Lewis Yazbek and Commissioner of Taxation
[2012] AATA 477
•25 July 2012
Administrative Appeals Tribunal
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2010/4020-4022
Taxation Appeals Division )
Re: Lewis Yazbek
Applicant
And: Commissioner of Taxation
Respondent
CORRIGENDUM
TRIBUNAL: Professor R Deutsch, Deputy President
DATE: 30 July 2012
PLACE: Sydney
The Tribunal directs the Registrar, pursuant to subsection 43AA(1) of the Administrative Appeals Tribunal Act 1975, to alter the text of the decision in this application as follows:
1.Where at paragraph 6 the decision currently reads:
“(k) this browser is of any grandchild of the Parents;”
The decision shall now read:
“(k) the spouse of any grandchild of the Parents;”
2.Where at paragraph 18 the decision currently reads:
“(e) if it is reasonable to conclude that any person or entity into or carries out scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year; or…”
The decision shall now read:
“(e) if it is reasonable to conclude that any person entered into or carried out a scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year; or…”
....................[sgd]...............................................
Professor R Deutsch
Deputy President
[2012] AATA 477
Division TAXATION APPEALS DIVISION File Number(s)
2010/4020-4022
Re
Lewis Yazbek
APPLICANT
And
Commissioner of Taxation
RESPONDENT
Decision
Tribunal Deputy President Deutsch
Date 25 July 2012 Place Sydney 1. The Applicant is and was at all relevant times a beneficiary under the Trust; and
2. The Amended Assessment was timely by operation of item 4 of section 170 (1) of the Income Tax Assessment Act 1936.
...................[sgd].....................................................
Deputy President Deutsch
Catchwords
TAXATION - preliminary issue - whether Commissioner has power to issue a notice of amended assessment - s 170 - whether the Applicant is an individual who is a beneficiary of a trust estate at any time in the 2005 tax year
Legislation
Income Tax Assessment Act 1936
Income Tax Assessment Act 1997
Acts Interpretation Act 1901
Cases
CIC Insurance Limited v Bankstown Football Club Limited (1995) 187 CLR 384
Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297
Attorney-General (NSW) v Brewery Employee’s Union of New South Wales (1908) 6 CLR 469
Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242
Colonial First State Investments Limited v Federal Commissioner of Taxation (2011) 192 FCR 298
Anderson v Commissioner of Taxes (Vict.) (1937) 57 CLR 233 at 243
Hepples v FCT (1991) 173 CLR 492FCT v Ramsden [2005] FCAFC 39
Secondary Materials
Butterworths Concise Australian Legal Dictionary (LexisNexis, Butterworths, 4th ed, 2011)
REASONS FOR DECISION
Deputy President Deutsch
25 July 2012
THE FACTS
These are interlocutory proceedings in which Mr Lewis Yazbek (“the Applicant”) has raised a preliminary issue as to whether the Respondent has the power to issue, on 12 April 2010, a Notice of Amended Assessment to the Applicant in respect of the 2005 tax year.
The Notice of Amended Assessment was issued in respect of a year in which the Applicant was at all times a person named as a member of an Eligible Class of persons who could benefit under the terms of a trust estate known as the Lewis Yazbek Family Settlement (“the Trust”).
The Trust was created on 15 July 1992 by way of a written Discretionary Trust Deed (“the Deed”), the parties to which were Craig Geoffrey Irwin as the Settlor and Vilworth Pty Ltd as the trustee.
The Deed contains 14 clauses, the most important for present purposes being Clause 2 which provides that:
The Settlor hereby declares and directs and the Trustee hereby declares and acknowledges that the Trustee does and shall hold and stand possessed of the Trust Fund:
a) UPON TRUST until the Vesting Day to pay the Income of the Trust Fund whether in cash or in specie to or among any one or more of the members of the Eligible Classes to the exclusion of the other or others of them and in such proportions and in such manner and upon such terms and at such times as the Trustee in its absolute discretion may from time to time determine PROVIDED THAT if the Trustee does not exercise its discretion prior to the 30th day of June of any year as to the payment of the whole or any part (which whole or any part is in this sub-paragraph (a) called ”that part”) of the income of that year ending the 30th day of June then in relation to that part of the income for that year: –
(i) UPON TRUST to pay that part of the income for the year to such of the Parents as shall be living on the 30th day of June of that year, and if more than one, in equal shares as tenants in common to the intent that the same shall be absolutely and presently entitled thereto;…
There are then a series of further subparagraphs which deal with contingencies such as the death of one of the parents and various other possibilities, none of which are material for present purposes.
“Eligible Classes” is a defined term in clause 1 (v) of the Deed. It provides that: –
‘Eligible Classes’ means: –
(a) the Father;
(b) the Mother;
(c) the parents of the Father
(d) the parents of the Mother;
(e) the children of the Parents
(f) the grandchildren of the Parents;
(g) the brothers and sisters of the Parents;
(h) the nieces and nephews of the Parents;
(i) the uncles and aunts of the Parents and the children of such uncles and aunts;
(j) the spouses of any child of the Parents;
(k) the spouses of any grandchild of the Parents;
(l) the spouses of any brothers and sisters of the Parents;
(m) the spouses of any nieces and nephews of the Parents;…
The rest of the definition includes a number of other possible persons and entities which are of no particular relevance here.
Critically the Eligible Class includes “the Father” and “the Mother” and Clause 1 (vi) defines “Father” to mean Lewis Yazbek and Clause 1 (viii) defines Mother to mean the spouse of the Father, Mrs Yazbek.
As can be seen from the definition, the individuals included in the Eligible Class are substantial, referring to a broad range of individuals who are connected to the Applicant and to Mrs Yazbek. According to the Applicant, as at 30 June 2005 there were approximately 129 human members in this Class.
The Applicant lodged his 2005 tax return in April 2006 and in that return, under the notation labelled U being “distributions from trusts”, a nil amount was shown. In other words the return showed that in relation to the 2005 tax year the Applicant received no distributions from the trust. In fact, $60,000 of the distributable income of the Trust was allocated to Mrs Yazbek and the remainder was allocated to a company, Rocbit Pty Limited, with none allocated to the Applicant.
The Respondent issued an original assessment to the Applicant for the 2005 tax year on 18 April 2006.
On 12 April 2010, the Respondent issued an amended assessment in respect of the Applicant for the 2005 year in which the Respondent included an additional amount of $2,144,843.
The Applicant objected to the 2005 amended assessment and included, as one of the grounds of objection, that the Respondent had exceeded the time limit allowed for amending the taxpayer’s assessment.
THE STATUTORY FRAMEWORK
The key governing statutory provision in relation to amending assessments is s 170 (1) of the Income Tax Assessment Act 1936 (“the 1936 Act”) which contains a Table outlining the circumstances and timeframe in which the Respondent may amend an assessment.
The Table contains six items. Only two of these items are directly relevant to the present circumstances, namely:
Item 1 - Individuals,
Item 4 - Circumstances where items 1, 2 or 3 do not apply.
Even though Item 4 makes reference to them, Items 2 and 3 are of no relevance in the present circumstances.
Item 1 provides that: –
The Commissioner may amend an assessment of an individual for a year of income within 2 years after the day on which the Commissioner gives notice of the assessment to the individual.
However, that rule is subject to certain qualifications which are to the effect that Item 1 does not apply: –
(a) if the individual carries on business at any time in that year unless the individual is an STS taxpayer for the year; or
(b) if the individual is a partner in a partnership that carries on a business at any time in that year unless the partnership is an STS taxpayer for the year; or
(c) to an individual in the capacity of the trustee of a trust estate at any time in that year (see item 3 for this case); or
(d) if the individual is a beneficiary of a trust estate at any time in the year unless the trust is an STS taxpayer for that year or the trustee of the trust (in that capacity) is a full self-assessment taxpayer for the year; or
(e) if it is reasonable to conclude that any person entered into or carried out scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year; or
(f) in any other circumstances prescribed by the regulations.
Each of these sub-paragraphs will be referred to as qualifications – for example, sub-paragraph (d) above will be referred to as “qualification (d)”.
Item 4 provides that:
If item 1, 2 or 3 does not apply the Commissioner may amend an assessment within 4 years after the day on which he or she gives notice of the assessment to the taxpayer.
THE ISSUE
The sole issue for consideration in this instance is whether the Applicant is an individual who is “a beneficiary of a trust estate at any time” in the 2005 tax year as those words are used in qualification (d) above.
The issue is critical in this matter because the Respondent’s power to amend an assessment is limited by Item 1 of s 170 to a period of two years from the date the Respondent gave notice of the assessment (ie it expires on 18 April 2008), unless it is in some way extended by operation of another item. If there is no such extension the Respondent is out of time to make an amended assessment as the purported amended Assessment was made on 12 April 2010.
An extended period of four years applies if qualification (d) is operative. That qualification provides that Item 1 does not apply
if the individual is a beneficiary of a trust estate at any time in that year unless the trust is a STS taxpayer for that year or the trustee of the trust (in that capacity) is a full self-assessment taxpayer for the year.
If qualification (d) applies, Item 1 has no application and Item 4 applies such that the Respondent may amend an assessment within four years of giving notice of the Assessment to the taxpayer.
If Item 4 applies an amended assessment can be issued by the Respondent up until 18 April 2010. As the Respondent issued the amended assessment on 12 April 2010, the amended assessment would be within time.
The parties agree, and I accept, that the Trust is not an STS taxpayer for the relevant year or indeed at any time, and that the trustee of the Trust (in that capacity) is not a full self-assessment taxpayer for the relevant year or indeed at any time.
If the Applicant is such a beneficiary, the preliminary issue is resolved in favour of the Respondent since Item 1 is excluded and Item 4 applies, enabling the Respondent to amend the assessment within the relevant four-year period.
If the Applicant is not such a beneficiary, the preliminary issue is resolved in favour of the Applicant since Item 1 is not excluded and the Respondent cannot amend the assessment and is out of time, the relevant time period being two years after the day on which the Respondent gave notice of the assessment to the Applicant (ie a period that concluded on 18 April 2008).
POSITION OF THE PARTIES
The Applicant contends that as he received no distributions in relation to the 2005 tax year, he is not a beneficiary of the trust estate at any time in that year and accordingly the Amended Assessment is out of time.
The Respondent contends that as the Applicant is a member of the Eligible Class (and indeed is specifically referred to in that Class as the Parent) the Applicant is a beneficiary of the trust estate during the whole of the 2005 tax year and, accordingly, the Amended Assessment is within time.
THE ARGUMENTS
Four arguments were presented by the Applicant.
First, the Applicant argued that the ordinary legal meaning that underpins the concept of “beneficiary” in the relevant part of s 170 (1) of the 1936 Act is such that only a person who receives a benefit or is entitled to receive such a benefit under a trust estate in a given year is a beneficiary.
Second, the Applicant argued that if the ordinary legal meaning of the word “beneficiary” is broader, as contended by the Respondent, it should be displaced in the circumstances because of the context and construction of s 170.
Third, the Applicant argued that s 170 imposes a special, more rigorous or penal tax regime and accordingly should be read in plain terms. The Applicant is of the view that the section imposes a more rigorous and possibly penal tax regime on the Applicant and so should be read down in favour of the Applicant.
Finally, the Applicant argued that the construction advanced by the Respondent would produce unlikely improbable and surprising, if not anomalous, outcomes and therefore should not be preferred.
THE FIRST ARGUMENT
It is now well accepted that in interpreting the words of a statute the appropriate methodology is to read the words and interpret them, in the absence of any statutory definition, having regard to their ordinary meaning but at all times being mindful of the context in which those words appear. This general principle is clear from the decisions of the High Court in CIC Insurance Limited v Bankstown Football Club Limited (1995) 187 CLR 384 and Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297 at 323 per Mason and Wilson JJ and having regard to s 15AA of the Acts Interpretation Act 1901 (Cth).
As the High Court said in the CIC decision (at page 408), context here is used “in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means … ,one may discern the statute was intended to remedy”.
Some cases involve the interpretation of technical words and where that is the case the word in question may be a legal or a non-legal word that has a technical meaning. Where the words used have a technical legal meaning, the ordinary technical legal meaning should be adopted.
O'Connor J in Attorney-General (NSW) v Brewery Employee’s Union of New South Wales (1908) 6 CLR 469 at 531 put it this way: –
Where words have been used which have acquired a legal meaning it will be taken, prima facie, that the legislature has intended to use them with that meaning unless a contrary intention clearly appears from the context. To use the words of Denman J in R v Slater (1881) QBD 267 at 272 ‘but it always requires strong compulsion of other words in an Act to induce the Court to alter the ordinary meaning of a well-known legal term.’
Thus, where Parliament has used a technical legal word or phrase as one of the conceptual building blocks of a statute, it would defeat the intention of Parliament to give the phrase anything other than its ordinary legal meaning (see also Palgo Holdings Pty Ltd v Gowans (2005) 221 CLR 249 at 25 and 26).
The fact that we are dealing with a Tax Act does not in and of itself call for any adjustment to these broad principles of statutory interpretation. However, the fact that we are dealing with a Tax Act that may involve a penal element is relevant as part of the overall context. That much was made clear by the High Court in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at 57.
Thus, in the present circumstances, the expression “a beneficiary of a trust estate at any time in that year” calls for some consideration to be given to the meaning of the word “beneficiary”. The word itself is not defined for the purposes of s 170 and accordingly it needs to be interpreted on the basis of the ordinary principles of statutory interpretation and the Acts Interpretation Act 1901 (Cth).
The ordinary legal meaning of the word “beneficiary” was identified by Lindgren J in Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 at 42 to 44 as follows:
According to the ordinary meaning of the word, a beneficiary is any person for whose benefit the trust is to be administered and who is entitled to enforce the trustees obligation to administer the trust according to its terms. It is trite that for every trust there must be a beneficiary so understood (see for example, Re Denley’s Trust Deed (1969) 1 Ch 373 at 382 – 384). A beneficiary is not simply a person who as a matter of fact obtained some practical benefit from the existence of a trust: Sacks v Gridiger (1990) 22 NSWLR 502 at 508.
The word beneficiary reaches beyond the person who has a beneficial interest in the trust property.
At a point slightly later in his analysis Lindgren J comments as follows:
Although the discretionary objects do not have a beneficial interest in any property the subject of a discretionary trust prior to a distribution or appointment of income or capital, they are freely referred to as “beneficiaries”; see for example, Gartside v In land Revenue Commissioners (1968) AC 553 at 617 – 618; R and I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 at 79; Australian Securities and Investments Commission v Carey (No 6 ) (2006) 153 FCR 509 at para 25-28.
These observations were cited with approval by Stone J in Colonial First State Investments Limited v Federal Commissioner of Taxation (2011) 192 FCR 298 at 20.
The Applicant is of the view that the decisions in Kafataris and Colonial First State are distinguishable. The provision considered in Kafataris was s 104 – 60 (5) of the Income Tax Assessment Act 1997 (“the 1997 Act”) and, in particular, focused on whether “you are the sole beneficiary of the trust and you are absolutely entitled to the asset”. Similarly, in Colonial First State the issue was the proper identification of the beneficiary within s 97 of the 1936 Act who was presently entitled to a share of the income of the trust estate.
The Respondent accepts that the statutory provisions under which Kafataris and Colonial First State were decided were different to that which is being considered here, the former being decided in respect of ss 104 – 55 (1) and 104 – 60 (1) of the 1997 Act and the latter in respect of s 97 (1) of the 1936 Act.
However, the Respondent submits that it would be wrong to suggest that Parliament intended the identical phrase to have an altogether different meaning in s 170.
Clearly, both Kafataris and Colonial First State were cases that involved different legislative provisions to the one I am considering here but I see no basis for attributing any materiality to that distinction. Indeed, in my view there is very little difference in the legislative context and accordingly the thinking that underpins Kafataris and Colonial First State have direct relevance here.
THE SECOND ARGUMENT
The Applicant’s second argument has three separate but related strands.
The first strand is to the effect that, as a matter of construction, qualification (d) deals with operational matters or operative facts and not mere description or descriptive matters. According to the Applicant the paragraph focuses on the operative fact of receipt or entitlement to receive a share of trust net income in the capacity of beneficiary and assessability to that beneficiary and not with the mere descriptive quality of the words and whether or not a person falls within or is merely named in a class.
The Respondent has argued that the distinction between so-called operational as opposed to descriptor matters has no basis or relevance.
In my view there is no basis for reading qualification (d) as anything other than a qualification that applies to the broad class of persons who are beneficiaries in the ordinary legal sense of that word. Each of the qualifications in Item1 refers to a type of taxpayer without requiring that taxpayer to have derived any particular amount of income in that year. Thus, an individual who carries on a business at any time in a particular year will be covered by qualification (a) even if he receives no income in that year (although this would be an odd fact pattern), just as an individual in the capacity of a trustee of a trust estate in a particular year of income would be covered by qualification (c) even if it receives no income in that year.
All these qualifications only apply because a descriptor is met. There is no need for a further operational event such as the receipt of income to arise for the qualification to apply. The same situation applies in respect of qualification (d).
A second but allied strand to the Applicant’s argument is that paragraph (d) is required to be read and considered in the context in which it appears. According to the Applicant, each of the other paragraphs in the qualification to Item 1 require and point to an activity occurring. Thus paragraphs (a) and (b) require that the person carries on a business. Paragraph (c) points to a person acting as a trustee of a trust estate. Paragraph (e) requires that the person entered into or carried out a scheme and paragraph (f) is predicated on circumstances prescribed by regulation.
The Applicant then concludes that paragraphs (a), (b), (c), (e) and (f) all point to an activity occurring – some act, transaction or event occurring and not a mere satisfaction of a passive legislative descriptor, namely, membership of a class of potential objects of a discretionary trust.
I see very little in this line of argument to suggest that paragraph (d) should be read such that the concept of beneficiary in this paragraph can only refer to a beneficiary who has received an entitlement in respect of the relevant year. This would be a somewhat tortured reading of the legislative provision which is not justified simply because the surrounding paragraphs have within them a requirement that some activity be occurring.
In any event I am not convinced that the surrounding paragraphs do have such an additional requirement. For example, qualification (c) simply requires the existence of an individual in the capacity of the trustee of a trust estate, which in the Applicant's language seems to refer to a descriptor rather than an activity.
The third and final strand of this argument is that according to the Applicant the context in which one finds the word “beneficiary” in paragraph (d), a beneficiary is required to have some entitlement to the trust estate and/or its net income.
In support, the Applicant refers to a dictionary definition of a “beneficiary” which suggests that to be a beneficiary for the purposes of paragraph (d) the person must have some entitlement to the trust estate and or its net income. In this respect the Applicant relies on the definition given in Butterworth's Legal Dictionary to the following effect:
Beneficiary – a person who, by being in a particular kind of legal (including equitable) relationship, receives or is entitled to receive a benefit, profit or advantage.
This strand of the argument does not seem to me to raise any genuine question of context. Rather it harks back to the first argument as to the meaning of the word beneficiary and does not raise a genuine issue as to context.
In any event, while I have no doubt that the Butterworth’s Legal Dictionary is a valuable authority, in the current circumstances I prefer to follow the lead of Kafataris and Colonial First State in providing an ordinary legal meaning to the term “beneficiary”.
THE THIRD ARGUMENT
The Applicant argues that the imposition of a special, more rigorous, or penal tax regime must be a suggestion which follows from the decisions in Anderson v Commissioner of Taxes (Vict.) (1937) 57 CLR 233 at 243 and Hepples v FCT (1991) 173 CLR 492 at 510 – 511.
The Respondent takes the view that the provision does not relate to the imposition of a tax or penalty but only to the time in which the Commissioner may amend an assessment.
In my view, the relevant statutory formulation is written in plain terms and, whilst it may allow more time for amended assessments, it will also have the consequence of allowing more time for the making of objections by taxpayers. In that sense it is difficult to see how it is more penal in the manner referred to above.
In any event the provision in question does not relate to the imposition of a taxation penalty as such, but only to the time in which the Commissioner may amend an assessment of the amount the individual is obligated to pay by statute.
In my view there is nothing to suggest that the section in question warrants a peculiarly narrow reading.
THE FOURTH ARGUMENT
Finally, the Applicant argues that the construction advanced by the Respondent will produce unlikely, improbable and surprising if not anomalous outcomes.
According to the Applicant the unlikely, improbable and surprising outcomes arise in two ways in particular:
·all 129 human members of the class of potential discretionary beneficiaries will be “beneficiaries” within paragraph (d) and thereby subject to a four-year amendment period; and
·since a superannuation fund is a trust and all its members would be beneficiaries of that trust, a consequence of the Respondent’s argument would be that every Australian wage and salary earner who is a member of a superannuation fund would be similarly subject to a four-year amendment period.
According to the Applicant, the first consequence would arise even though those beneficiaries had no entitlement to the fund or its income, took no benefit under the trust, may never be assessed as beneficiaries under the trust and would not necessarily be aware that they are within the relevant class.
The Respondent observed that qualification (d) does not itself operate if the trust in question is an STS taxpayer for the relevant year.
Furthermore, the Respondent argued that if there was genuine concern in this regard on the part of some or all beneficiaries who fell within the class, it would be possible for such beneficiaries to disclaim their interest in the trust if they wished to do so. Such a disclaimer would operate retrospectively at law and not merely from the time of the disclaimer (see FCT v Ramsden [2005] FCAFC 39 at 30).
The Respondent points out in response that the trustee is not a superannuation fund and the Tribunal need not decide whether the terms of qualification (d) would capture members of superannuation funds. For present purposes, the Respondent argues it would by no means follow that just because superannuation funds are governed by the law of trusts, that each fund member is a beneficiary of a trust estate for the purposes of s 170.
Further, in relation to this point, I note that the definition of a “full self-assessment taxpayer” in s 6 (1) of the 1936 Act covers a number of entities but most particularly the trustee of a fund that is an eligible superannuation fund as defined in s 267 of that Act. That definition in turn embraces complying and non-complying funds. Thus, where the individual is a beneficiary in relation to a superannuation fund, whether complying or non-complying, the individual will not fall for that reason alone into the class covered by qualification (d), and accordingly the two year amended assessment time frame would apply.
Indeed, it seems to me that most of the unlikely, improbable or surprising outcomes that the Applicant suggests would arise from a broad reading of the term “beneficiary” are specifically taken away by the two broad exclusions that operate in relation to qualification (d).
Having regard to the above, I see no force in this argument.
DECISION
The Tribunal finds that:
a)The Applicant is and was at all relevant times a beneficiary under the Trust; and
b)The Amended Assessment was timely by operation of item 4 of section 170(1) of the 1936 Act.
I certify that the preceding 77 (seventy seven) paragraphs are a true copy of the reasons for the decision herein of Deputy President Deutsch.
.....................[sgd]...................................................
Associate
Dated 25 July 2012
Date of hearing 11 July 2012 Counsel for the Applicant Ian Young Solicitors for the Applicant Bruce Rowntree, Bonnell Rowntree Pty Ltd Respondent In person Counsel for the Respondent Kristin Deards
0
12
0