GQRW and Commissioner of Taxation (Taxation) - [2022] AATA 1779

GQRW and Commissioner of Taxation (Taxation) [2022] AATA 1779 (17 June 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number:2019/6652
Re:GQRW
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Member D Mitchell
Date:17 June 2022
Place:Brisbane

The Tribunal varies the reviewable objection decision to the extent that the Applicant’s amended taxable income for the 2013 income year is $67,784.90.
.................[SGD]........................
Member D Mitchell
CATCHWORDS
TAXATION – income tax – ordinary income – where payments received related to ongoing family and business proceedings – payments made as a result of Supreme Court Orders – does the manner in which payments are classified change the tax treatment of the payments – decision under review varied
LEGISLATION
Corporations Act 2001 (Cth)
Family Law Act 1975(Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199
Hobart Bridge Co Ltd V Commissioner of Taxation (1951) 82 CLR 372
Nathan Jones and Commissioner of Taxation [2011] AATA 26
Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215
REASONS FOR DECISION
Member D Mitchell
17 June 2022
INTRODUCTION

GQRW (the Applicant) is seeking review of an objection decision made by the Commissioner of Taxation (the Respondent) on 12 August 2019.[1]
[1] Exhibit 1, T Documents, T13, page 82, Notification letter.
The reviewable objection decision disallowed the Applicant’s objection to an Amended Notice of Assessment for the income year ended 30 June 2013 (the 2013 year). The reviewable objection decision was made on the basis that the Respondent considered that $45,606.00 received by the Applicant in the 2013 year through a family trust should be included in their taxable income for that year.[2]
[2] Exhibit 1, T Documents, T2, pages 5-7, Reasons for decision.
The present dispute before the Tribunal relates to whether $45,606.00 was received by the Applicant in the 2013 year and if so, whether it amounts to assessable income.
BACKGOUND
This application arose in circumstances where the Applicant, their then spouse and a number of other individuals and entities had in 2003 established a company (the Company) and had gone into business together. The structure allowed for three family groups to share in the profits of the Company. When the Company was initially set up, the Applicant held 33% of the issued shares personally and 1 share jointly with two other individuals, was employed by the Company and their spouse was a director of the Company.[3]
[3] Exhibit 2, Hearing Book, Tab R4, pages 200-201, Supreme Court Decision, paragraphs 1-4.
The Company was successful and in August 2005, an accountant was invited to review its operations. A restructure was recommended and accepted by the Company. The restructure took a considerable amount of time and was finalised in the second half of 2006.[4]
[4] Exhibit 2, Hearing Book, Tab R4, pages 201-203, Supreme Court Decision, paragraphs 5-11.
The Company was restructured with the intention to:[5]
(a) Formalise payments made to the entitles and individuals doing business through [the Company];
(b) Minimise tax by distributing profits through trusts; and
(c) To protect the assets of [the Company] by showing nominal assets in its balance sheet and paying [a new company as trustee for a unit trust] a licence fee to use the intellectual property previously owned by [the Company].
[5] As summarised at Exhibit 2, Hearing Book, Tab R2, page 191, Respondent’s Statement of Facts, Issues and Contentions, paragraph 16.
During the restructure period, the Applicant’s marriage broke down. The Applicant left their then spouse in July 2006.[6]
[6]Exhibit 2, Hearing Book, Tab R4, page 203, Supreme Court Decision, paragraph 12.
As a result of the restructure, the unit trust (the Unit Trust) paid royalties received from the business activities of the Company to various trusts set up by the family groups. In the Applicant’s case, their family’s share of the royalties was paid to a company (GQRW Pty Ltd) as trustee for their family trust.[7] That family trust (GQRW Family Trust) listed the primary beneficiary of the trust as the Applicant’s then spouse and second beneficiaries to include that person’s spouses. The Applicant was not specifically named as a beneficiary of the GQRW Family Trust.[8]
[7]Exhibit 2, Hearing Book, Tab R4, page 202, Supreme Court Decision, paragraph 9.
[8]Exhibit 1, T Documents, T8, pages 39-52, Trust Deed of GQRW Family Trust.
In May 2007, the Applicant commenced litigation against the Company and the individuals and entities (including their former spouse) through which the Company was run in relation to the restructure which the Applicant said was a conspiracy to exclude them from the business and was therefore oppressive within the meaning of section 232 of the Corporations Act 2001 (Cth) (Oppression Proceedings).[9]
[9]Exhibit 2, Hearing Book, Tab R4, pages 201 and 204, Supreme Court Decision, paragraphs 7 and 12(o).
On or about 5 June 2007, the Applicant and the defendants to the Oppression Proceedings agreed to orders (Consent Orders) by which GQRW Pty Ltd’s share of the Company royalties was to be paid in equal proportions to the Applicant and their former spouse.[10] Those consent orders were made on 15 June 2007 binding all the defendants accordingly.[11]
[10]Exhibit 1, T Documents, T11, pages 60-63, Oppression Proceedings Consent Orders.
[11]Exhibit 2, Hearing Book, Tab R4, page 204, Supreme Court Decision, paragraph 12(o).
On or about 7 June 2007, the unit holders agreed that the Unit Trust would pay the full GQRW Pty Ltd entitlement at GQRW Pty Ltd’s direction.[12]
[12]Exhibit 2, Hearing Book, Tab A2, page 82, Annexure to Applicant’s Affidavit.
In the 2013 year, GQRW Pty Ltd recorded in its unaudited profit distribution summary with regards to the GQRW Family Trust:[13]
[13]Exhibit 1, T Documents, T7, page 35, Unit Trust beneficiaries profit distribution statement.
(a)a profit of $167,589.68 on account of the GQRW Family Trust; and
(b)a distribution totalling $181,930.88; and
(c)contained a handwritten notation ‘50% to [the Applicant]’; and
(d)had annexed to its unaudited beneficiaries profit distribution summary a table titled ‘[GQRW] Family Trust’ which contained handwritten notations relevantly as follows:
(i)“GQRW Family Trust: These amounts paid to Trust (do not include payments direct to [the Applicant])”
(ii)“No more to [the Applicant]”
(iii)As per [Unit Trust] Financials
Money paid - [GQRW former spouse] $137,004
- [Applicant] $ 44,927
Total $181,930
Relevantly, GQRW Pty Ltd:
(a)has, as its director, the Applicant’s former spouse;[14]
[14]Exhibit 1, T Documents, T9, page 53, GQRW Family Trust Distribution Minutes.
(b)was the corporate trustee for the GQRW Family Trust in the 2013 year[15] and had the power to:
(i)distribute the income of the GQRW Family Trust to any of its beneficiaries in its absolute discretion;[16] and
(ii)in distributing the income of the GQRW Family Trust, identify amounts that may give rise to a taxation liability arising under the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) or the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and separately account for that amount.[17]
(c)in the 2013 year, resolved to distribute the net annual income for the purposes of the ITAA 1936 as follows:[18]
(i)to the Applicant, the amount physically taken as income during the year; and
(ii)to GQRW Pty Ltd, $30,000; and
(iii)to the Applicant’s former spouse, all capital gain, franked dividend income and the balance of trust income.
[15]Exhibit 1, T Documents, T9, page 53, GQRW Family Trust Distribution Minutes.
[16]Exhibit 1, T Documents, T8, page 41, clause 5.2, Trust Deed of GQRW Family Trust.
[17]Exhibit 1, T Documents, T8, page 42, clause 5.7, Trust Deed of GQRW Family Trust.
[18]Exhibit 1, T Documents, T9, pages 53-55, GQRW Family Trust Distribution Minutes.
The Applicant’s divorce from their former spouse was finalised on 26 October 2007.[19]
[19]Exhibit 2, Hearing Book, Tab A4, page 177, Certificate of Divorce.
On 11 December 2012, the Supreme Court handed down its judgement in the Oppression Proceedings.[20] The Supreme Court dismissed the application and found relevantly that:[21]
(a)in assessing whether or not the statutory criteria for unfairness have been met, it is appropriate to take into account the behaviour of the person making the allegation of oppression; and
(b)if tax minimisation and protection of assets from creditors are regarded as advantages, the restructure was advantageous to the members as a whole; and
(c)the defendants had never insisted upon the Applicant selling their shares, it is the Applicant who had insisted on a sale at a valuation which is quite inappropriate in the circumstances.
[20]Exhibit 2, Hearing Book, Tab R4, pages 199-233, Supreme Court Decision.
[21]Exhibit 2, Hearing Book, Tab R4, pages 199-200, Supreme Court Decision.
No further payments were made by the Unit Trust to the Applicant after the decision of the Supreme Court was handed down.
The distribution of the Applicant and their former spouse’s matrimonial property was finalised by orders of the Family Court on 3 June 2016.[22]
[22]Exhibit 1, T Documents, T6, pages 29-33, Family Court of Australia Court Order.
On 6 August 2013, the Applicant filed their 2013 year personal income tax return.[23]
[23]Exhibit 1, T Documents, T2, page 6, paragraph 27, Reasons for decision
On 14 August 2013, the Respondent issued a notice of assessment which recorded the Applicant’s taxable income as $24,462.00.[24]
[24]Exhibit 1, T Documents, T3, pages 8-9, Notice of Assessment 2013.
On 10 October 2014, the Respondent issued a notice of amended assessment for the 2013 year amending the Applicant’s taxable income to include $45,606.00 relating to trust distributions. The amended assessment increased the Applicant’s taxable income to $70,068.00 and resulted in a tax shortfall amount of $14,258,40.[25]
[25]Exhibit 1, T Documents, T4, pages 10-12, Notice of Amended Assessment 2013.
By way of letter dated 5 April 2016 to the Respondent, the Applicant objected to the 2013 amended assessment.[26] The objection was subsequently withdrawn.[27] On 5 June 2018, the Applicant lodged a further objection to the Respondent, reattaching the earlier withdrawn objection.[28]
[26]Exhibit 1, T Documents, T5, pages 17-28, Objection.
[27]Exhibit 2, Hearing Book, Tab A2, page 37, Applicant’s Affidavit, paragraph 10.
[28]Exhibit 1, T Documents, T5, pages 14-28, Objection.
The Applicant’s grounds of objection were summarised by the Respondent as:[29]
(a)[their former spouse’s] accountant had made an error in accounting for family trust distributions made to the Applicant;[30]
(b)those errors were inconsistent with evidence filed in the Family Court of Australia and statements made by [their former spouse and their] solicitor to the Applicant and the Family Court;[31]
(c)any monies paid to the Applicant were "after tax" payments paid through [GQRW Pty Ltd] to the [GQRW] Family Trust;[32]
(d)[their former spouse] was solely responsible for the payment of the Applicant's taxation liabilities on money paid to the Applicant through the [GQRW] Family Trust;[33]
(e) the Applicant cannot receive distributions from the [GQRW] Family Trust.[34]
[29]Exhibit 2, Hearing Book, Commissioner’s Opening Submissions, page 178-179, paragraph 3.
[30]Exhibit 1, T Documents, T5, page 15, Objection.
[31]Exhibit 1, T Documents, T5, page 15, Objection.
[32]Exhibit 1, T Documents, T5, page 18 at paragraph (b) and page 22, Objection.
[33]Exhibit 1, T Documents, T5, page 18, paragraphs (d) and (e), Objection.
[34]Exhibit 1, T Documents, T5, page18, paragraphs (c) and (f); pages 20 and 23, Objection.
In response to a letter issued on 17 April 2019 by the Respondent, the Company provided details that the Unit Trust made transfers to the Applicant between 6 July 2012 and
[35]Exhibit 1, T Documents, T11 page 74, Oppression Proceedings Consent Orders.
[36]Exhibit 1, T Documents, T12, page 80-81, further response to 353-10 notice.
14 December 2012 totalling $45,301.02.[35] Further information provided by the Unit Trust’s bank excluded a payment previously advised was made on 30 November 2012, resulting in the total sum of the Unit Trust transfers recorded as having gone from its bank account to the Applicant’s bank account as being $43,322.90.[36]
Each transaction outlined in the corresponding Unit Trust document referencing transactions made to the Applicant’s bank account bears the description which the Applicant explained meant “[Unit Trust] Advance Profit Distribution”.[37] The Applicant outlined that this sum was:[38]
“merely advance payments to [the Unit Trust] and on paid to the [GQRW Family Trust] and the two other investor entitles and that tax by all of them are to be paid from residual earnings in the [other unit trusts];”
[37]Exhibit 2, Hearing Book, Tab A2, page 38, Applicant’s Statement of Facts, Issues and Contentions.
[38]Exhibit 2, Hearing Book, Tab A2, page 42, Applicant’s Statement of Facts, Issues and Contentions.
On 12 August 2019, the Respondent disallowed the Applicant’s objection.[39]
[39]Exhibit 1, T Documents, T2, pages 5-7, Reasons for decision; T13, page 82.
By way of an Application for Review dated 10 October 2019, the Applicant sought review of that objection decision by this Tribunal.[40]
[40]Exhibit 1, T Documents, T1, pages 1-4, Application for review of decision.
On 17 January 2022, a Hearing was conducted using Microsoft Teams. At the Hearing, the Applicant was represented by Mr Noel James. The Applicant provided evidence under affirmation.
LEGISLATIVE FRAMEWORK AND PRINCIPLES
The relevant law in this matter includes the Income Tax Assessment Act 1936 (Cth)

(ITAA 1936), the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and the Taxation Administration Act 1953 (Cth) (TAA 1953).
Section 6-5 of the ITAA 1997 provides that a taxpayer’s assessable income includes income according to ordinary concepts, which is called ordinary income.[41] Assessable income of Australian resident taxpayers includes the ordinary income they derive directly or indirectly from all sources, whether in or out of Australia during the income year.[42]
[41]Section 6-5(1) of the ITAA 1997.
[42]Section 6-5(2) of the ITAA 1997.
Income according to ordinary concepts is not defined in the ITAA 1997, however has been widely settled by the Courts. In Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219, Chief Justice Jordan said:
The word 'Income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of receipts.
Profits made in the ordinary course of carrying on a business constitute income according to ordinary concepts.[43] As a result of the High Court decision in Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 (Myer Emporium case), transactions made with the intention of making a profit or a gain even in circumstances outside of what might be considered to be the ordinary course of the taxpayer’s business will nevertheless be income according to ordinary concepts. The majority judgement of the High Court provided:[44]
Because a business is carried on with a view to profit, a gain made in the ordinary course of carrying on the business is invested with the profitmaking purpose, thereby stamping the profit with the character of income. But a gain made otherwise than in the ordinary course of carrying on the business which nevertheless arises from a transaction entered into by the taxpayer with the intention or purpose of making a profit or gain may well constitute income. Whether it does depends very much on the circumstances of the case. Generally speaking, however, it may be said that if the circumstances are such as to give rise to the inference that the taxpayer's intention or purpose in entering into the transaction was to make a profit or gain, the profit or gain will be income, notwithstanding that the transaction was extraordinary judged by reference to the ordinary course of the taxpayer's business. Nor does the fact that a profit or gain is made as the result of an isolated venture or a "one-off' transaction preclude it from being properly characterized as income. The authorities establish that a profit or gain so made will constitute income if the property generating the profit or gain was acquired in a business operation or commercial transaction for the purpose of profit-making by the means giving rise to the profit.
[citations omitted]
[43]Hobart Bridge Co Ltd V Commissioner of Taxation (1951) 82 CLR 372 at 382.
[44] Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 per Mason ACJ, Wilson, Brennan, Deane and Dawson JJ at 209-210.
Division 126 of the ITAA 1997 allows, in certain circumstances, a capital gain or loss an entity makes from disposing of a CGT asset to, or creating a CGT asset in, another entity to be disregarded.
Specifically, sections 126-5 and 126-15 of the ITAA 1997 deal with CGT events involving spouses, a company or trust, where a CGT event occurs because of a court order made under the Family Law Act 1975 (Cth) or under a State law, Territory law or foreign law relating to breakdowns of relationships between spouses or maintenance agreements, financial agreements, an award made in arbitration or other binding written agreements. The CGT events to which such a gain or loss can be disregarded are limited by sections 126-5(2) and 126-15(2) of the ITAA 1997.
Where a person disagrees with an amended assessment issued by the Respondent, they may object to that decision.[45] Following a review of the objection, an objection decision will be made by the Respondent.[46]
[45]Following the requirements set out in Part IVC of the TAA 1953.
[46]Section 14ZY of the TAA 1953.
Where a taxpayer is dissatisfied with an objection decision made by the Respondent, they may apply to this Tribunal for a review of the decision or appeal to the Federal Court against it.[47]
[47] Section 14ZZ of the TAA 1953.
The Applicant, in exercising their right to seek review of the Respondent’s objection decision has, by virtue of section 14ZZK(b)(i) of the TAA 1953, the burden of proving that the assessment for the 2013 year is excessive or otherwise incorrect and what that assessment should have been.
ISSUES
The issue before the Tribunal is whether the Applicant has discharged their burden of proof such that the 2013 year amended assessment is excessive or otherwise incorrect and what the assessment should have been.
To determine that issue, the Tribunal must consider whether the amount of $45,606.00 or some other amount received by the Applicant form part of their ordinary income in the 2013 year.
APPLICANT’S EVIDENCE AND CONTENTIONS
The Applicant’s contentions and supporting documentation were comprehensively set out in the filed Statement of Facts, Issue and Contentions dated 12 November 2021 which included an Affidavit of the Applicant together with attachments,[48] and the Applicant’s written Opening Submissions dated 22 December 2021.[49] The evidence given by the Applicant at Hearing and the contentions made on their behalf at Hearing were consistent with the previously filed material.
[48] Exhibit 2, Hearing Book, Tab A2, pages 8-169, Applicant’s Statement of Facts, Issues and Contentions.
[49] Exhibit 2, Hearing Book, Tab A1, pages 1-7, Applicant’s Opening Submissions.

The Applicant contended that 50% of the GQRW Family Trust’s royalty receipts being on paid to them were the result of an oral matrimonial separation agreement between them and their former spouse made in around July 2006. The Applicant contended that such agreement was evidenced by the conduct of the parties.[50]
[50] Transcript of 17 January 2022, page 14.
The Applicant contended that the Oppression Proceedings Consent Orders served two distinct purposes. Firstly, to preserve the Applicant’s former spouse’s post-marital separation commitment to the Applicant, which had no detrimental effect on the Company. Rather, it made the other entities within the business instrumental in ensuring compliance, much like a garnishee would accomplish in a salary or wage-earner situation. Secondly, it was the restraints imposed on the business entities and directors to preserve the post-restructure business without any further changes until the legal proceedings had concluded. This was the issue for the other parties to those Oppression Proceeding as it restricted them from conducting the business how they wanted to.[51]
[51] Transcript of 17 January 2022, pages 1-17.
The Applicant contended that whether their former spouse took the royalties in their name, paid it to the Applicant or bought a car with it, did not matter to the Applicant as it was not their issue. The Applicant contended that it was not the Unit Trust or Company that had decided to cease the payments to them upon the cessation of the Consent Order, it was the direction from their former spouse that had ceased the payments.[52]
[52] Transcript of 17 January 2022, pages 1-17.
The Applicant contended that the present scenario is identical to a garnishee payment where an employer is required to pay a part of an employee’s wage to an ex-spouse, which does not make the ex-spouse an employee. The Applicant contended that tax has to be deducted first and then what is left from the amount should be paid to the spouse. For example, if the payment is $1,000 and $150 is deducted for tax, then the $850 left should be paid to the ex-spouse of the employee.[53]
[53] Transcript of 17 January 2022, page 17.
The Applicant drew the Tribunal’s attention to a redacted Federal Magistrates Court of Australia Affidavit of their former spouse dated 5 April 2013 and a redacted transcript of Federal Magistrates Court proceedings in support of its contention that they were not a beneficiary of the GQRW Family Trust and could not have received distributions from it and that their former spouse was responsible for all taxation connected with the payments made to them.[54]
[54] Transcript of 17 January 2022, pages 18-19.
Relevantly, the redacted Affidavit of the Applicant’s former spouse provided that:[55]
14. Any income derived through [the Unit Trust] and paid to the [GQRW] Family Trust is taxable. The trust is solely responsible for any tax payments.
16. I cannot make payments from the [GQRW] Family Trust to the applicant. I would be in breach of the Deed and Taxation Law.
[55] Exhibit 1, T Documents, T5, pages 19-20, Objection.
Relevantly, the redacted transcript provides that the Applicant’s former spouse’s solicitor told the Federal Magistrates Court:[56]
45. …The tax was paid immediately by my client.
15. Let me put it another way to your Honour. I would agree entirely with you, had it not but been for the [spouse] being solely responsible for the payment of the [other spouses (reference being to the Applicant)] tax.
[56] Exhibit 1, T Documents, T5, pages 22 and 24, Objection.
In support of its contention, the Applicant also drew the Tribunal’s attention to an email of their former spouse’s solicitor dated 9 December 2013 that provided:[57]
There is no confusion between your Application in a Case and spouse maintenance. You have been periodically invited to make the spouse maintenance application yet you continue to claim you are entitled to 50% of the [GQRW Pty Ltd] distribution from the [Unit Trust].
Your payments pursuant to court orders made in 2007 were discontinued once a decision was made in the Supreme Court proceedings. [The Unit Trust] pays the [GQRW] income to the [GQRW Pty Ltd/GQRW] Family Trust. You are not a beneficiary of the [GQRW] Family Trust. You cannot receive distributions from the trust.
…….
[57] Exhibit 1, T Documents, T5, page 23, Objection.
The Applicant further referred to what looks to be an affidavit of their former spouse dated 27 June 2014 that provides:[58]
16. I became solely responsible for the respondent’s tax as technically the respondent’s payments came from the [GQRW] Family Trust. My income was thus depleted by the amount of tax due on the respondent’s income. I intend seeking reimbursement of those funds from the respondent at trial.
[58] Exhibit 1, T Documents, T5, page 25, Objection.
The Applicant contended that the Respondent should have audited the Applicant’s former spouse and sought evidence from their former spouse’s solicitor and accountant. The Applicant contended that in the absence of having done so, the financial documents relied upon by the Respondent provided by them have not been challenged, ratified or corroborated and cannot be relied upon.[59]
[59]Transcript of 17 January 2022, page 21.
At Hearing the Applicant:[60]
[60]Transcript of 17 January 2022, pages 30-43.
·Confirmed they received payments into their account from the trustee of the Unit Trust. They were unsure how much they actually received, however thought it was in the realm of what was outlined in the papers.
·Confirmed they did not consider the funds received to be distributions from the GQRW Family Trust as they were not a beneficiary of the trust.
·Said they understood that the funds received were not income, rather, they were matrimonial distributions from their former spouse’s after tax earnings.
·Said that from the time they and their former spouse made their personal agreement, they were paid 50% of the royalties paid to GQRW Pty Ltd up until it stopped at the end of 2012.
·Said the payments were not income as they did not participate in the business whatsoever, they did not work for it.
·Said they considered the monthly payments to be an agreed amount of spousal maintenance until the Family Court proceedings finished.
·When asked if from at least 2007 when the Consent Orders were made, the payments were made because of those orders and continued to be paid until the Supreme Court decision was handed down, said that is correct, they were paid on the direction of their former spouse.
·Said that the payment arrangements were put in place between them and their former spouse around a year prior to the Consent Orders. They requested the arrangements from their former spouse after receiving legal advice to do so and had intended to get consent orders to formalise the agreement, however at the time they proceeded with the Supreme Court action.
·Said they had been advised that the arrangement would be tax free as spousal maintenance.
·Said after the restructure of the Company, their shares were not saleable. They had nothing to sell.
·Confirmed that they commenced the Oppression Proceedings and the reason the Consent Orders were entered into was to protect what they saw their shares in the Company as being worth.
·Said their former spouse directed that the trustee of the Unit Trust makes the payments to them, so that they did not have to deal with the transactions.
·Said that they were not aware of how their former spouse, GQRW Pty Ltd or GQRW Family Trust dealt with the payments in their respective tax returns.
·Said that the restructuring of the business was very complex and confirmed that they understood the main purpose of the restructure was to minimise tax and have a way to protect the assets of the Company.
·Said that prior to the restructure, they and their former spouse were receiving their share of funds from the Company through GQRW Pty Ltd from which they paid their bills and salary scarified as much as they could into their supers. They did not believe that they personally received profits flowing from the Company, that they were paid to GQRW Pty Ltd and that they and their former spouse started to pay down the mortgage or put the money into savings.
·When asked if they got a benefit from those funds, said they were not in their name and they had no control over where the payments went.
·When asked if they had sought access to any documents from the Company or other associated entities, said, that their relationship had completely broken down and they were excluded. They had attempted to contact the accountant who refused to talk to them. They had attempted to contact their former spouse however they did not have their telephone number or address. All of their pursuits were unsuccessful.
·Said they did not make a spousal maintenance claim after the 2012 email from their former spouse’s solicitor due to legal advice they were given, they were focused on getting a fair split of the matrimonial pool.
·Said that they were defending the restructure of the Company on behalf of themselves and their former spouse as they did not think they were aware of what eventually could happen as a result of the restructure.
In closing submissions, the Applicant referred the Tribunal to a redacted version of the decision of the Tribunal in Nathan Jones and Commissioner of Taxation [2011] AATA 26 (the Jones case) provided as an attachment to their Affidavit.[61] The Applicant read the following passages:[62]
The only explanation that there is for the Commissioner's uncompromising opposition in the face of all the evidence presented to him is, we suspect, ultimately traceable to a misconception he or his counsel entertains concerning the operation of s 14ZZK(b)(i) of the Taxation Administration Act 1953.
Point 2:
That section imposes on the taxpayer in an appeal or review like this, the burden of proving on a balance of probabilities that the challenged assessment is excessive.
3 – and halfway through that:
But it is to the ultimate burden of proof that s 14zzk(b)(i) is addressed. It does not impose on a taxpayer the onus of establishing separately every specific evidentiary circumstance or fact on which the taxpayer may rely on the road to reaching that final or ultimate conclusion, nor of disproving every single factual proposition that the Commissioner may choose to advance in the course of reaching such an ultimate conclusion.
There is nothing in either 14ZZK(b)(i) itself or in judicial expositions of its effect, such that in McCormack v Federal Commissioner of Taxation, to furnish encouragement for any such impression of its operation.
[61]Exhibit 2, Hearing Book, Tab 2A, pages 124-129, Annexure 10 to the Applicant’s Affidavit.
[62]Transcript of 17 January 2022, pages 50-51.
The Applicant contended that the Respondent had misconstrued the burden of proof in this matter and sought to rely on the decision in the Jones case on the basis that both cases concerned considerable contradictory evidence.[63] The Applicant contended that the Respondent had, in their case, relied on the same misconception and interpretation of the TAA 1953.[64]
[63] Transcript of 17 January 2022, page 51.
[64] Exhibit 2, Hearing Book, Tab A2, page 48, Applicant’s Statement of Facts, Issues and Contentions.
RESPONDENT’S CONTENTIONS
Ahead of the Hearing, the Respondent set out its contentions in a Statement of Facts, Issues and Contentions dated 2 June 2021[65] and in Opening Submissions dated

29 November 2021.[66] The Respondent’s contentions at Hearing were consistent with those provided in its written submissions and took into consideration the further evidence given by the Applicant.[67]
[65]    Exhibit 2, Hearing Book, Tab R2, pages 189-198, Respondent’s Statement of Facts, Issues and Contentions.
[66]    Exhibit 2, Hearing Book, Tab R1, pages 178-188, Respondent’s Opening Submissions.
[67]    Exhibit 3, Applicant’s Amended Outline of Argument and Counsel Speaking Notes filed on 12 January 2022.
At Hearing, the Respondent told the Tribunal that when considering the various statements that were made by the defendants in the Supreme Court litigation and by the Applicant, there are different consequences that may apply to the payments made to the Applicant.[68] The Respondent submitted that whichever way, “one slices and dices or tries to interpret the purpose of those payments, one is led irresistibly to the conclusion that they are [the Applicant’s] taxable income one way or another.”[69]
[68] Transcript of 17 January 2022, page 21.
[69] Transcript of 17 January 2022, page 22.
The Respondent referred to the statements made by the Applicant’s counsel in the document prepared for the Court of Appeal proceedings that referred to the payments being profit share pre-payments before the restructure that were retrospectively changed during the restructuring period to be termed royalties to assist the defendants in excluding the plaintiff (the Applicant in this matter).[70] The Respondent contended that the description of the payments as royalties renders the Applicant to have received amounts that constitute ordinary income within the meaning of section 6-5 of the ITAA 1997.[71] The Respondent submitted:[72]
That has the consequence that irrespective of the fact that this was an unusual mechanism by which GQRW came to receive these payments, and irrespective of the fact that there is a complex business that the parties were involved in, complicated Supreme Court litigation and the relationship break-down on top of all of that, when one boils it down to its most core characteristics, profit that was being pre-paid to GQRW through a different mechanism by reason of the Supreme Court consent orders, that description has the consequence that this is GQRW's taxable income.
[70]    Exhibit 2, Hearing Book, Tab A3, page 170, Counsel’s Amended Outline of Argument.
[71]    Transcript of 17 January 2022, page 22.
[72]    Transcript of 17 January 2022, page 22.
The Respondent contended that even if the Applicant’s example of a garnishee where an employer pays the ex-spouse of an employee will have the consequence that the person is not an employee may be true, the tax law does not change the tax consequences for the Applicant.[73]
[73] Transcript of 17 January 2022, page 22.
The Respondent contended that describing the payments to the Applicant as matrimonial payments as a result of an oral agreement reached in 2006 does not change the characterisation of those payments for taxation purposes. The Respondent submitted that to the extent the tax law deals with marital breakdowns and agreements to resolve the property pool, it does so only with respect to capital gains tax by virtue of Division 126A of the ITAA 1997. The issue in the Applicant’s case is that Division 126A only deals with capital gains tax, written agreements and requires a corresponding order of the Family Court at the time the arrangement is made in order for the agreement to change a party’s tax consequences of the payment. In the Applicant’s case, the arrangements were made orally, the orders were not made by the Family Court until 2016 and their amended notice of assessment arose due to income tax consequences, not capital gain tax consequences.[74]
[74] Transcript of 17 January 2022, page 22.
The Respondent contended that describing the payments made to the Applicant as a marital agreement does not change the tax consequences. The Respondent contended that the position reverts back to the default position where the Applicant received their 50% share of their former spouse’s profit share prepayments through an unorthodox mechanism, by way of Consent Orders.[75] The Respondent submitted that the Applicant themselves described the payments as having a profit-making purpose by describing the Consent Orders as being a security instrument to ensure that despite the marital break-down they were having with their former spouse and the difficulty that the business was going through in the Supreme Court proceedings, they would have a way to be assured that they would receive their proportion of the royalties.[76]
[75] Transcript of 17 January 2022, page 23.
[76] Transcript of 17 January 2022, page 23.
In closing submissions, the Respondent contended that if the Tribunal was to leave out all of the T-Documents, what would be left is that a profit has been received by the Applicant through the machinery of Consent Orders on which they have not paid tax.[77]
[77] Transcript of 17 January 2022, page 53.
The Respondent contended that in such a case, the payment received by the Applicant is income according to ordinary concepts and is taxable. The Respondent said the way to test that is to look at the alternative explanations that exist. The Respondent submitted that it agrees with the Applicant that the payments were not trust distributions.[78]
[78] Transcript of 17 January 2022, page 54.
The Respondent contended that if the payments were to be categorised as spousal maintenance, they can be exempt from tax all together. However, the difficulty is that the Applicant themselves had accepted in evidence before the Tribunal that no spousal maintenance orders were made before June 2016. The Respondent contended that the payments were an ad-hoc spousal maintenance arrangement made orally between the Applicant and their former spouse. As section 126A of the ITAA 1997 is not triggered by oral agreements, it does not apply in the Applicant’s circumstances.[79]
[79] Transcript of 17 January 2022, page 54.
The Respondent contended that what the Tribunal is then left with is money that had come into the Applicant’s hands of which they said was initially intended to be the profit shared pre-payments from the Company’s business. The Applicant said that the money was their royalties that they were to receive and said the Consent Orders were a security instrument that was designed to ensure the defendants in the Supreme Court litigation could not strip them of the profits to which they were entitled. The Respondent contended that on that basis, there is no doubt the Applicant was entitled to the payments which is why they received them and the fact remains that the receipt of those payments triggers the payment of tax because they are income according to ordinary concepts.[80]
[80] Transcript of 17 January 2022, page 54.
The Respondent contended that the principles set out in the Myer Emporium case (as provided above) apply in the present case where the payments made to the Applicant are not necessarily in the ordinary course of business, however, have the same profit-making purpose. The Respondent submitted that although the Consent Orders achieved a slightly different mechanism, the underlying purpose of the transaction was clear. The relationship breakdown between the Applicant and their former spouse and the complex structure of the Company meant that everyone needed to find an alternative way of ensuring that the Applicant could continue to receive their share of the profit, being 50% of the share to be received by the GQRW Family Trust interest. The Respondent contended that the purpose of the Consent Orders was to facilitate that profit-making purpose, albeit through an unusual machinery.[81]
[81] Transcript of 17 January 2022, page 55.
The Respondent contended that the Family Court did not alter the structure put in place by the Consent Orders and that those Consent Orders are the only relevant document before the Tribunal. The Respondent contended that the parties to the Oppression Proceedings in the Supreme Court settled upon a machinery by which the Applicant was to continue to receive the profit-share pre-payments and the Applicant accepts they received those payments.[82]
[82] Transcript of 17 January 2022, page 55.

The Respondent submitted it may be the case that throughout the course of the complicated Oppression Proceedings and while the parties were dealing with complicated financial matters in the entanglement of their finances, one or more of the parties or their legal advisors overlooked the taxing consequences of the decisions that they were making at that time.[83]
[83] Transcript of 17 January 2022, pages 55-56.
The Respondent contended that nothing has changed throughout the straightforward application of the tax law to the Applicant’s circumstances. No one has taken a different view of the relationship breakdown because of the documents that the “disaffected defendants” had provided to the Respondent. The Respondent has simply applied the law to the facts as they have found them on the basis of the material that the Applicant provided to them. The Respondent contended that on the basis of that material, whichever way one describes the payments, they constitute the Applicant’s assessable income.[84]
[84] Transcript of 17 January 2022, page 56.
In conclusion, the Respondent sought to rely on its opening submissions and written submissions previously filed and submitted that there is no material before the Tribunal that could discharge the Applicant’s onus of proof that the assessment is excessive or otherwise incorrect, subject to one concession.[85]
[85] Transcript of 17 January 2022, pages 56-57.
The Respondent conceded that the increase of the Applicant’s taxable income for the 2013 year of $45,606.00 was excessive and sought that the Tribunal vary the reviewable objection decision to the extent that the additional income included in the Applicant’s 2013 income tax assessment should be $44,927.00 to reflect the distribution statements of the Unit Trust.[86] The Respondent submitted it is open on the material before the Tribunal to find that the Applicant’s 2013 income tax assessment should instead include an amount of $43,322.90 as set out by the bank statements of the Unit Trust, however contended that it is the distribution statements that should be relied upon.[87]
[86] Exhibit 2, Hearing Book, Tab R2, pages 197-198, Respondent’s Statement of Facts, Issues and Contentions, paragraphs 37-42 and Tab R1, page 188, Respondent’s Opening Submissions, paragraphs 51-53.
[87] Transcript of 17 January 2022, pages 56-57.
CONSIDERATION
At the outset, the Tribunal notes that the Applicant in their written submissions raised a number of concerns they held in relation to the conduct of the Respondent’s officers and representatives during the objection and Tribunal processes. While the Tribunal acknowledges the Applicant’s submissions in those regards, the Tribunal does not have jurisdiction nor is it appropriate for it to comment on the processes, procedures or actions of the Respondent’s officers. As such, the issues raised in that regard will not be outlined in this decision. As discussed at Hearing, there may be more appropriate course of action available to the Applicant to deal with those matters.
Further, the Tribunal notes that the Applicant also raised issues in relation to penalties, interest and late filing fees in their written submissions. No such issues were raised at the time of objection and the Tribunal understands that the Respondent did not impose administrative penalties in relation to the 2013 year. Further, the parties confirmed that some of the issues raised related to income years not before the Tribunal. Consequently, as the Tribunal’s jurisdiction is limited to considering the reviewable objection decision with regards to the matters raised by the Applicant at objection, there is presently no issues relating to penalties, interest or late filing fees before this Tribunal for determination. The Tribunal, however, acknowledges that a decision to alter the Applicant’s 2013 year assessable income will also result in a recalculation of any interest previously imposed by the Respondent.
In this matter, it is clear and undisputed that the Applicant did receive payments from the Unit Trust during the 2013 year in excess of $40,000.00. The extent of the exact amount of those payments is less clear. The Tribunal notes that the Applicant gave evidence that they were not sure of the exact amount received, however did not dispute the amounts set out in the evidence before the Tribunal.
While the Respondent contended that the payment amount noted on the Unit Trust’s distribution sheet should be preferred, in the absence of further explanation behind that document, the Tribunal prefers the evidence provided by the Unit Trust’s bank. That evidence outlines the payments made from the Unit Trust’s bank account to the Applicant’s bank account during the period 6 July 2012 to 14 December 2012 as being $43,322.90.
As such, the Tribunal finds that the during the 2013 year the payments received by the Applicant from the Unit Trust and to which this application refers was $43,322.90.
Consequently, the Tribunal must consider whether those payments received by the Applicant form part of their assessable income in the 2013 year.
The parties agree that the payments were not distributions from the GQRW Family Trust. The Tribunal agrees with that proposition in circumstances where the Applicant’s divorce from their former spouse was finalised in 2007. The GQRW Family Trust Deed makes it clear that on that day, the Applicant ceased being a beneficiary of the trust.
The Respondent contended that regardless of the classification of the payments made to the Applicant, all paths lead to those payments being assessable income. The Applicant, on the other hand, throughout their evidence wavers between the payments being spousal maintenance or marital distributions or their share of the Company’s profits.
There is no dispute that the payments were made by the Unit Trust to the Applicant. There is no dispute that after the restructure of the Company, the profits of the Company that were reclassified as royalty payments to the three family groups were, from the GQRW Family Trust perspective, payable to the Applicant’s former spouse and that the Applicant was not directly entitled to those payments. It is important here to acknowledge that this fact does not mean, due to the nature of the marital asset pool, that the Applicant had no right at all to the royalty payments.
Perhaps the most telling piece of evidence before the Tribunal is that the Consent Orders made in the Oppression Proceedings provided that the GQRW Family Trust’s share of the Company royalties were to be paid in equal proportions to the Applicant and their former spouse. At Hearing, the Applicant told the Tribunal that they commenced the Oppression Proceedings to protect what they saw their shares in the Company as being worth.
The Applicant went to lengths both in their evidence, written submissions and submissions made on their behalf at Hearing to state that at all times, they considered the payments received in the 2013 year to be a result of the oral agreement with their former spouse. The Applicant was firm in the contention that the payments constituted matrimonial payments which were tax free as they believed it was their former spouse’s responsibility for any tax payable in relation to payments received by their former spouse as part of the GQRW family share of royalties paid by the Unit Trust. The Applicant made competing arguments as to why they contended that any tax payable was the responsibility of their former spouse, firstly because they themselves were not entitled to the royalty payments and secondly, relying on excerpts of statements made in affidavits by their former spouse or transcripts by their solicitor in Family Court Proceedings.
In a submission dated 26 August 2020, the Applicant, in providing an overview of the Company restructure, outlined the consequences of them having signed the restructure documents. The Applicant contended they were excluded from any ownership in the business and were not entitled to any profits from the Company of which at the time they had not realised would be the case. The Applicant said they were assured by their former spouse that they would direct that the Applicant continue to be paid 50% of the royalties paid to them, but the Applicant would not receive any other profits of the business. The Applicant provided that their solicitors encouraged them to formalise the assurance from their former spouse by virtue of Consent Orders in the Oppression Proceedings which, the Applicant contended, had removed discretion from their former spouse in relation to the royalty payments and required that the payments be paid to the Applicant like a garnishee over their former spouse’s earnings. The Applicant further stated that the concerns in relation to the ongoing payment of the royalties to them was warranted as after the Supreme Court decision, they ceased receiving such payments.[88]
[88] Exhibit 2, Hearing Book, Tab A2, pages 53 and 54, Applicant’s Statement of Facts, Issues and Contentions.
The Tribunal considers that the Applicant’s submissions indicate that the actions they took were to protect their interests in the Company and as such, were for profit making purpose. The fact that Oppression Proceedings were commenced rather than seeking spousal maintenance orders from the Family Court or seeking for Family Court proceedings to be dealt with expeditiously also shine light on the Applicant’s intentions at that time. The Tribunal agrees with the Supreme Court in that it might be expected that any orders made in the Family Court would fairly adjust the Applicant’s rights to take into account the impacts of the restructure of the company.[89]
[89]Exhibit 2, Hearing Book, Tab R4, page 222, Supreme Court Decision.
The decision of the Supreme Court sets out the background of the Company restructure and events that lead to the commencement of the Oppression Proceedings. Relevantly are references to the Applicant having sought to sell their shares in the Company (which, after restructure, had become near worthless) to the other parties involved in the Company for a large sum of money in early 2007 and in return they would not commence litigation. The Supreme Court described the Consent Orders as having required continued substantial monthly payments to the Applicant while prohibiting any activities by the Company outside the ordinary course of business without the Applicant’s consent.[90]
[90]Exhibit 2, Hearing Book, Tab R4, pages 218-219, Supreme Court Decision.
The Applicant contends that their former spouse had ceased to direct payments of the 50% of the royalties due to GQRW Family Trust after their matter was dismissed by the Supreme Court. However, the findings of the Supreme Court were that the restructure of the Company was not unfair against the Applicant, who, had their marriage not ended, would have been unlikely to have had any issue with the restructure at all.[91] As such, upon the decision of the Supreme Court in the Oppression Proceedings, the Applicant was not entitled to the royalties but rather, any interests they held lied in the marital asset pool and became a private matter between the Applicant and their former spouse. This point was further demonstrated in the email of the Applicant’s spouse’s solicitor dated 9 December 2013 (as reproduced at paragraph 47 above) where it was clear that there was a distinction between spousal maintenance and the Applicant’s claim that they were entitled to a share of the distributions received by GQRW Pty Ltd from the Unit Trust.
[91]Exhibit 2, Hearing Book, Tab R4, page 202, Supreme Court Decision
While the Applicant may now contend that they believed the payments to have been matrimonial distributions or spousal maintenance of which were not income, from the Tribunal’s consideration of the material before it in totality, it has formed the view that at the time of the Company restructure, commencing Oppression Proceedings and making of the Consent Orders, the Applicant had not turned their mind to any future taxation consequences that would equate from the decisions that they were making, rather the focus was on protecting what they believed their share of the Company to be.
As such, based on the evidence before it, the Tribunal does not accept the Applicant’s contentions that the payments in question were matrimonial distributions from their former spouses after tax earnings. Rather, the Tribunal finds that the payments were made to the Applicant through the mechanism of the Consent Orders providing them with their share of the royalties paid through the Unit Trust to GQRW Pty Ltd as trustee for the GQRW Family Trust.
The Tribunal considers that in such circumstances, it is clear the payments made to the Applicant constitute income according to ordinary concepts and as such, form part of their assessable income for the 2013 year. While the mechanism in which that assessable income was derived by the Applicant via the Consent Order in the 2013 year was unconventional, it was derived with a profit-making motivation.
The Tribunal agrees with the Respondent’s contention that regardless of the characterisation of the payments received by the Applicant in the 2013 year, they constitute income according to ordinary concepts. In the absence of a spousal maintenance order made under the Family Law Act 1975 (Cth) or other relevant law, whether the Applicant’s spouse had also paid tax on the payments is not relevant to whether or not the receipt of the payments also constituted income in the hands of the Applicant. In such circumstances, the payments can be drawn back to having been made to the Applicant in relation to their share of the royalties paid by the Unit Trust in relation to the GQWR families share of those royalties. The way in which the transactions are required to accounted for by GQWR Pty Ltd and GQWR Family Trust due to the restructure is irrelevant.
The Tribunal finds that as this matter deals with income tax rather than capital gains tax and in the absence of relevant orders or agreements in writing, Division 126 of the ITAA 1997 does not apply.
The Tribunal notes that the Applicant refuted the accuracy of the circumstances set out in the Supreme Court decision. The Tribunal, however, understands that a subsequent appeal of that decision by the Applicant also did not end in their favour.
Further, the Applicant contended that in the absence of the Respondent having audited and/or questioned their former spouse and their solicitor and accountant, any associated evidence they have provided should not be given any weight. The Tribunal agrees with the Respondent’s contention that even without the evidence to which the Applicant refers, the overall conclusion would remain the same. The restructure, the Consent Order, the GQWR Family Trust Deed, the timing of the resolution of the Family Court proceedings would all remain the same.
To the extent that references are being made to the reliability of evidence, the Tribunal notes that the Affidavit and transcript evidence sought to be relied upon by the Applicant was provided in documents that were predominately fully redacted and as such lacked context. Without that context, the statements referred to had little weight and were not helpful to the Applicant’s position.
Finally, the Tribunal considers the contentions made by the Applicant in relation to the decision of the Tribunal in the Jones case are misconceived. It is noted that the Applicant sought to place only particular passages of that decision before the Tribunal, seeking to limit the view taken. However, upon consideration of the decision in full, it is clear that the factual circumstances of the Jones case are decisively different to the present matter. Further, the references made to the passage of that decision discussing the onus of proof set out in section 14ZZK(b)(i) of the TAA 1953 are made in circumstances where the factual and evidentiary material before that Tribunal paint a much different picture to that being painted before this Tribunal. The Tribunal agrees with the principles referred to in the Jones case, however, finds that in this matter there has been no misconception of the Applicant’s burden of proof. Rather, the Applicant has failed to provide evidence that supports their contentions that the payments received were not income. The evidence the Applicant did provide when all put together does not objectively assist in the advancement of such contentions.
Consequently, the Tribunal finds that during the 2013 year, the Applicant received payments totalling $43,322.90 of which constitute income according to ordinary concepts and are assessable income in the hands of the Applicant.
CONCLUSION
For the reasons set out above, the Tribunal is not satisfied that the Applicant has discharged their onus to prove that the 2013 amended assessment was excessive or otherwise incorrect beyond the extent of the difference between the payment amount of $45,606.00[92] and $43,322.90.[93]
[92]Being the amount initially included in the Applicant’s assessable income.
[93] Being the total payment amount accepted by the Tribunal as having been made to the Applicant on the basis of the information provided by the Unit Trust’s bank.
Accordingly, the Tribunal varies the objection decision to the extent that the Applicant’s taxable income for the 2013 income year is $67,784.90.[94]
[94] Being the $24,462.00 disclosed by the Applicant when lodging their 2013 income tax return, plus the $43,322.90 being payments the Applicant does not dispute that they received during that year and found by the Tribunal as amounting to assessable income.

I certify that the preceding 95 (ninety-five) paragraphs are a true copy of the reasons for the decision herein of Member D Mitchell

........................[SGD]...............................
Associate
Dated: 17 June 2022

Date of hearing: 17 January 2022

Applicant:

Mr Noel James

Solicitors for the Respondent: Mr Tom Duhig
HWL Ebsworth Lawyers

Date of hearing:	17 January 2022
Applicant:	Mr Noel James
Solicitors for the Respondent:	Mr Tom Duhig HWL Ebsworth Lawyers