by bearer promissory note for $1,724,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Iapetus;
(e)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $1,724,000. Receipt of the note was acknowledged by Iapetus as trustee for the Tambo Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(f)Iapetus as trustee for the Tambo Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $26,000 to the “Cleary Hoare Trust Account”;
(g)By letter dated 17 September 1999, Comvat advised Iapetus that Comvat had decided to make a gift of $1,725,000 to Xenaberry in its capacity as trustee for the Barcelona Trust;
(h)The letter referred to in (g) above stated that Comvat would provide bearer promissory notes for a total of $1,725,000 in satisfaction of its gift to Xenaberry;
(i)Comvat issued a bearer promissory note for $1,724,000. Receipt of the bearer promissory note was acknowledged by Xenaberry as trustee for the Barcelona Trust and by Xenaberry as trustee for the Morocco Unit Trust;
(j)Comvat issued a bearer promissory note for $1,000. Receipt of the bearer promissory note was acknowledged by Xenaberry as trustee for the Barcelona Trust;
(k)By written resolution, the directors of Xenaberry as trustee for the Barcelona Trust resolved to accept the gift of $1,725,000 from Comvat by way of delivery of bearer promissory notes drawn by Comvat. The directors further resolved that Xenaberry as trustee for the Barcelona Trust would subscribe for 17,240 “B” units at $100 each in the Morocco Unit Trust, with the promissory note to be delivered in satisfaction of the application monies;
(l)By a document titled “Application for Units”, Xenaberry as trustee for the Barcelona Trust applied for 17,240 units in the Morocco Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note drawn by Comvat;
(m)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust noted that an application for 17,240 units at $100 each had been received from Xenaberry as trustee for the Barcelona Trust together with the bearer promissory note drawn by Comvat. The directors further resolved (1) to accept the promissory note from Comvat as payment for the application monies; and (2) to issue 17,240 units to Xenaberry as trustee for the Barcelona Trust;
(n)Xenaberry as trustee for the Morocco Unit Trust issued to Xenaberry as trustee for the Barcelona Trust a “unit certificate” for 17,240 “B” units in the Morocco Unit Trust;
(o)By written resolution, the directors of Iapetus as trustee for the Tambo Trust noted that (1) Iapetus had received, in its capacity as trustee for the Barcelona Trust, a gift of $1,725,000 from Comvat; (2) Comvat was the fixed beneficiary of the Morocco Fixed Trust, with the result that the Morocco Fixed Trust qualified as a beneficiary of the Tambo Trust; and (3) the Tambo Trust had received an interim income distribution of $1,750,000 from the Condor Trust, of which $26,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $1,750,000 to the Morocco Fixed Trust by delivery of the promissory note to the trustee for the Morocco Fixed Trust, or as otherwise directed by the trustee for the Morocco Fixed Trust;
(p)By written resolution, the directors of Xenaberry as trustee for the Morocco Fixed Trust noted that the trust had received an interim income distribution of $1,750,000 from the Tambo Trust, of which $1,724,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $1,750,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(q)Comvat was recorded as a fixed beneficiary of the Morocco Fixed Trust;
(r)An undated document from Comvat addressed to Iapetus as trustee for the Tambo Trust and to Xenaberry as trustee for the Morocco Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note issued by Gainsoar as trustee for the Condor Trust to Xenaberry as trustee for the Morocco Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $1,724,000 that was drawn by Comvat and delivered to Xenaberry as trustee for the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust in respect of the application for “B” units in the Morocco Unit Trust by Xenaberry as trustee for the Barcelona Trust; and
(ii)in respect of any gift that Xenaberry as trustee for the Morocco Unit Trust resolved to make.
303.On 20 September 1999, the following events occurred:
(a)By written resolution, the directors of Xenaberry as trustee for the Morocco Unit Trust resolved (1) to make a gift of $1,724,000 out of the capital of the Morocco Unit Trust to Starwire as trustee for the Tambo 2000 Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $1,724,000 issued by Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Starwire as trustee for the Tambo 2000 Capital Trust resolved (1) to accept the gift of capital of $1,724,000 from Xenaberry as trustee for the Morocco Unit Trust; and (2) to accept delivery of the bearer promissory note issued by Gainsoar as trustee for the Condor Trust in satisfaction of the gift;
304.On or about 15 November 1999, the amount of $40,000 was paid by cheque from the Cleary Hoare Trust Account to Comvat.
305.On 23 March 2000, the Wilston Income Trust was settled.
306.On 15 June 2000, the Balmoral Income Trust, the Condor No. 2 Trust, Packard Income Trust, Packard Fixed Trust, Packard Fixed Trust No. 2 and Packard Unit Trust were settled.
307.On 30 June 2000, the following events occurred:
(a)By written resolution, the directors of Canerink as trustee for the CHC Discretionary Trust resolved to distribute $1,153,750 to Gainsoar as trustee for the Condor Trust;
(b)By written resolution, the directors of Fairclass as trustee for the Wilston Income Trust resolved to distribute $474,800 to Gainsoar as trustee for the Condor Trust;
(c)By written resolution, the directors of Xenaberry as trustee for the Barcelona Income Trust resolved to distribute $65,000 to Gainsoar as trustee for the Condor Trust;
(d)By written resolution, the directors of Clearmaze as trustee for the Balmoral Income Trust resolved to distribute $348,000 to Gainsoar as trustee for the Condor Trust;
(e)By written resolution, the directors of Clearmaze as trustee for the Packard Income Trust resolved to distribute $1,000 to Gainsoar as trustee for the Condor Trust;
(f)By written resolution, the directors of Gainsoar as trustee for the Condor Trust resolved to distribute $2,520,000 to Clearmaze as trustee for the Condor No. 2 Trust. The resolution stated that the distribution was to be by bearer promissory note for $2,500,000 to be drawn by “the Company”, with the balance to be paid by cheque as directed by Clearmaze;
(g)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $2,500,000. Receipt of the note was acknowledged by Clearmaze as trustee for the Condor No. 2 Trust and by Mistrill as trustee for the Packard Unit Trust;
(h)Gainsoar as trustee for the Condor Trust issued a bearer promissory note for $1,000. Receipt of the note was acknowledged by Clearmaze as trustee for the Condor No. 2 Trust;
(i)Clearmaze as trustee for the Condor No. 2 Trust issued an “Authority to Pay” which purported to authorise and direct Gainsoar as trustee for the Condor Trust to pay $20,000 to the “Cleary Hoare Trust Account”;
(j)By letter dated 30 June 2000, Mistrill as trustee for the Packard Fixed Trust No. 2 advised Clearmaze that Mistrill had decided to make a gift of $2,501,000 to Clearmaze in its capacity as trustee for the Packard Income Trust;
(k)The letter referred to in (j) above stated that Mistrill as trustee for the Packard Fixed Trust No. 2 would provide bearer promissory notes for $2,500,000 and $1,000 respectively in satisfaction of its gift to Clearmaze;
(l)Mistrill as trustee for the Packard Fixed Trust No. 2 issued bearer promissory notes for $2,500,000 and $1,000. Receipt of the note for $2,500,000 was acknowledged by Clearmaze as trustee for the Packard Income Trust and by Mistrill as trustee for the Packard Unit Trust. Receipt of the note for $1,000 was acknowledged by Clearmaze as trustee for the Packard Income Trust;
(m)By written resolution, the directors of Clearmaze as trustee for the Packard Income Trust resolved to accept the gift of $2,501,000 from Mistrill as trustee for the Packard Fixed Trust No. 2 by way of delivery of the bearer promissory notes drawn by Mistrill as trustee for the Packard Fixed Trust No. 2. The directors further resolved that Clearmaze as trustee for the Packard Income Trust would subscribe for 25,000 “B” units at $100 each in the Packard Unit Trust, with the promissory notes to be delivered in satisfaction of the application monies;
(n)By a document titled “Application for Units”, Clearmaze as trustee for the Packard Income Trust applied for 25,000 units in the Packard Unit Trust, with payment of the application monies to be satisfied by the delivery of the bearer promissory note for $2,500,000 drawn by Mistrill as trustee for the Packard Fixed Trust No. 2;
(o)By written resolution, the directors of Mistrill as trustee for the Packard Unit Trust noted that an application for 25,000 units at $100 each had been received from Clearmaze as trustee for the Packard Income Trust together with the bearer promissory note drawn by Mistrill as trustee for the Packard Fixed Trust No. 2. The directors further resolved (1) to accept the promissory note from Mistrill as payment for the application monies; and (2) to issue 25,000 units to Clearmaze as trustee for the Packard Income Trust;
(p)Mistrill as trustee for the Packard Unit Trust issued to Clearmaze as trustee for the Packard Income Trust a “unit certificate” for 25,000 “B” units in the Packard Unit Trust;
(q)By written resolution, the directors of Clearmaze as trustee for the Condor No. 2 Trust noted that (1) Clearmaze had received, in its capacity as trustee for the Packard Income Trust, a gift of $2,501,000 from Mistrill as trustee for the Packard Fixed Trust No. 2; (2) Mistrill as trustee for the Packard Fixed Trust No. 2 was the fixed beneficiary of the Packard Fixed Trust, with the result that the Packard Fixed Trust qualified as a beneficiary of the Condor No. 2 Trust; and (3) the Condor No. 2 Trust had received an interim income distribution of $2,520,000 from the Condor Trust, of which $20,000 was payable by way of cheque and the balance payable by delivery of a bearer promissory note. The directors further resolved to make an interim income distribution of $2,520,000 to the Packard Fixed Trust by delivery of the promissory note to the trustee for the Packard Fixed Trust, or as otherwise directed by the trustee for the Packard Fixed Trust;
(r)By written resolution, the directors of Mistrill as trustee for the Packard Fixed Trust noted that the trust had received an interim income distribution of $2,520,000 from the Condor No. 2 Trust, of which $2,500,000 had been paid by delivery of a bearer promissory note. The directors further resolved to make an interim distribution of income in the amount of $2,520,000 “to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it”;
(s)An undated document from Mistrill as trustee for the Packard Fixed Trust No. 2 addressed to Clearmaze as trustee for the Condor No. 2 Trust and to Mistrill as trustee for the Packard Fixed Trust and titled “Authority for Delivery of Promissory Note” purported to authorise delivery of the promissory note for $2,500,000 issued by Gainsoar as trustee for the Condor Trust to Mistrill as trustee for the Packard Unit Trust:
(i)in satisfaction of the obligations arising under the bearer promissory note for $2,500,000 that was drawn by Mistrill as trustee for the Packard Fixed Trust No. 2 and delivered to Mistrill as trustee for the Packard Unit Trust by Clearmaze as trustee for the Packard Income Trust in respect of the application for “B” units in the Packard Unit Trust by Clearmaze as trustee for the Packard Income Trust; and
(ii)in respect of any gift that Mistrill as trustee for the Packard Unit Trust resolved to make.
308.On or about 13 July 2000, the amount of $19,000 was paid by cheque from the Cleary Hoare Trust Account to Australian Palliative Care Fund Ltd.
309.On 14 July 2000, the following events occurred:
(a)The Pelican Capital Trust was settled;
(b)By written resolution, the directors of Mistrill as trustee for the Packard Unit Trust resolved (1) to make a gift of $2,500,000 out of capital of the trust to Clearmaze as trustee for the Pelican Capital Trust; and (2) that the gift be satisfied by way of delivery of a bearer promissory note for $2,500,000 issued by Gainsoar as trustee for the Condor Trust;
(c)By written resolution, the directors of Clearmaze as trustee for the Pelican Capital Trust resolved (1) to accept the gift of capital of $2,500,000 from Mistrill as trustee for the Packard Unit Trust; and (2) to accept delivery of the bearer promissory note from Gainsoar as trustee for the Condor Trust in satisfaction of the gift.
310.In the 2000 income year, payments were made from bank accounts held or operated by CHC and/or Comlaw Consultants to or for the benefit of the Applicant and/or to entities controlled by or associated with the Applicant, which included at least Balaclava Park, Tarragunda Pastoral and/or Woodbury Park.
311.The payments referred to in the preceding paragraph were recorded in the statements and records pertaining to inter alia, the Cleary Hoare Practice Trust.
The applicant, it might be seen optimistically, advances the proposition that the dominant purpose of the scheme was to secure or further the asset protection strategies and benefits he sought. Such a proposition fails to have regard for what was said in Spotless[125] that there can be concurrent commercial and tax avoidance purposes associated with the scheme and the relevant question is which is dominant. Recognising that the Court did not go on to describe in an express way how to go about determining which of the two objectives might be seen to be dominant, in the present circumstances the subtleties associated with cases at the margin in this sense do not arise.
[125]F. C. of T.v Spotless Services Ltd (1996) 186 CLR 404 at 407.
For present circumstances a blatant artificial and contrived means was designed and executed to ensure that amounts having their origins in the consulting services businesses were not taxable in the hands of anybody in the Years in which they otherwise would be. The contrivance and artificiality reach their zenith in paper distributions to tax exempt charitable entities or loss companies with the charity or loss company receiving and enjoying a very small proportion of the distribution purportedly made to it while providing shelter from Australian taxation in respect of the whole distribution. The contrivance associated with these steps in the scheme reveal a dominant purpose of tax avoidance or securing the tax benefit as opposed to asset protection. It is useful to see whether the contended for asset protection objectives (and therefore purposes) could be achieved by other means. Clearly, they could have been achieved without the number of trusts and paper distributions involved in the scheme which produce the tax benefit.
When looked at individually the s 177D(b)(i) to (viii) factors lead to a conclusion that the dominant purpose of the entities who entered into or carried out the scheme was to secure the tax benefit determined by closer reference to relevant trust s 95 net income (or trust taxable income) not included in the applicant’s assessable income. Of central importance in the present matter, are manner of execution and form and substance.
(a)The manner of execution involving the choreographed and orchestrated steps taken, insertion of multiple trusts and creating entitlements in the shelter entities never intended to enjoy the entitlement created, using negotiable instruments by-passing the shelter entities removing any ability for them to take any step to frustrate the planned arrangements and allowing them to participate with minimal steps and actions, leads to the tax avoidance purpose conclusion.
(b)The form of each scheme was an entitlement of the loss company or exempt entity to the sheltered trust income. The substance of each scheme was that it was never intended that that income be enjoyed. This difference leads to the same tax avoidance purpose conclusion.
(c)The time and length or duration of the scheme does not point materially in either direction. The scheme was not continued after s 100A was amended, but that would suggest the purpose was to avoid a liability falling on a trustee, not the applicant.
(d)The conventional analysis of the effect of the Assessment Acts on the scheme apart from Part IVA is that this test necessarily reveals that, absent the operation of Part IVA, less tax would be payable. Just because a transaction has an effect of lowering tax liability does not necessarily attract an inference that the parties to the transaction entered into it or carried it out for the sole or dominant purpose of obtaining that tax consequence.[126] This is particularly so when other benefits and taxation liabilities are also produced by the scheme identified. Under this conventional analysis, little weight would be attached to this factor. This is so because the mere fact of a tax benefit cannot lead to the result that the dominant purpose of the relevant scheme was to secure that benefit. If it did there would be no need for the other factors to be assessed. An alternative approach rests on a premise that any test ought be capable of pointing in either a positive or negative way in the analysis required and should be capable of supporting or contradicting the requisite conclusion in different settings. There seems little point in having a test factor which can only point in one direction. Under the alternative approach, it is necessary to look to whether the outcome of the scheme transactions absent Part IVA applying is consistent with the operation as intended by the Assessment Acts. The Assessment Acts have a general policy of taxing those who enjoy, and through that enjoyment have a capacity to pay tax on, assessable amounts. On that footing, absent the operation of Part IVA, the outcome in the present circumstances is entirely inconsistent with an intended outcome of the Assessment Acts. This factor, analysed this way, suggests that the dominant purpose of participants in the scheme was to secure a tax benefit. This is a case where, by an artifice, a tax advantage, and tax benefit as defined, ensues. Either little weight ought to be given to this factor, or it should suggest a tax benefit purpose.
(e)The change in financial position of the taxpayer suggests a tax avoidance purpose. The applicant had indirect access to the funds representing the assessable income not included in his assessments not reduced by the full tax burden that might otherwise have been borne. This criterion leads to the same tax avoidance purpose conclusion.
(f)The financial position of others suggests a non-tax avoidance purpose because the financial position of others in a legal sense was enhanced by their legal entitlement to the trust income distributions.
(g)Any other consequences are neutral.
(h)The nature of connections between entities suggests if anything tax avoidance as a purpose or neutrality. The parties with access to the wealth represented by the trust distributions which have not borne tax were all connected.
[126]F. C. of T. v Hart (2004) 217 CLR 216 at [15] per Gleeson CJ & McHugh J; [65] per Gummow & Hayne JJ.
One proposition advanced by the applicant in his evidence is noteworthy. That was that the exempt entities were better off as a result of the commissions they received through their participation in these arrangements. To the contrary, when those commissions represented a very small proportion of the income to which they were legally entitled but were never to enjoy, the limited way in which tax-exempt entities enjoyed the income distributed to them suggests tax avoidance purposes. Participation in arrangements like this by tax-exempt entities calls for scrutiny as to whether continued registration as a tax-exempt entity should be permitted.
Subject to the amount of the tax benefit being correctly restated as noted above, for these reasons the Part IVA determinations confirmed.
Penalties
The Commissioner has assessed penalty at the 50% level.
The applicant’s circumstances are not materially different to those in the Hart litigation where the primary judge found that penalty at the 50% rate without remission was appropriate[127] and the full court found those conclusions plainly correct.[128] The reference to the McCutcheon litigation[129] by the primary judge in Hart[130] is presumably to the fact that such authorities as there have been concerning the NVI schemes are negative and not that there were any authorities at the time the schemes were entered into or carried out by the applicant and the entities involved in the schemes. Particular reference needs to be made to the Senior Counsel advice obtained. It appears conceptual rather than focused on the applicant’s circumstances, or at least shows no appearance of having been formulated with the applicant’s personal circumstances in mind. That is well short of the standard required to obtain penalty relief. It is difficult to see any basis upon which the present penalty was not correctly imposed, and it is equally difficult to see any basis upon which that penalty should be remitted.
[127][2017] FCA 572 [292] to [308].
[128][2018] FCAFC 61 [109].
[129]McCutcheon v F. C. of T. [2008] FCA 318; (2008) 168 FCR 149 and McCutcheon and F. C. of T. [2006] AATA 535
[130][2017] FCA 572 [300(3)]
It ought be recalculated by reference to the reduced tax benefit amount but other than that it ought not be altered at all.
The penalty should be recalculated by reference to the reduced tax benefit.
DECISION
The objection decisions under review are set aside and remitted to the Commissioner to be remade in accordance with these reasons.
I certify that the preceding 118 (one hundred and eighteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President F D O’Loughlin KC
............................[sgd]............................................
Associate
Dated: 12 March 2024
Date(s) of hearing: 19-20 & 27 October 2021 Date final submission received: 27 October 2021 Counsel for the Applicant: Mr P Hack KC
Mr P BickfordSolicitors for the Applicant: Cleary Hoare Solicitors Counsel for the Respondent: M Brennan QC
R JedrzejczykSolicitors for the Respondent: The Australian Government Solicitor Annexure A
Table of entities
Entity Name
Entity name used in these reasons
Description
Aberford Pty Ltd
Aberford
A company established on 14 April 1976.
The trustee for the Aberford Trust.
Hart was a director of the company from 14 April 1976 to 14 May 1998.
The applicant was a director from 14 May 1998.
Mrs Collie was a director from 8 November 1989
Aberford Superannuation Fund
Aberford Superannuation Fund
A superannuation fund of which the applicant was a beneficiary.
Aberford Trust
Aberford Trust
A discretionary trust settled on 15 April 1977.
The trustee of the Trust was Kinford Pty Limited.
Was originally named the Collie Family Trust No 2.
Annesley Corporate Trust
Annesley Corporate Trust
A discretionary trust settled on 30 May 1997.
A trust which participated in the 1998 IET NVI Scheme.
The trustee of the Trust was Lake Mylor.
Annesley Investments Pty Ltd
Annesley Investments
The trustee for the Annesley Trust between 1 May 1994 and 3 July 1995.
The directors of Annesley Investments for the relevant period were the Hart and the applicant.
The applicant was a director of Annesley Investments from 9 June 1994 to 21 November 1995.
Annesley No. 3 Trust
Annesley No. 3 Trust
A discretionary trust settled on 30 May 1997.
The trustee was Haven Sea.
Participated in both the 1997 and 1998 practice NVI and the IET NVI Schemes.
Annesley Trust
Annesley Trust
A trust which participated in the 1998 IET NVI Scheme.
The original trustee was Annesley Investments.
Haven Sea was appointed trustee on 3 July 1995 .
Australian Palliative Care Fund Ltd
APC Fund
A tax-exempt entity which participated in the 2000 IET NVI Schemes.
The company was registered on 29 June 1999.
Hart was a director from 29 June 1999.
Balaclava Park Pty Ltd
Balaclava Park
The trustee for the Tarragunda Property Trust.
From approximately 1996 to 2002, Balaclava Park was the trustee for the CGH Trust.
Both the applicant and Mrs Collie were directors of the company.
Balmoral Income Trust
Balmoral Income Trust
The Trust was settled on 15 June 2000.
The trustee was Clearmaze.
A trust which participated in the 2000 IET NVI Scheme.
Barcelona Trust
Barcelona Trust
The Trust was settled on 4 May 1999.
The trustee was Xenaberry.
A trust which participated in the 1999 Practice NVI and the 1999 and 2000 IET NVI Schemes.
Benclift Pty Ltd
Benclift
An entity which participated in the 2001 IET NVI Scheme.
The company was registered on 25 November 1999.
The trustee for the Mosman First Fixed Trust.
The applicant and Hart were directors from 30 November 1999 to 4 May 2003.
Canowindra Trust
Canowindra Trust
Settled on 21 December 1992
Hart was trustee of the Canowindra Trust.
A unit holder of Comlaw Trust.
Canerink Pty Ltd
Canerink
The trustee for the CHC Discretionary Trust from 9 May 2000.
The company was registered on 16 June 1999.
The applicant, Hart and Hoare were directors from 21 June 1999.
Caroline Helen Collie
Mrs Collie
The applicant’s spouse.
CGH Trust
CGH Trust
A discretionary trust, settled on 12 August 1981.
CHC Discretionary Trust
CHC Discretionary Trust
A discretionary trust which participated in the 1998, 1999 and 2000 IET NVI Schemes.
The trustee was Cleary Hoare Consulting.
CHC Services Trust
CHC Services Trust
A discretionary trust which participated in the 2001 IET NVI Scheme.
The Trust was settled on 30 July 1999. The trustee was CHC.
Clearmaze Pty Ltd
Clearmaze
An entity which participated in the 2000 IET NVI Schemes.
The trustee for the Balmoral Income Trust, Condor No. 2 Trust, Pelican Capital Trust and Packard Income Trust.
The company was registered on 14 June 2000.
The applicant and Hart were directors from 16 June 2000.
Donald Cleary
Donald Cleary
A founding partner and former owner of Cleary Hoare.
Cleary Hoare Consulting Pty Ltd
Cleary Hoare Consulting
The trustee for the CHC Services Trust.
The directors for the relevant period were the applicant and Hart.
Cleary Hoare Corporate Pty Ltd
Cleary Hoare Corporate
or
CHC
Trustee for the CHC Discretionary Trust between 20 September 1996 and 9 May 2000.
Changed its name to Clearcor on or about 22 February 2001.
Hart ,the applicant, and Hoare were the directors during the relevant period.
Grant was a director from 19 September 1996 to 21 July 1999.
Cleary Hoare Solicitors
Cleary Hoare Solicitors
A firm of solicitors in which the applicant became a principal on or about 1 December 2002.
Ian Collie
the applicant
A salaried solicitor and principal of Cleary Hoare.
Comlaw Consultants Pty Ltd
Comlaw Consultants
Registered on 22 April 1993.
The applicant was a director from 7 October 1993 to 8 April 1999.
Hoare and Hart directors from 21 December 1992 to 8 April 1999.
Comlaw Trust
Comlaw Trust
Unit trust established on 22 December 1992 by Grant, Cleary, Hoare and Hart.
The Canowindra Trust held 50% of the units.
Trustee was Lake Morundah Pty Ltd.
Comvat Pty Ltd
Comvat
An entity which participated in the 1999 Practice NVI Scheme and the 1999 and 2000 IET NVI Schemes.
Registered on 23 June 1995.
In the 1999 and 2000 Years Comvat had tax losses resulting in little or no income tax being paid.
Condor Trust
Condor Trust
A discretionary trust which participated in the 1999 Practice NVI and the 1999 and 2000 IET NVI Schemes.
The trust was settled on 18 May 1999.
The trustee was Gainsoar.
Condor No. 2 Trust
Condor No. 2 Trust
A trust which participated in the 2000 IET NVI Scheme.
The trust was settled on 15 June 2000. The trustee was Clearmaze.
Fairclass Pty Ltd
Fairclass
A company established on 17 September 1999. The trustee for the Wilston Income Trust and Randwick Trust.
Hart, the applicant and Hoare were directors of the company from 20 September 1999 to 4 May 2003.
Falcon Income Trust
Falcon Income Trust
A trust which participated in the 2000 IET NVI Scheme.
The Trust was settled on 8 June 1999.
The trustee was Starwire.
Five Dock Investments Pty Ltd
Five Dock Investments
Five Dock Investments was the trustee for Foresight Charitable Foundation.
Foresight Charitable Foundation
Foresight Charitable Foundation
A tax-exempt entity which participated in the relevant IET NVI Schemes, and a beneficiary of the Mosman Fixed Trust.
Five Dock Investments was trustee of the Foundation.
The director of Five Dock Investments was Richard Arnold.
Gainsoar Pty Ltd
Gainsoar
A company which participated in the 1999 Practice NVI and the 1999 and 2000 IET NVI Schemes.
The company was registered on 23 March 1999. The applicant, Hoare and Hart were directors from 1 April 1999.
The trustee for the Condor Trust and Hawk Income Trust
Haven Sea Pty Ltd
Haven Sea
A company established on 17 August 1992.
The company participated in the 1998 Practice NVI Scheme and IET NVI Scheme.
The trustee for the Annesley Trust between 3 July 1995 and 8 April 1999.
Hart was a director of the company from 17 August 1992 to 8 April 1999.
The applicant was a director from 30 April 1993 to 8 April 1999.
Hawk Income Trust
Hawk Income Trust
A trust which participated in the 1999 IET NVI Scheme.
The Trust was settled on 8 June 1999.
The trustee was Starwire.
Iapetus Pty Ltd
Iapetus
An entity which participated in the 1999 Practice NVI Schemes and the 1999 and 2000 IET NVI Schemes. The trustee for the Parramatta Trust, Tanker Trust, Tambo Trust, Orient Unit Trust and the Orient Fixed Trust.
The company was registered on 1 July 1997.
The applicant, Hoare and Hart were directors from 1 July 1997.
John Hoare
John Hoare
or
Hoare
A founding partner and principal of Cleary Hoare.
LM Income Trust
LM Income Trust
A trust which participated in the 1998, 1999 and 2000 IET NVI Schemes.
Lake Mylor Pty Ltd
Lake Mylor
An entity which participated in the 1997 and 1998 Practice NVI Scheme and IET NVI Scheme.
The trustee for the Annesley Corporate Trust, the LM Income Trust, the Zebra Fixed Trust, the Zebra Unit Trust and the Zebra Capital Trust.
The Trust was settled on 9 May 1997. The trustee was Lake Mylor.
Michael James Patrick Hart (deceased)
Hart
A partner and principal at Cleary Hoare and one of the primary architects of the NVI Scheme.
Mistrill Pty Ltd
Mistrill
An entity which participated in the 2000 IET NVI Scheme.
The company was registered on 7 April 2000.The applicant and Hart were directors from 11 April 2000.
The trustee for the Packard Unit Trust and Packard Fixed Trust No. 2.
Morocco Fixed Trust
Morocco Fixed Trust
A discretionary trust which participated in the 1999 and 2000 IET NVI Schemes.
The trust was settled on 4 May 1999. The trustee was Xenaberry.
Morocco Unit Trust
Morocco Unit Trust
A unit trust which participated in the 1999 Practice NVI Schemes and the 1999 and 2000 IET NVI Schemes.
The trust was settled on 4 May 1999. The trustee was Xenaberry.
Mosman First Fixed Trust
Mosman First Fixed Trust
A trust which participated in the 2001 IET NVI Scheme.
The Trust was settled on 19 March 2001.
The trustee was Benclift.
Mosman Fixed Trust
Mosman Fixed Trust
A trust which participated in the 2001 IET NVI Scheme.
The Trust was settled on 23 March 2000. The trustee was Benclift.
Mosman Unit Trust
Mosman Unit Trust
A unit trust which participated in the 2001 IET NVI Scheme.
The Trust was settled on 19 March 2001. The trustee was Benclift.
New Venture Income Scheme
NVI Scheme
A tax planning scheme developed by the applicant and/or the principals of Cleary Hoare involving the use of trusts with no pattern of previous income distributions, such that Pt IVA of the 1936 Assessment Act would not apply.
Orient Fixed Trust
Orient Fixed Trust
A discretionary trust which participated in the 1999 Practice NVI and IET NVI Schemes.
The trust was settled on 2 February 1998.
The trustee was Iapetus.
Orient Unit Trust
Orient Unit Trust
A unit trust which participated in the 1999 IET NVI Scheme.
The trust was settled on 2 February 1998.
The trustee was Iapetus.
Packard Fixed Trust
Packard Fixed Trust
A trust which participated in the 2000 IET NVI Schemes.
The trust was settled on 15 June 2000.
Mistrill was trustee of the Packard Fixed Trust.
Packard Fixed Trust No. 2
Packard Fixed Trust No. 2
A trust which participated in the 2000 IET NVI Scheme.
The trust was settled on 15 June 2000.
Mistrill was trustee of the Packard Fixed Trust No. 2.
Packard Income Trust
Packard Income Trust
A trust which participated in the 2000 IET NVI Scheme.
The trust was settled on 15 June 2000.
Clearmaze was the trustee of the Packard Income trust.
Packard Unit Trust
Packard Unit Trust
A trust which participated in the 2000 IET NVI Scheme.
The trust was settled on 15 June 2000.
Mistrill was trustee of the Packard Unit Trust.
Parramatta Trust
Parramatta Trust
A trust which participated in the 1999 Practice NVI Scheme and the 1998 and 1999 IET NVI Schemes.
The Trust was settled on 2 February 1998.
The trustee was Iapetus.
Pelican Capital Trust
Pelican Capital Trust
A trust which participated in the 2000 Practice NVI and IET NVI Schemes.
The trust was settled on 14 July 2000.
Clearmaze was the trustee of the Pelican Capital Trust
Randwick Income Trust
Randwick Trust
A trust which participated in the 2001 IET NVI Scheme.
The Trust was settled on 23 March 2000.
The trustee was Fairclass. Relevant to the Years 1997-2002.
Retail Technology Holdings Pty Ltd
Retail Technology Holdings
or
RTH
An entity which participated in the1998 and 1999 Practice NVI and IET NVI Schemes.
The company was registered on 6 June 1972.
During the relevant years RTH had deductions/tax losses resulting in little or no income tax being paid.
Rosehill Trust
Rosehill Trust
A trust associated with Richard Arnold which participated in the 2001 IET NVI Scheme.
VA Clothing was trustee for the Trust.
Sabdye Pty Ltd
Sabdye
The principal of the Woodbury Farm Trust.
Starwire Capital Trust
Starwire Capital Trust
A trust which participated in the 1999, 2000 and 2001 IET NVI Scheme.
The trust was settled on 7 September 2001.
Starwire Capital Investment Trust
Starwire Capital Investment Trust
A discretionary trust which participated in the 1999 Practice NVI Schemes and the 1999 and 2000 IET NVI Schemes.
The trust was settled on 7 September 2001.
Starwire was the trustee of the Starwire Capital Trust.
Starwire Pty Ltd
Starwire
An entity which participated in the 1999 Practice NVI Schemes and the 1999 and 2000 IET NVI Schemes.
The trustee for the Hawk Income Trust, Tambo Capital Trust, Tambo 2000 Capital Trust, Falcon Income Trust and the Starwire Capital Trust.
The company was registered on 29 April 1999. The applicant, Hart and Hoare were directors from 10 May 1999.
Steven Grant
Grant
A principal of Cleary Hoare until 30 June 1999 and an original special unit holder of the Practice Trust.
Tambo Trust
Tambo Trust
A trust which participated in the 1999 Practice NVI Scheme and the 1999 and 2000 IET NVI Schemes. The trust was settled on 13 August 1998.
Iapetus was the trustee of the Tambo Trust.
Tambo 2000 Capital Trust
Tambo 2000 Capital Trust
A discretionary trust which participated in the 2000 IET NVI Scheme.
The trust was settled on 20 September 2000.
The trustee was Starwire.
Tambo Capital Trust
Tambo Capital Trust
A discretionary trust which participated in the 1999 Practice NVI Scheme and the 2000 IET NVI Scheme.
The trust was settled on 3 August 1999.
The trustee was Starwire.
Tanker Trust
Tanker Trust
A trust which participated in the 1999 Practice NVI and 1999 and 2001 IET NVI Schemes.
The trust was settled on 13 August 1998.
The trustee was Iapetus.
Tarragunda Pastoral Co Pty Ltd
Tarragunda Pastoral
The trustee for the Tarragunda Trading Trust.
The company was registered on 14 July 1993.
The applicant and Mrs Collie were directors from 14 July 1993.
Tarragunda Property Trust
Tarragunda Property Trust
A discretionary trust which was settled on or about 9 July 1993 by Hart.
Balaclava Park was the trustee for the Trust.
Tarragunda Trading Trust
Tarragunda Trading Trust
A discretionary trust which was settled on or about 14 July 1993 by Hart.
Tarragunda Pastoral was the trustee for the Trust.
The applicant and Mrs Collie were both directors of Tarragunda Pastoral.
Richard Arnold was both Company Secretary (appointed 21 October 1998) and auditor for Tarragunda Pastoral (appointed 3 August 1989).
VA Clothing Pty Ltd
VA Clothing
Participated in the 2001 IET NVI Scheme.
The trustee for the Mosman Unit Trust, Mosman Fixed Trust and Rosehill Trust.
Wilston Income Trust
Wilston Income Trust
A trust which participated in the 2000 and 2001 IET NVI Schemes.
The trust was settled on 23 March 2000.
The trustee was Fairclass.
Woodbury Farm Trust
Woodbury Farm Trust
A discretionary trust, originally called the Halls Gate No. 41 Trust, which was settled on or about 23 December 1981.
The trust changed its name to the Woodbury Farm Trust on or about 1 October 1991.
Woodbury Park was appointed trustee of the Trust on 1 October 1991.
Woodbury Park Pty Ltd
Woodbury Park
An entity which was registered on 26 August 1991.
The trustee for the Woodbury Farm Trust.
The directors were the applicant and Mrs Collie from 14 July 1993.
Xenaberry Pty Ltd
Xenaberry
An entity which participated in the 1999 Practice NVI Scheme and the 1999 and 2000 IET NVI Schemes.
The trustee for the Barcelona Trust, Morocco Unit Trust and Morocco Fixed Trust.
The directors of Xenaberry for the relevant period were Hart, the applicant and Hoare.
Grant was also a director from 5 June 1998 to 21 July 1999.
Zebra Capital Trust
Zebra Capital Trust
A trust which participated in the 1997 Practice NVI and the 1997 IEV NVI Scheme.
The trust was settled on 1 July 1997. Lake Mylor was trustee of the Zebra Capital Trust
Zebra Capital Investment Trust
Zebra Capital Investment Trust
A trust which participated in the 1998 Practice NVI and the 1998 IET NVI Schemes.
The trust was settled on 1 July 1998.
Lake Mylor was trustee of the Zebra Capital Investment Trust.
Zebra Fixed Trust
Zebra Fixed Trust
A fixed trust which participated in the 1998 Practice NVI Scheme and IET NVI Scheme.
The trust was settled on 9 May 1997.
Lake Mylor was trustee of the Zebra Fixed Trust
Zebra Unit Trust
Zebra Unit Trust
A unit trust which participated in the 1998 Practice NVI and IET NVI Schemes.
The trust was settled on 9 May 1997.
Lake Mylor was trustee of the Zebra Unit Trust.
Annexure B
Description
Date of Evidence
Affidavit of Ian Collie
7 August 2020
Statutory Declaration of Peter McKnoulty
October 2021
S 37 Documents
Documents tendered with the applicant’s affidavit.
Annexure C
Summary of tax advice
RE: INCOME TAX ASSESSMENT ACT 1936
PRECIS OF SENIOR COUNSEL'S OPINION DATED 8 FEBRUARY 1996
1. RELEVANT ENTITIES
Instructing Solicitors sought an opinion in relation to the operation of the Income Tax Assessment Act 1936 in respect of a proposed series of transactions which will be entered into by a number of entities including six newly established trusts (NCT1, NCT2, NPT1, NPT2, NPT3.and NPT4). NCT1 and NCT2 will be under the control of clients of advisers who have sought assistance from Instructing Solicitors on behalf of their clients but who are not otherwise connected with Instructing Solicitors. NPT1, NPT2, NPT3 and NPT4 will effectively be under the control of persons associated with Instructing Solicitors.
2. ASSUMPTIONS
2.1 NCT1 is. a discretionary trust which will for the first time derive substantial assessable income as a result of which there will be distributable net income of its trust estate for the purposes of the Act. It will not have previously distributed any net income to its beneficiaries. Its classes of beneficiaries will be specified in such a way that they include NPT1, a number of charities and (possibly) additional individuals or entities unassociated with the persons who control its operations.
2.2 NPT1 will be a discretionary trust.
2.3 NPT2 will be a fixed trust.
2.4 NPT3 will be a discretionary trust.
2.5 NPT4 will be a unit trust.
2.6 NCT2 will be a discretionary trust.
2.7 There will be net income available for distribution in NCT1 of $1 million. The transactions which will then occur include the following:
2.7.l the net income of NCT1 of $1 million will be distributed to NPT1 and on to NPT2 with the bulk of the funds ultimately received by NPT4.
2.7.2 NPT4 will pay $900,000.00 by way of gift to NCT2. NPT4 wi11 a1so pay fees in connection with implementation of the proposal.
2.7.3 NCT2 lends the money it has received to NCT1.
3. CONSEQUENCES
3.1 The overall result of the transactions is that entities associated with the client have paid out $1 million and received $900,000.00, a net loss of $100,000.00. However, the receipt is conceived to be not assessable to income tax whilst the amount paid out would have been assessable in the hands of a beneficiary or the trustee of NCTl.
3.2 NPT1 and NPT2 have acted solely as conduits through which the sum of $1 million has passed.
3.3 NPT4 has received a sum properly categorised as capita1 from which it makes a gift to NCT2 which is also capital in the hands of the recipient.
In the context of the above transactions (and other steps not disclosed in this precis) the questions asked of Senior Counsel and his answers included:-
Question 1
Will the distribution of income by NCT1 to NPT1 result in any adverse tax investments for NCT1? In other words, will the trustee of NCT1 be free of any liability to income tax that might have arisen if Section 100A of the Act were to apply.
Answer
In Senior Counsel's opinion, no. Assuming that the section might otherwise be applicable, Subsection (3B) (which deals with, trust to trust distributions) will mean that since the income of NCT1 was distributed by NPT1 to NPT2, section 100A will not have any application to the distribution from NCT1.
Question 2
Will Section 100A apply to the distribution by NPT1 to NPT2?
Answer
For the same reason as given in the answer to question 1, Section 100A will not have any application to this distribution.
Question 3
Will the gift by NPT4 to NCT2 result in any income tax liability by either party?
Answer
For reasons including the following:
1.It is a one-off transaction with no incidents of business or enterprise;
2.The acquisition of a gift does not, of itself, give rise to a taxable capital gain. Such an issue requires consideration if, and when, the gift is disposed of;
3.The definition of "asset" for capital gains tax purposes (S. 160A) is not such as to include gifts of Australian currency not relating to an existing debt or chose in action; and
4.Even if the gift were an asset for capital gains tax purposes when acquired by NCT2 such an acquisition would not, of itself, give rise to a taxable capital gain. That issue would not arise until the asset is disposed of by NCT2 and the consideration received (if any) would never be more than the cash amount of the gift meaning there can be no capital gain;
there is no basis upon which any of the other entities involved should be liable to tax with the exception of the entity which receives the fees which will be taxable.
Provided that no instrument is brought into existence which falls within the definition of a “deed of gift" or similar in the relevant State legislation and settlement sums are nominal, no liability to stamp duty should arise.
Question 4
Will the proposal be adversely affected by Part IVA?
Answer
Whilst the proposal will come within the definition of a "scheme" (S. 177A(l)), it ought not be adversely affected by the anti-avoidance provisions contained within Part IVA because it will not be a scheme to which Part IVA applies as set out in S. 177D since it will not be possible to identify a taxpayer who was intended to obtain a tax benefit. Such a conclusion is dependent on there being no identifiable taxpayer associated with NCT1 in terms of enabling the Commissioner to point to such a taxpayer as evidenced, for example, by a pattern of previous distributions.
Question 5
Will the proposal be adversely affected by:-
1.The Trust Recoupment Tax Assessment Act 1985?
2.The Crimes (Taxation Offences) Act 1980?
Answer
Senior Counsel sees no reason why the proposal should result in any breach of the duties of directors, trustees, or the criminal law and, in particular, the Crimes·(Taxation Offences) Act 1980. It does not seem to him that the provisions of paragraph 3(4)(e) of the latter Act can apply in relation to a trustee which never becomes personally liable to pay tax, since the essence of offences created under that Act (apart from section 8, which applied only in the context of old sales tax) is the deprivation of a company or trustee of the capacity to meet tax liabilities which (are due, or which fall due. In his view, none will, either personally or otherwise.
Senior Counsel also considered and advised that there was no adverse impact on the proposal if the flow of funds from NCT1 to NPT1 (and back to NCT1) were by way of bearer promissory notes except for the fee component which would be by cheque.
NVI ARRANGEMENT
1.Principal features:
1.1Relevant to discretionary trusts and discretionary unit trusts ("the distributing trust") which are either:
1.1.1newly established without any trading history; or
1.1.2established in a previous year but without a pattern of distributions.
1.2At least two recipient trusts between the distributing trust and the ultimate beneficiary.
1.3Gift by ultimate beneficiary to non-associated trust in order for first recipient trust to qualify as a potential beneficiary.
1.4Gift of capital to capital trust.
2.Principal issues:
2.1S.l00A.
2.2Part IVA.
2.3Deductibility of qualifying gift.
2.4Gift on capital account.
2.1S. l00A:
Specifically:
(3B)Where -
(a)apart from this section, a beneficiary (in this subsection referred to as the trustee beneficiary) of a trust estate would, by reason that income of the trust estate was paid to, or applied for the benefit of, the trustee beneficiary, be deemed to be presently entitled to income of the trust estate in the capacity of a trustee of another trust estate (in this subsection referred to as the interposed trust estate);
(b)apart from this subsection, that income or a part of that income (which income or pan is in this subsection referred to as !he relevant trust income) would, by virtue of subsection (2), be deemed not to have been paid to, or applied for the benefit of, the trustee beneficiary; and
(c)apart from this section, a beneficiary of the interposed trust estate is or was, or beneficiaries of the interposed trust estate are or were, presently entitled, or deemedto.be presently entitled, to any income of the interposed trust estate (in this subsection referred to as the distributable trust income) that is attributable to the relevant trust income,
subsection (2) does not apply, and shall be deemed never to have applied, in relation to the trustee beneficiary, in relation to any part of the relevant trust income to which the distributable trust income is attributable.
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(7)Subject to subsection (8), a reference in this section, in relation to a beneficiary of a trust estate, to a reimbursement agreement shall be read as a reference to an agreement, whether entered into before or after the commencement of this section, that provides for the payment of money or !he transfer of property to, or the provision of services or other benefits for, a person or persons other than the beneficiary or the beneficiary and another person or other persons.
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(8)A reference in subsection (7) to an agreement shall be read as not including a reference to an agreement that was not entered into for the purpose, or for purposes !hat included the purpose, of securing that a person who, if the agreement had not been entered into, would have been liable to pay income tax in respect of a year of income would not be liable to pay income tax in respect of that year of income or would be liable to pay less income tax in respect of that year of income than that person would have been liable to pay if the agreement had not been entered into.
In the contemplated circumstances:
2.1.1At trust law, no beneficiary of a discretionary trust has any interest in the property of the trust (including income) until such time as the trustee's discretion has been exercised in favour of the beneficiary. From an ITAA standpoint, in the absence of a pattern of distributions, it cannot be said that any particular beneficiary or beneficiaries would have been liable to pay income tax (or less income tax) in respect of the year of income if the agreement had not been entered into.
2.1.2In any event, even assuming that s. 100A might otherwise be applicable, sub-section (3B) will have the effect that as the income of the distributing trust is distributed by the first recipient trust to the second recipient trust, the section will have no application to the distributing trust.
2.2Part IVA
2.2.1Whilst the proposal will come within the definition of a "scheme" (s.177A(l) of the ITAA), it will not be a scheme to which Part IV A applies as set out in s. l 77D because it is not possible to identify a taxpayer who was intended to obtain a tax benefit.
2.2.2The requirements of s.177D are similar to those of sub-section 100A(8). For Part IV A to adversely impact on the proposal there must be an identifiable "taxpayer" who obtained a tax benefit in connection with the scheme being referable to an amount not being included in the assessable income of the taxpayer in the year of income.
2.3Deductibility of qualifying gift:
2.3.1The obtaining of the income distribution is the only purpose of the expenditure involved in the gift and, accordingly, the expense is incurred in the gaining of assessable income. No capital asset is acquired by the ultimate beneficiary. There exists the appropriate nexus between the expense and the derivation of the income.
2.3.2Neither Part IVA nor any other provision of the ITAA will operate to impact on the deductibility of the qualifying gift.
2.3.3In any event, at all material times, the ultimate beneficiary was either a company with available tax losses or an exempt entity.
2.4The capital nature of the gift received by the capital trust:
2.4.1The proposal provides for the payment of monies by way of subscription for units in the unit trust which are to be properly treated on capital account in the books of the unit trust.
2.4.2There is nothing in the transaction including the steps prior to the receipt of the funds by the unit trust that adversely impacts on the capital nature of the transaction.
2.4.3There is nothing at tax law that affects the capital nature of the gift received by the capital trust.
Annexure D
Assets purchased between 1 July 1992 to 30 June 2001 by entities connected with the applicant or his family members.
Owner / Purchaser[131]
Asset Description
Date purchased
Price
Woodbury Park trading as Collian Park Limousin Stud
Shed Beef Cattle
1993/02
$23,000
Woodbury Park
Mercedes Benz Sedan
1993/05
$70,000
Woodbury Park trading as Collian Park Limousin Stud
Mercedes Benz Truck
1993/05
$40,000
Balaclava Park
Grazing Property, Allora, Qld
1993/05
$330,000
Woodbury Park
Toyota Sedan
1993/06
$22,000
Woodbury Park trading as Collian Park Limousin Stud
Ford Tractor
1993/08
$14,000
CH Collie
Residential Property, Bardon, Qld
1993/09
$335,000
Woodbury Park
Ford Telstar Sedan
1995/01
$35,000
Balaclava Park
Residential Property, Noosaville, Qld
1998/08
$675,000
Balaclava Park
Mercedes Benz Sedan
1999/03
$100,000
CH Collie
Residential Property, Newstead, Qld
1999/08
$915,000
Balaclava Park
Mercedes Benz Sedan
2000/07
$60,000
Quintack [132]
No Bolt Scaffolding
Pty Ltd (Shares)
2000/06
$672,234
Balaclava Park
Quintrex Boat 5.6m
2000/01
$30,000
Tarragunda
Mercedes Benz Sedan
2001/04
$135,000
Balaclava Park
Quintrex Boat 6m
2001/03
$35,000
[131]The applicant contends that he did not acquire any beneficial interest in any of the listed assets.
[132]T88, p 1021. Refer to Cleary Hoare Cashbook at T479, p 3762.
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