Federal Commissioner of Taxation v Whiting

The Federal Commissioner of Taxation (the Commissioner) appealed to the Full Court of the High Court of Australia against a decision of Rich J. The appeal concerned the assessment of income tax on the net income of a deceased estate. The trustees of the estate argued that beneficiaries were presently entitled to portions of the income, meaning the trustees should not be assessed on those portions. The Commissioner contended that due to the estate's unadministered state and outstanding liabilities, no beneficiaries were presently entitled to any income, and therefore the trustees were correctly assessed on the entire net income under section 99 of the *Income Tax Assessment Act 1936-1940* (Cth).

The primary legal issue before the Full Court was the interpretation of the phrase "presently entitled" as used in section 97 of the *Income Tax Assessment Act 1936-1940*. Specifically, the court had to determine whether this phrase referred to a beneficiary having a vested interest in possession, or whether it required a present right to have the income paid to them by the trustee, meaning it must be immediately payable. This distinction was crucial for determining whether the trustees or the beneficiaries were liable for income tax on the estate's income.

The Full Court, in allowing the Commissioner's appeal, held that a beneficiary is "presently entitled" to income of a trust estate only if they have a present right to have that income paid to them by the trustee. The court reasoned that the word "presently" indicated an entitlement to immediate payment, not merely a vested interest in expectancy. This interpretation was supported by section 98 of the Act, which deals with beneficiaries under a legal disability. The court found that in the present case, due to the significant outstanding liabilities and the complex administration of the estate, the beneficiaries did not possess a present right to demand payment of the income. Consequently, the trustees were liable to be assessed on the entire net income of the estate under section 99.