McCarthy and Commissioner of Taxation - [2004] AATA 1206

Administrative

Appeals

Tribunal

DECISION AND REASONS FOR DECISION [2004] AATA 1206
ADMINISTRATIVE APPEALS TRIBUNAL )
) No QT2002/177

TAXATION APPEALS DIVISION
)

Re JULIE JEAN McCARTHY

Applicant

And

COMMISSIONER OF TAXATION

Respondent

DECISION

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

Decision The Tribunal decides:-
(a)      the decision under review is set aside;
(b)      the objection is allowed in full; and
(c)       this proceeding has terminated in favour of the applicant.

.......[Sgd].......
K L Beddoe

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 ss 97, 99A
McPhail v Doulton [1971] AC 424
East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 19 ALD 85
Ramsden v Federal Commissioner of Taxation [2004] FCA 632
REASONS FOR DECISION

10 November 2004
Senior Member KL Beddoe

Senior Member BJ McCabe

1.      Bamyili Pty Ltd as Trustee for the McCarthy Family Trust seeks review of objection decisions by the respondent in relation to the years of income ended 30 June 1996 to 30 June 1998. The individual applicant seeks review of an objection decision in relation to the year of income ended 30 June 1996.
2. The Trustee has been assessed in each year of income under section 99A of the Income Tax Assessment Act 1936 (“the Act”) and the individual applicant under section 97 of the Act in relation to the net income of the Trust.
3. Issues also arise as to whether the respondent was correct in assessing additional taxes in accordance with Part VII of the Act and, if so, whether those additional taxes should be remitted in full or in part. The individual taxpayer also objected on grounds that the amended assessment in issue was not authorised by section 170 of the Act.
4.      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 Trust (“Northbourne”).
5.      At the hearing Mr Russell QC appeared with Mr Bickford for all the applicants and Mr Hack SC appeared with Mr Robertson for the respondent.
6. The documents lodged in the Tribunal pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were before the Tribunal. There is a generic set of documents marked T1 to T69 and also sets of documents specific to the applicants marked Exhibit Y.
7.      Further documents were tendered and marked as exhibits and oral evidence was given by John Damian Andrews, Ian Roland Stevens, Ginette Danen Muller, Steven Irvine Hart, Julie Jean McCarthy and Peter Edmond McCarthy.
8.      By a deed of trust dated 5 August 1977 Archibald Young Whyte settled the PE McCarthy Family Trust, the trustee being Bamyili Pty Ltd.
9.…

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.

Continue reading McCarthy and Commissioner of Taxation

Details

AGLC: McCarthy and Commissioner of Taxation [2004] AATA 1206
Case: [2004] AATA 1206
Decision Date: 10 November 2004

CaseChat Overview and Summary

The case of McCarthy and Commissioner of Taxation involves a dispute concerning the taxation of income that was intended to be appropriated to a beneficiary of a trust. The matter was brought before the Australian Administrative Appeals Tribunal (AAT), which was required to review a decision made by the Commissioner of Taxation regarding the assessable income of the trustee. The central issue was whether the income, which was intended to be allocated to a specific beneficiary, was effectively appropriated and thus exempt from taxation under the trustee's assessable income.

The legal issues before the Tribunal centred on the interpretation and application of sections 97 and 99A of the Income Tax Assessment Act 1936. Specifically, the Tribunal needed to determine if the purported appointment of trust income to a beneficiary was valid and whether the failure to make an effective appointment had any implications for the taxation of the trustee. The decision also needed to consider relevant case law, including McPhail v Doulton, East Finchley Pty Ltd v Federal Commissioner of Taxation, and Ramsden v Federal Commissioner of Taxation. These cases provide guidance on the conditions under which trust income can be considered effectively appropriated to a beneficiary.

The Tribunal found that the purported appointment of income to the beneficiary was ineffective, as it did not satisfy the necessary criteria established by the authorities. Consequently, the income remained part of the trustee's assessable income. However, the Tribunal concluded that the Commissioner's decision to assess this income to the trustee was flawed, as it did not adequately consider the consequences of the ineffective appointment. As a result, the Tribunal set aside the decision under review, allowed the objection in full, and terminated the proceeding in favour of the applicant. This decision ensures that the income in question is no longer subject to taxation as part of the trustee's assessable income.

Orders

Orders of the court

The Tribunal decides:-

(a) the decision under review is set aside;

(b) the objection is allowed in full; and

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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