Matestock Pty Ltd as Trustee for the Darling Family Trust and Ors and Commissioner of Taxation - [2004] AATA 1178

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [2004] AATA 1178
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT2002/96, 163, 164

TAXATION APPEALS DIVISION )

Re
MATESTOCK PTY LTD as Trustee for THE DOWLING FAMILY TRUST

and LAURENCE MICHAEL DOWLING

and DEBORAH SUE DOWLING

Applicants

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member KL Beddoe
Senior Member BJ McCabe
Date10 November 2004
PlaceBrisbane

Decision
The Tribunal makes the following decisions to the effect that:

(a)      the objection decision in relation to the Trustee is set aside and the applicant’s objection be allowed in full;

(b)      the objection decisions relating to assessment of income tax payable by the beneficiaries are affirmed;

(c) the objection decisions relating to assessment of penalty tax payable by the beneficiaries are set aside and decisions substituted that penalty tax be assessed in accordance with section 226G of the Act;

(d) there is no basis for exercising the discretion in sub-section 227(3) of the Act; and

(e)      these proceedings have terminated in a manner favourable to the applicants.

.......[Sgd].......
K L Beddoe
Senior Member

CATCHWORDS
TAXATION – appropriation of trust income – review of objection decision – purported appointment of income to beneficiary ineffective – consequences of ineffective appointment of income – decision to assess income of trustee set aside
Income Tax Assessment Act 1936 s97, 99A, 100A, 166, 166A, 170, 226G, 226H, 227
McPhail v Doulton [1971] AC 424
BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001) ATC 4111
Ramsden v Federal Commissioner of Taxation [2004] FCA 632
East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 19 ALD 85
Kajewski v Federal Commissioner of Taxation (2003) ATC 4375
Denver Chemical Manufacturing Company v Commissioner of Taxation (NSW) (1949) 79 CLR 296
REASONS FOR DECISION

10 November 2004 Senior Member KL Beddoe
Senior Member BJ McCabe

1.Matestock Pty Ltd (“the Trustee”) as trustee for the Dowling Family Trust seeks review of an objection decision by the respondent in relation to the year of income ended 30 June 1996.
2.The individual applicants also seek review of objection decisions in relation to the year of income ended 30 June 1996.
3.These applications arise because the respondent has assessed the Trustee under section 99A of the Income Tax Assessment Act 1936 (“the Act”) and individual applicants, as beneficiaries of the Trust, under section 97 of the Act in relation to the net income of the Trust.
4.Issues also arise as to whether amended assessments in relation to the individual applicants were authorised by section 170 of the Act and whether the respondent was correct in assessing additional tax in accordance with Part VII of the Act and, if so, whether the assessed additional tax should be remitted in part or in full.
5.These matters were heard jointly with other cases which have a common theme of appointment of net income of the relevant family trust to a company correctly described as No 2 Pitt Street Pty Ltd as Trustee of the Northbourne Holdings Unit…

Grounds of appeal

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

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

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

Consideration

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

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

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Details

AGLC: Matestock Pty Ltd as Trustee for the Darling Family Trust and Ors and Commissioner of Taxation [2004] AATA 1178
Case: [2004] AATA 1178
Decision Date: 10 November 2004

CaseChat Overview and Summary

The dispute involved Matestock Pty Ltd as Trustee for the Darling Family Trust and other parties against the Commissioner of Taxation. The central issue was the appropriation of trust income under the Income Tax Assessment Act 1936. The case was heard in the Administrative Appeals Tribunal, which was tasked with reviewing the objection decision made by the Commissioner.

The primary legal issues the court had to address were whether the purported appointment of trust income to a beneficiary was effective and, if not, what the consequences of such ineffectiveness were. Additionally, the court needed to determine whether the decision to assess income of the trustee was appropriate. The case hinged on interpreting relevant sections of the Income Tax Assessment Act 1936 and applying judicial precedents such as McPhail v Doulton, BRK (Bris) Pty Ltd v Federal Commissioner of Taxation, Ramsden v Federal Commissioner of Taxation, East Finchley Pty Ltd v Federal Commissioner of Taxation, and Kajewski v Federal Commissioner of Taxation.

The Tribunal found that the purported appointment of trust income was ineffective. It relied on the principle from McPhail v Doulton that a mere possibility of a beneficiary being a member of the class of beneficiaries is not sufficient for a valid appointment. Consequently, the court set aside the objection decision in relation to the Trustee, allowing the applicant's objection in full. The court affirmed the objection decisions relating to the assessment of income tax payable by the beneficiaries but set aside the objection decisions concerning the assessment of penalty tax payable by the beneficiaries, substituting those decisions with an assessment according to section 226G of the Act. The Tribunal also found that there was no basis to exercise the discretion in subsection 227(3) of the Act.

The final orders were that the objection decision in relation to the Trustee was set aside, and the applicant's objection was allowed in full. The objection decisions concerning the beneficiaries' income tax and penalty tax assessments were partially set aside and substituted as per the Tribunal's findings. These proceedings concluded in a manner favourable to the applicants.

Orders

Orders of the court

The Tribunal makes the following decisions to the effect that:

(a) the objection decision in relation to the Trustee is set aside and the applicant’s objection be allowed in full;

(b) the objection decisions relating to assessment of income tax payable by the beneficiaries are affirmed;

(c) the objection decisions relating to assessment of penalty tax payable by the beneficiaries are set aside and decisions substituted that penalty tax be assessed in accordance with section 226G of the Act;

(d) there is no basis for exercising the discretion in sub-section 227(3) of the Act; and

(e) these proceedings have terminated in a manner favourable to the applicants.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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