Re Confidential and Commission of Taxation

[2014] AATA 952

[2014] AATA 952

DivisionTAXATION APPEALS DIVISION

File Number  2012/3559

Re  Confidential

APPLICANT

And  Commissioner of Taxation

RESPONDENT

DivisionTAXATION APPEALS DIVISION

File Number  2012/3561

Re  Confidential

APPLICANT

And  Commissioner of Taxation

RESPONDENT

DECISION

Tribunal  Deputy President S A Forgie

Date  19 December 2014

Place  Melbourne

Decision:

The Tribunal finds:

(1)that a CGT event A1 has happened in the 2007 income year; and

(2)the applicants have not proved that the net income of the Spirou Unit Trust is not assessable income to which they have a present entitlement; and

decides to adjourn further consideration.

…[sgd] S A Forgie..…
Deputy President

CATCHWORDS

TAXATION – sale of business – capital gains tax event –whether CGT event A1 or B1 - when capital gains tax incurred

TAXATION – sale of business – Contract of Sale – Settlement date not met - Heads of Agreement – Deed of Licence – whether one document or separate documents – separate documents under umbrella of Contract of Sale

TAXATION – whether determination of income made by trustee that nil income or no determination made so that income determined under cl 10.5 and so in accordance with net income provisions in s 95 of ITAA36 – burden of proof not satisfied

TAXATION – alternative assessments – role of Tribunal limited – outside Tribunal’s role to oversee Commissioner’s actual recovery of taxation liability from taxpayers

TAXATION – PRACTICE AND PROCEDURE – effect of withdrawal of application

TAXATION – WORDS AND PHRASES – “income of the trust estate” – “net income of the trust estate”

TAXATION – WORDS AND PHRASES – “present entitlement”

LEGISLATION
Administrative Appeals Tribunal Act 1975; sections 25, 37, 42A, 43
Income Tax Assessment Act 1936; sections 95, 95A, 96, 97, 99A, 170
Income Tax Assessment Act 1997; sections 100-10, 100-35, 100-40, 102-5, 102-25, 104-5, 104-10, 104-15, 108-5, 115-215, 115-225, 116-20, Subdivision 152A, 995-1
Safety, Rehabilitation and Compensation Act 1988; sections 24, 45
Social Security Act 1947
Social Security (Administration) Act 1999; section 182
Taxation Administration Act 1953; sections 14ZZE, 14ZZJ, 14ZZK, 280-160, 284-75, 284-90, 298-20
Trustee Act 1958 (Vic)

CASES
Arjon Pty Ltd v Commissioner of State Revenue [2003] VSCA 213; (2003) 56 ATR 446
British & Beningtons Ltd v North West Cachar Tea Co. Ltd [1923] AC 48
Cajkusic v Commissioner of Taxation [2006] FCAFC 164; (2006) 155 FCR 430; 64 ATR 676
Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693
Costa and Duppe Properties Pty Ltd v Duppel [1986] Vic Rp; [1986] VR 90
Deputy Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168; 127 ALR 21; 29 ATR 644
Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60; 24 ALR 577; 46 FLR 409
Dwight v Federal Commissioner of Taxation [1992] FCA 178; (1992) 37 FCR 178; 107 ALR 407; 92 ATC 4192; 23 ATR 236
Federal Commissioner of Taxation v Bamford [2010] HCA 481; (2010) 240 CLR 481; 264 ALR 436; 75 ATR 1; ATC 20-170
Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088
Federal Commissioner of Taxation v Grimaldi and Others (No 9) [2009] FCA 1404; (2009) 181 FCR 275; [2009] ATC 20-147
Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd [2002] HCA 35; (2000) 201 CLR 520; 172 ALR 346; 44 ATR 370; [2000] ATC 4378
Federal Commissioner of Taxation v Whiting [1943] HCA 45; (1943) 68 CLR 199
Galea v Commissioner of Taxation [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81; 8 ALR 155
Harmer v Federal Commissioner of Taxation [1991] HCA 51; (1991) 173 CLR 264; 104 ALR 117; (1991) 22 ATR 726
Hoyt’s Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
McLean Bros & Rigg Ltd v Grice [1906] HCA 1; (1906) 4 CLR 835
Minister for Immigration and Citizenship v SZIAI [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123
Morris v Baron & Co [1918] AC 1
Pearson v Commissioner of Taxation [2005] FCA 250
Re DBTL and Innovation Australia (2013) 137 ALD 88
Re Gee and Director-General of Social Services (1981) 3 ALD 132; 58 FLR 347
Richardson v Federal Commissioner of Taxation [1932] HCA 67; (1932) 48 CLR 192
Stevenson v Federal Commissioner of Taxation (1991) 29 FCR 282; 22 ATR 56
Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93
Telstra Corporation Ltd v Flynn [2002] NSWCA 315; (2002) 55 NSWLR 303
Trustee of the Balmain Trust v Federal Commissioner of Taxation [1998] FCA 423; (1998) 98 ATC 4433
Trustees of Estate Mortgage Fighting Fund Trust v Commissioner of Taxation [2000] FCA 981; (2000) 102 FCR 15; 45 ATR 7; 175 ALR 482; [2000] ATC 4525
Zeta Force Pty Ltd v Commissioner of Taxation (1998) 84 FCR 70; 39 ATR 277

OTHER MATERIALS
Chambers 21^st Century Dictionary, 1999, reprinted 2004, Chambers

REASONS FOR DECISION

1. As the applicants had asked that the hearing of the matter be held in private, I have been required to frame my decision and reasons so that it is unlikely that they will be able to be identified from those reasons.[1]  In order to meet my obligations, I have used pseudonyms for the applicants and for others to whom it is necessary to refer.  A Legend identifying those persons and their pseudonyms has been made available to the parties. 

[1] Taxation Administration Act 1953 (TAA); ss 14ZZE and 14ZZJ modifying the application of s 43 of the Administrative Appeals Tribunal Act 1975 (AAT Act) by adding s 43(2D) providing that, in these circumstances “… the Tribunal must ensure, as far as practicable, that its reasons for the decision are framed so as not to be likely to enable the identification of the person who applied for the review.”

1. At the time of the hearing, one of the applicants was Azrae Pty Ltd (Azrae).  It is the trustee of the Spirou Unit Trust and owned a business (Spirou business) and the premises from which that business was operated.  When Azrae sold the business in 2007, it made a capital gain.  Corbelius Pty Ltd (Corbelius) is the trustee of the Pierre Family Trust.  The Pierre Family Trust owns all of the units that have been issued in the Spirou Unit Trust.  Pierre and his wife, Andrée, are the beneficiaries of the Pierre Family Trust and the two applicants in this case.  Pierre is the sole director and shareholder of both Azrae and Corbelius.  The Financial Statements prepared in relation to the 2007 income year show a loss but the issues in this case revolve around when the CGT event arising from the sale of the business occurred and whether the capital gain is taxable in the hands of Azrae as trustee or in those of Pierre and Andrée as beneficiaries of the Pierre Family Trust. 

1. The Commissioner of Taxation (Commissioner) issued alternative assessments to each of Azrae, Pierre and Andrée relating to income from the Spirou Unit Trust.  He has not issued assessments against Corbelius, as the trustee of the Pierre Family Trust, as the Commissioner took the view that it had distributed any income it received from the Spirou Unit Trust to Pierre and Andrée. 

1. When this matter was heard on 18 August 2014, each of Azrae, Pierre and Andrée had agreed that the applications for review of assessments made by the Commissioner would be heard concurrently.  Evidence would be given only once and, unless an order were made to the contrary, would stand as evidence in each of the three applications.  I considered the matter on that basis.

1. On 2 October 2014, Azrae withdrew its application for review. That meant that, according to s 42A(1A) of the Administrative Appeals Tribunal Act 1975 (AAT Act), “… the Tribunal is taken to have dismissed the application without proceeding to review the decision.”  I subsequently held a directions hearing to ask the parties for submissions addressing any consequences they foresaw from Azrae’s withdrawal.  They made further submissions and I decided, in summary, that Azrae’s withdrawal of its application leaves the Commissioner’s reviewable objection decision and the assessment he issued in place.  The withdrawal has no consequence when it comes to the applications for review lodged by Pierre and Andrée.  They remain on foot and require the Commissioner’s reviewable taxation objections to be reviewed in the usual way. 

1. In relation to the Spirou business, was its sale a CGT event A1 as set out in s 104-10 of the Income Tax Assessment Act 1997 (ITAA97) happening in the year ending 30 June 2007 (2007 income year) or a CGT event B1 as set out in s 104-15 happening in the following income year; the 2008 income year?  I have decided that it was a CGT event A1 that happened in the 2007 income year.

1. The remaining issues depends on the application of the trust income provisions of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA36).  Implicit in his having issued alternative assessments is a state of uncertainty as to the decisions that Azrae has, or has not, made in relation to the income of the Spirou Unit Trust.  He has assumed in all cases that Azrae made a determination regarding the beneficiaries of any distribution of income and had done so even though the relevant document was unsigned.  That beneficiary was Corbelius and, on the same basis, he assumed that it had determined that Pierre and Andrée were the beneficiaries of any distribution. 

1. The assessment issued to Azrae, necessarily assumes that it, as trustee of the Spirou Unit Trust, is liable to pay tax under s 99A(4) of the Income Tax Assessment Act 1936 (ITAA36). That liability comes about on the basis that Azrae made a determination under cl 10.3 of the Spirou Unit Trust Deed (SUT Deed) that its net income was nil, consistently with its Financial Statement. The result of Azrae’s determination of a nil income would mean that Corbelius, and so Pierre and Andrée, would not be presently entitled to the net income determined under s 95 of ITAA36 and including capital gains from the CGT event. As they would not be presently entitled, Azrae would be liable as trustee under s 99A.

1. The assumption underpinning the assessments issued to Pierre and Andrée is that Azrae failed to make the relevant determination of net income under cl 10.3 leaving it to be determined under cl 10.5. That meant that the income of the Spirou Unit Trust was that determined in accordance with s 95(1) of ITAA36. As the Commissioner accepts that Azrae and Corbelius both made relevant distributions in their roles as trustee of the Spirou Unit Trust and Pierre Family Trust respectively, Pierre and Andrée would be presently entitled to the income determined under s 95(1) which includes the capital gains from the CGT event.

1. I have found that Pierre and Andrée have not established, on the balance of probabilities, that Azrae made a determination that the Spirou Unit Trust had a nil income. In fact, they have established that it did not make a determination. That means that they have not satisfied the burden of proof under s 14ZZK(b)(i) that their assessments are excessive. As matters relating to issues arising out of the application of the maximum net asset value test or the application of Division 152C remain in issue, I have adjourned further consideration.

BACKGROUND

1. Azrae and Corbelius were incorporated in August 2002.  Pierre is the sole director and shareholder of both.  Azrae became the trustee of the Spirou Unit Trust and Corbelius became the trustee of the Pierre Family Trust.  The Pierre Family Trust owns all of the units that have been issued in the Spirou Unit Trust.  Pierre and his wife, Andrée, are beneficiaries of the Pierre Family Trust. 

1. On 30 July 2002, Azrae, as trustee of the Spirou Unit Trust, entered an agreement to purchase the Spirou business for $2,600,000.00.  The purchase was completed on 30 September 2002.  At the same time, Corbelius purchased the premises from which the Spirou business was conducted (Spirou premises).  The purchase price was $2,000,000.00.

1. Azrae has since sold the Spirou business (but not the Spirou premises, which are owned by Corbelius) to Culliford Pty Ltd (Culliford) for the sum of $16,485,000.00.   That sale lies at the heart of the matter to be determined. 

1. In its income tax returns, Azrae showed its net capital gain as zero for the 2007 income year and as $2,962,323.00 for the year of income ending 30 June 2008 (2008 income year).  Pierre and Andrée also lodged income tax returns for the same years.  Neither returned any income from trusts or capital gain in the 2007 income year.  In the 2008 income year, each returned losses from trusts together with a net capital gain. 

1. Following a capital gain small business concession audit, the Commissioner adjusted the income tax returns of the Spirou Unit Trust for each of the two income years.  He did so on the basis that Azrae had incorrectly applied the small business concessions to a capital gain in the incorrect year.  The correct year was the 2007 income year.  Furthermore, there was no eligibility for the capital gains tax small business concession as the maximum net asset value test of $5 million had been exceeded.  As a consequence, the Commissioner adjusted the Spirou Unit Trust’s income tax return for the 2007 income year to show a net capital gain of $5,924,646.00 and a zero amount of capital gain for the 2008 income year.  The Commissioner did not impose a shortfall penalty on Azrae in respect of the shortfall amount for the 2007 income year as he considered that it should be imposed on the beneficiary.  He issued amended assessments on that basis.

1. The Commissioner’s adjustments led to amendments to the amounts of income distributed to the beneficiaries of the trust.  In the case of Pierre, the Commissioner’s amendments meant that a loss of income was returned together with a capital gain of $2,962,323.00 in the 2007 income year.  The net capital gain returned in the 2008 income year was reduced to zero and an adjustment made to Pierre’s income.  Amended assessments were issued to Pierre by the Commissioner on 24 August 2011.  He also issued an assessment of shortfall penalty amounting to $273,786.40 for the 2007 income year but, on 26 August 2011, reduced it to $70,583.60.

1. In Andrée’s case, the Commissioner amended her income tax return for the 2007 income year to return a loss of income and a capital gain of $2,962,323.00.  The amount of net capital gain previously returned in her income tax return for the 2008 income year was reduced to nil in so far as capital gains from the sale of the Spirou business was concerned.  An adjustment was also made to Andrée’s income for that year.  As a consequence of those amendments, the Commissioner issued amended assessments to Andrée for the two income years.  The Commissioner did not impose a penalty on Andrée as he did not regard her as primarily responsible for the shortfall amount.

1. Both Pierre and Andrée objected to the amended assessments but their objections were disallowed by the Commissioner on 2 July 2012 and 3 July 2012 respectively.

ISSUES

1. After considering an application made by Mr Halperin on behalf of the applicants and opposed on behalf of the Commissioner by Mr Broadfoot, I ordered that the hearing would be divided into two segments.  The first would consider only four questions.  These questions were subsequently reduced to two by virtue of the withdrawal of Azrae’s application but that withdrawal raised two of its own. 

1. The issues raised by the withdrawal of Azrae’s application are:

   (1)what are the consequences of withdrawing an application in general terms; and

   (2)what, if any, regard must I have to the withdrawal of Azrae’s application in reviewing the assessments made by the Commissioner in relation to Pierre and Andrée?

2. The questions raised on the review of the assessments issued to Pierre and Andrée are:

   (1)in determining whether any capital gain arising from the sale of the Spirou business by Azrae (as trustee of the Spirou Unit Trust) was assessable income in the 2007 income year or in the 2008 income year, was the sale:

   (a)a CGT event A1 in accordance with s 104-10 of the Income Tax Assessment Act 1997 (ITAA97) in the 2007 income year; or

   (b)a CGT event B1 in accordance with s 104-15 of ITAA97 in the 2008 income year;

   (2)were the assessments issued to each of Pierre and Andrée excessive and so:

   (a)was that income assessable in the hands of Azrae, as trustee of the Spirou Unit Trust, under s 99A of the Income Tax Assessment Act 1936 (ITAA36);

   (i)If Azrae were assessable, it would be on the basis that no part of the net income of the Spirou Unit Trust was included in the assessable income of a beneficiary under s 97 of the ITAA36; or

   (b)were Pierre and Andrée each presently entitled to a share of the income of the Spirou Unit Trust under s 97 of ITAA36 so that it was assessable in their hands?

   (i)If Pierre and Andrée were assessable, it would be on the basis that Corbelius, as trustee of the Pierre Family Trust, was presently entitled to all of the distributable income of the Spirou Unit Trust and Pierre and Andrée were, in turn, entitled to the income of the Pierre Family Trust that was referable to capital. 

   (ii)The Commissioner accepts that, if there was income of the Pierre Family Trust:

   ·Corbelius was presently entitled to it by virtue of the resolution dated 28 June 2007 distributing its net income;[2]

   ·Corbelius itself would not be assessable in view of the resolution made on 28 June 2007 that the net income of the Pierre Family Trust referable to capital be distributed to Pierre and Andrée in equal shares; and

   ·Corbelius would have made a capital gain under s 115-215(3)(b) equal to twice the amount of the capital gain made by the Spirou Unit Trust.

   [2] T documents; T9 at 282.  The copy of the minute in the T documents is unsigned but Mr Broadfoot stated at the outset of the hearing that the Commissioner made no point about their being unsigned.  It states that Corbelius, acting as trustee of the Pierre Family Trust, resolved in accordance with the trust deed to distribute 50% of Capital to each of Pierre and Andrée.

1. Resolution of these issues will not necessarily lead to resolution of the two applications and other issues may arise for consideration at a later time. Depending on whether the sale of the Spirou business is regarded as a CGT event A1 or B1, an issue will remain as to whether the sale exceeded the maximum net asset value test under Subdivision 152A of ITAA97. In order to be eligible for small business concessions and, in particular, the 50% active asset reduction in the relevant financial year, the capital gain must meet the maximum net asset value test of $5 million in the 2007 income year or $6 million in the 2008 income year. In so far as Pierre is concerned, issues relating to the imposition of shortfall penalties arise under ss 284-75[3] and 284-90 of Schedule 1 of the TAA as does their remission, in full or in part, under s 298-20. Finally, issues arise under s 280-160 in relation to the full or partial remission of any shortfall interest charge that may be imposed on either or both of them.

   [3] In summary, a penalty imposed for failing to take reasonable care in making a statement to the Commissioner under a taxation law when that statement is false or misleading in a material particular.

WITHDRAWAL OF AZRAE’S APPLICATION

The submissions regarding consequences of withdrawal

1. Mr Halperin submitted that the effect of Azrae’s withdrawing its application was that the Tribunal is taken to have dismissed that application under s 42A(1A) of the AAT Act. The effect of that, he continued, was that the Tribunal is taken to have affirmed the reviewable objection decision under review. Mr Halperin relied on two passages from the judgment of Beazley JA in Telstra Corporation Ltd v Flynn[4] (Flynn).  Acknowledging that, under the authority of Deputy Commissioner of Taxation v Richard Walter Pty Ltd[5] (Richard Walter), the Commissioner may issue multiple assessments provided the tax imposed is not recovered on multiple occasions but on one alone, Mr Halperin submitted that the assessment issued to Azrae was no longer in doubt.  It stands as the Commissioner’s reviewable objection decision and is the operative decision.  That means that the Commissioner can properly recover against Azrae but not against Pierre and Andrée.  As the reviewable objection decisions relating to Pierre and Andrée relate to the same income as that taxed in the hands of Azrae, they should be set aside and the objections made by Pierre and Andrée allowed.

   [4] [2002] NSWCA 315; (2002) 55 NSWLR 303 at [18] and [20]; 308

   [5] [1995] HCA 23; (1995) 183 CLR 168; 127 ALR 21; 29 ATR 644; Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ

1. On behalf of the Commissioner, Mr Broadfoot submitted that Azrae’s withdrawal of its application makes no difference to the burden of proof that Pierre and Andrée continue to carry.  They must demonstrate that the assessments issued to them by the Commissioner are excessive.  Mr Broadfoot agreed with Mr Halperin that the Commissioner’s reviewable objection decision made on Azrae’s objection is an operative decision but submitted that this had no relevance in the matters relating to Pierre and Andrée.  The law is concerned to prevent double recovery of a quantum of tax that is payable.  If more than one taxpayer is assessed in respect of the same income and none can demonstrate that his, her or its particular assessment is excessive, the Commissioner is entitled to recover against all of them provided that he does not recover, in total, more than the amount of tax assessed as payable.  Mr Broadfoot relied on the cases of Trustee of the Balmain Trust v Federal Commissioner of Taxation[6] (Balmain Trust) as well as to Richard Walter, to which reference was made in that case, and Richardson v Federal Commissioner of Taxation.[7]

   [6] [1998] FCA 423; (1998) 98 ATC 4433; Davies J

   [7] [1932] HCA 67; (1932) 48 CLR 192; Dixon, Evatt and McTiernan JJ

1. Both Mr Halperin and Mr Broadfoot referred to the case of Federal Commissioner of Taxation v Grimaldi (No 9)[8] (Grimaldi).  Mr Broadfoot submitted that it applied the principles set out in Balmain Trust.  Mr Halperin submitted that neither the Balmain Trust case nor the Grimaldi case addressed the situation where the quantum of tax recoverable depends on the identity of the taxpayer liable to pay that tax.  In Balmain Trust, Davies J did not indicate how the Tribunal is to prevent double recovery in a case in which alternative taxpayers are subject to tax at different rates.  Unless the Tribunal determines the correct tax payable, it will not be possible to prevent double recovery of taxation.  It is, therefore, insufficient for the Commissioner to indicate in general terms that he would not seek to recover tax twice. 

   [8] [2009] FCA 1404; (2009) 181 FCR 275; [2009] ATC 20-147; Graham J

1. It is inimical, Mr Halperin submitted, to the scheme of Division 6 of Part III of ITAA36 for both the trustee and the beneficiaries to be assessed in respect of the same income. The scheme of Division 6 is that, except as specifically provided, a trustee is not liable as trustee to pay income tax upon the income of the trust estate: ITAA36; s 96. The only provision that specifically imposes tax upon the trustee in the circumstances of Azrae is s 99A. Section 99A(4) provides that, when there is no part of the net income of a trust estate that is included in the assessable income of a beneficiary of the trust, the trustee is liable to pay tax. Relying on s 99A(4), the Commissioner has assessed Azrae to tax on the trust income. That assessment still stands following the dismissal of Azrae’s application for review lodged with the Tribunal. Therefore it must follow, Mr Haperin concluded, that no part of the net income of the trust can be included in Pierre and Andrée’s assessable income under s 97. It further follows that their objections to their assessments should be allowed.

1. The Tribunal should be reluctant to allow two sets of inconsistent assessments to stand.  In Balmain Trust, Davies J had been critical of the Tribunal’s having laid undue emphasis on the burden of proof and the unreliability of the taxpayer’s witnesses.  His Honour had, Mr Halperin said, indicated that the issues should be decided on the balance of probabilities if that could be done.

Consideration of withdrawal of Azrae’s application

A.Section 42A of the AAT Act

1. Section 42A provides for a number of circumstances in which an application for review, properly lodged and seeking review of a decision within the Tribunal’s power to review, may be dismissed.  The first arises when all of the parties to an application consent that it be dismissed.  Section 42A(1) provides that:

   “… the Tribunal may dismiss the application without proceeding to review the decision or, if the Tribunal has commenced to review the decision, without completing the review.”

1. Of relevance in this case is that dealt with in s 42A(1A), which provides:

   “A person who has made an application to the Tribunal for a review of a decision may, in writing lodged with the Tribunal, at any time notify the Tribunal to the effect that the application is discontinued or withdrawn.”

The effect of an applicant’s giving that notice is set out in ss 42A(1B) and (6).  Section 42A(1B) provides:

“If notification is so given, the Tribunal is taken to have dismissed the application without proceeding to review the decision.”

Section 42A(6) provides:

“If, under this Act, the Tribunal dismisses an application or an application is dismissed on its behalf, the proceeding to which the application relates, unless it is reinstated under subsection (9) or (10), is taken to be concluded.”[9]

[9] The reference to an application’s being dismissed on the Tribunal’s behalf is a reference to a provision such as s 182 of the Social Security (Administration) Act 1999.  In summary, that section provides that, if the parties to proceedings in the Tribunal relating to the recovery of a social security debt agree to settle those proceedings, the application for review lodged in the Tribunal is taken to have been dismissed on lodgement of a written copy of their agreement.

1. It is clear from s 42A(1B) that the Tribunal is taken not to have reviewed the decision.  It is not taken to have exercised any of the powers that it has been given by s 43(1) of the AAT Act for the purpose of reviewing the decision i.e. the power to affirm or vary the decision or to set it aside and either to make a decision in substitution for it or to remit the matter to the original decision-maker to make a decision in accordance with any directions or recommendations the Tribunal may give.  The decision that was the subject of the application for review remains unaltered.  It remains the decision that continues to affect the applicant’s rights, entitlements and obligations.  As Beazley JA said in Flynn:

   “... If an application is dismissed, the effect of the dismissal must by its nature, leave untouched that which went before. …”[10]

   [10] [2002] NSWCA 315; (2002) 55 NSWLR 303 at [20]; 308 per Beazley JA with whom Hodgson and Santow JJA agreed

1. In the case of Flynn, Beazley JA was concerned with the effect of Mr Flynn’s having, with the consent of Telstra Corporation Ltd (Telstra) withdrawn his application for review of a reviewable decision made by Telstra. Telstra had accepted that Mr Flynn had been injured in the course of his employment in April 1996. It had, however, in April 1999 rejected his claim that he had suffered permanent impairment from that injury and so rejected his claim that he was entitled to lump sum compensation under s 24 of the Safety, Rehabilitation and Compensation Act 1988 (SRC Act).  Telstra affirmed that decision in a reviewable decision dated May 1999.  Mr Flynn applied to the Tribunal for review of the reviewable decision.  Telstra and Mr Flynn later consented to his application’s being dismissed under s 42A(1) of the AAT Act. 

1. Three months later, Mr Flynn lodged proceedings in the District Court (NSW) for damages for injuries arising out of the events in April 1996 and of others in June 1997. Mr Flynn claimed that the injuries he sustained on those days were caused by Telstra’s negligence. Telstra sought an order that the proceedings be struck out as he was not entitled to non-economic loss damages at common law because he did not meet the requirements of s 45(1)(a) of the SRC Act and so could not elect to forego his statutory rights for those at common law. He did not meet the requirements because compensation was not payable under s 24 in relation to permanent impairment. That had been determined by the delegate and affirmed by the reviewable decision.

1. The trial judge rejected Telstra’s application on the basis that dismissal of an application by consent did not amount to a final judicial or administrative determination of Mr Flynn’s entitlements under s 24. On appeal, the Court of Appeal (NSW) reversed the trial judge’s judgment. It found, as I have said, that the effect of the dismissal of the application was to leave untouched what went before. In that case, that meant that the decision made by the delegate in April 1999 that Mr Flynn had not suffered a permanent impairment was left untouched. It was the operative decision as Beazley JA said at [20].

1. Her Honour did not refer to the reviewable decision dated May 1999 and affirming the April 1999 decision as the operative decision even though Mr Flynn was obliged by s 64 of the SRC Act to apply for review of the reviewable decision.  The Court of Appeal determined that the operative decision could not be ignored.  The entire scheme under the SRC Act and upon which an election under s 45 depended was predicated upon there being a determination by the relevant authority; in that case, Telstra. 

B.       Identifying what went before and so what it is that a dismissal leaves untouched

1. An examination of the scheme of review by the Tribunal provided under the TAA reveals that it is in similar form to that provided under the SRC Act. An application for review may be made for review of a reviewable objection decision.[11] The reviewable objection decisions made in this case were to disallow each of the taxpayer’s objections. When the TAA provides that the Tribunal may review the Commissioner’s reviewable objection decision, however, it is not the decision to disallow the objection that is under review. That is simply the decision that determines whether it is the assessment as issued that is under review, an assessment as varied should the Commissioner’s reviewable objection decision vary it or, if the objection is allowed in full, perhaps that there is nothing to review at all. That follows from the fact that it is the assessment, and not the reviewable objection decision that ultimately determines a taxpayer’s liability to pay income tax.

[11] TAA; s 14ZZ(1)(a)(i)

1. The reasons for this conclusion were given by the Tribunal in Re Gee and Director-General of Social Services[12] (Gee).  They were given in the context of a decision made under the Social Services Act 1947 (SS Act) but the conclusion applies equally to a decision, described as an assessment, under ITAA36. Review rights were given in a form consistent with those given under the TAA. The review rights given in both the SS Act and the TAA depend upon s 25(1) of the AAT Act, which provides that an enactment may provide that applications may be made to the Tribunal for review of decisions made in the exercise of powers conferred by that or another enactment and on s 25(4), which provides that the Tribunal has power to review any decision in respect of which an application is made to it under such an enactment.

[12] (1981) 3 ALD 132; 58 FLR 347; Davies J, President, Messrs Cusack and Prowse, Members

1. The Tribunal said, in part:

   “… It is a necessary inference from the Administrative Appeals Tribunal Act that the function of the Tribunal is to review on the merits decisions which affect a person’s interests. See per Bowen CJ and Deane J in Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60 at 68, and Smithers J in Collector of Customs (New South Wales) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1 at 23. It is inconsistent with the tenor of the Act that the Tribunal should concern itself not with an operative decision which affects a person’s rights but merely with a decision which has simply affirmed or varied the operative decision. Moreover, if the respondent’s arguments were correct, the Administrative Appeals Tribunal would not be able effectively to use the power conferred by s 43 of its Act to set aside the decision under review and to remit the matter for reconsideration in accordance with any directions or recommendations of the Tribunal. … Nor, if the respondent’s contention be correct, could the Tribunal exercise its power under s 41 of the Administrative Appeals Tribunal Act to suspend the operation of the subject decision for, in that event, the decision under review would not be the operative decision.”[13]

   [13] (1981) 3 ALD 132; 58 FLR 347 at 141-142; 357

1. As to the identification of the decision that affects a person’s interests, the Tribunal had said:

   “… We see nothing in the Social Services Act from which an inference should be drawn that a decision, once reconsidered on appeal or review, ceases to have effect and is replaced by the decision taken on appeal or review affirming it. Nor is there anything in the general law which suggests that a decision ceases to have effect once it is affirmed and that its place is taken by the decision of affirmation. Indeed, it was specifically held in Ridge v. Baldwin [1963] UKHL 2; (1964) AC 40 that a decision affirming an earlier decision is itself of no effect if that earlier decision is void.  Cases such as Twist v. Randwick Municipal Council [1976] HCA 58; (1976) 12 ALR 379 which have distinguished Ridge v. Baldwin do not suggest that a decision on appeal entirely supplants the earlier decision. …”[14]

   [14] (1981) 3 ALD 132; 58 FLR 347 at 139; 354

1. Applying the same analysis to the Tribunal’s review of a reviewable objection decision disallowing an objection, the review is not of the reviewable objection decision itself but of the Commissioner’s assessment.  That is the decision that continues to determine the taxpayer’s liability.  Had the Commissioner allowed the objection in part, the review would be of the assessments, if any, that he had issued as a result of that objection.[15]  An amended assessment is an assessment for these purposes.[16]

   [15] ITAA36; s 170(1), Item 6

   [16] ITAA36; s 173

1. This analysis is consistent with the burden that s 14ZZK of the TAA places on the person applying for review. In the case of an assessment and within the confines of the grounds stated in the objection, that is the burden of proving that “the assessment is excessive or otherwise incorrect and what the assessment should have been”.[17]  That is consistent with the Tribunal’s function being, as explained by the Tribunal in Gee, “… to review on the merits decisions which affect a person’s interests.”  The assessment is that decision whether as originally made or as an amended assessment made following the Commissioner’s making a reviewable objection decision.

   [17] TAA; ss 14ZZK(a) and (b)(i) I have set out the nature of that burden at [50]-[59] below

C.Effect of withdrawal on review by the Tribunal of alternative assessments

1. Applying ss 42A(1A) and (1B) in light of these principles, the practical outcome of Azrae’s having withdrawn its application for review of the Commissioner’s reviewable objection decision is to leave the assessment in place and untouched. It cannot be given any greater status or authority by virtue of decisions made solely by Azrae in first lodging an application for review and then withdrawing that application. Neither the Tribunal nor the Commissioner played any part in those decisions and to say that Azrae’s actions can lead to the Tribunal’s being obliged to “allow the objections” of Pierre and Andrée would be to permit its actions to determine the outcome of the Tribunal’s.  That would be inconsistent with the Tribunal’s obligation to review the Commissioner’s decisions having regard to the burden that each of Pierre and Andrée carry i.e. a burden to prove that the assessment issued to each of them is excessive.

1. While I can understand that there may be practical concerns about the amount of taxation that the Commissioner may recover when he has issued alternative assessments and different rebates may apply if the income is taxed in the hands of one taxpayer rather than another, those concerns are his and not those of the Tribunal. I say that because the Tribunal’s task is a limited one. It is limited to reviewing the reviewable objection decision and so, in a case such as this, determining whether each assessment is excessive. That is a task that must be carried out in accordance with the TAA, with other relevant taxation legislation and with the judicial authorities that have explained that task. There is nothing in the legislation or in those authorities that requires or permits the Tribunal to choose or determine that one taxpayer or another is to meet the liability when the Commissioner has chosen to issue alternative assessments.

1. This was explained by Davies J in Balmain Trust when considering an appeal from the Tribunal. Alternative assessments had been issued by the Commissioner against both the trustee of the Balmain Trust and Mr Ward who had also been described as trustee. The Commissioner could not decide whether a trust had existed at all during the relevant years. The assessment issued to the Balmain Trust depended on s 99A of ITAA36. After referring to the judgment of Brennan J in Richard Walter, Davies J continued:

   “ As his Honour pointed out, it is not necessary that the decision-maker, the Commissioner or the Tribunal, should be positively satisfied of the taxpayer’s liability before raising an assessment or affirming it. Alternative assessments may be issued where the Commissioner is uncertain as to which taxpayer is liable. The obligation then is on each taxpayer who has been assessed to satisfy the onus of proof cast upon a taxpayer by s 14ZZK of the Administration Act to show that the assessment was excessive.  It would be wrong, of course, for the Commissioner to recover two amounts of tax.  The Commissioner should ensure that there is no double recovery of tax.  As Brennan J said, that is an obligation which the courts would enforce, although I assume that they would never need to do so.”[18]

   [18] [1998] FCA 423; (1998) 98 ATC 4433 at 4,441 per Davies J and see also Grimaldi [2009] FCA 1404; (2009) 181 FCR 275; [2009] ATC 20-147 at [28]; 283; 10,417 per Graham J

1. As Davies J said, it is the courts that have the power to ensure that the Commissioner recovers no greater amount from taxpayers than the amount of tax properly due.  As part of the executive arm of government, the Tribunal does not have powers of that sort conferred upon it either generally under the AAT Act or under the taxation law.  They are powers conferred upon the judicial arm of government.  For these reasons, I have proceeded to review the reviewable objection decisions made on objections made by Pierre and Andrée.

A further consequence of Azrae’s withdrawal of its application

1. The Commissioner’s Notice of Assessment issued on 15 April 2011 in respect of the 2007 income year assessed the taxable income of Azrae, as trustee of the Spirou Unit Trust, as $5,146,359.00.  It assessed the tax payable, including the Medicare levy, as $2,393,056.90.[19] 

   [19] T documents; T21 at 428

1. The sum shown on the assessment as income was made up wholly of capital gains. The Commissioner issued the assessment on the basis that Azrae was assessed under s 99A on the basis that it was entitled to the benefit of the capital gains tax discount provisions set out in Division 115 of ITAA97. Application of those discount provisions reduced its net capital gain by $5,924,646.00.[20]

[20] T documents; T13 at 406

1. At the hearing, the Commissioner contended that, if Azrae is correctly assessed under s 99A, he had incorrectly applied the discount provisions. That, Mr Broadfoot submitted, is the effect of s 115-225 of ITAA97. It provides that, when a trustee is assessed under s 99A on an amount of the net income, the discount percentage or the small business 50% reduction under Subdivision 152-C does not apply when working out the trust’s net income. The Tribunal could correct the Commissioner’s error because, for the purpose of reviewing a decision, it may exercise all of the powers and discretions that are conferred by any relevant enactment on the person who made the decision.[21]  By virtue of s 43(6) of the AAT Act, the decision made in substitution for the Commissioner’s decision or his decision as varied by the Tribunal would be deemed to be his decision and to have come into effect on and from the day on which he made the assessment issued to Azrae.  Mr Broadfoot referred to Stevenson v Federal Commissioner of Taxation[22] and Re DBTL and Innovation Australia[23] in support of his submission.

   [21] AAT Act; s 43(1)

   [22] (1991) 29 FCR 282; 22 ATR 56 at 299; 71 per Jenkinson J

   [23] (2013) 137 ALD 88; Deputy President Tamberlin QC and Mr Ermert, Member

1. Since Azrae withdrew its application for review of the Commissioner’s reviewable objection decision, I no longer have any authority to consider this issue for I may only exercise the powers given by s 43 of the AAT Act for the purpose of reviewing a decision.  The effect of s 25(4) of the AAT Act is that I may only review a reviewable objection decision in respect of which an application has been made to the Tribunal.  Therefore, once Azrae withdrew its application, I no longer had power to review the reviewable objection decision and the Commissioner’s assessment remains untouched.

BURDEN OF PROOF

1. Generally, no party carries a burden of proof in the Tribunal as its task is to reach the correct or preferable decision on the material it has before it.[24]  The AAT Act, however, contemplates that an enactment conferring a right on a person to apply to the Tribunal for review of a decision may also modify its operation.[25]  Parliament has decided to modify its operation in cases such as this and has imposed a burden of proof upon the taxpayer.  In this section of my reasons, I explain how the burden of proof is discharged.

   [24]

   [25] See, for example, AAT Act; s 25(6)

Taxpayer generally carries burden of proof

1. As permitted by the AAT Act, s 14ZZK of the TAA modifies its operation when the Tribunal reviews reviewable objection decisions such as those made by the Commissioner in this case. In so far as it is relevant, s 14ZZK provides:

   “On an application for review of a reviewable objection decision:

   (a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

   (b)the applicant has the burden of proving that:

   (i)if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or

   (ii)-(iii)…”

What the burden means

1. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in Gauci v Federal Commissioner of Taxation[26] (Gauci):

   “          The Act does not place any onus on the Commissioner to show that the assessments were correctly made.  Nor is there any statutory requirement that the assessments should be sustained or supported by evidence.  The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”[27]

   [26] [1975] HCA 54; (1975) 135 CLR 81; 8 ALR 155; Barwick CJ and Jacobs JJ; Mason J dissenting

   [27] [1975] HCA 54; (1975) 135 CLR 81; 8 ALR 155 at [6]; 89; 160 and approved by Brennan J in Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 624; 346-347; 1375; 170; 4,093

1. His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:

   “… There is nothing inherently unfair in the provision which places the onus on the taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge.”[28]

   [28] [1975] HCA 54; (1975) 135 CLR 81; 8 ALR 155 at [7]; 89; 160

Standard of proof unaltered: balance of probabilities

1. Section 14ZZK does not alter the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.

How a taxpayer may satisfy the burden

1. The case of McCormack v Federal Commissioner of Taxation[29] illustrates the nature of a taxpayer’s task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of ITAA36 as it was then in force. Gibbs J explained Mrs McCormack’s task:

   “… The taxpayer bears the burden of proving that the assessment was excessive.  To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale.  The burden may be discharged by drawing inferences from the evidence.  In some cases in which all the relevant facts are known, and there is no material upon which it might  properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose.  But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a).  If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner.  That in my respectful opinion would be to invert the onus of proof.  The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.”[30]

   [29] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111

   [30] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111 at [11]; 303; 597; 443; 622; 4,121

1. If all of the material facts were known and the amount of a taxpayer’s taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.[31]

   [31] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J

1. It is open to the taxpayer to attack the Commissioner’s power to make an assessment[32] or the calculation of the amount of an assessment.  If the taxpayer chooses to attack the calculation of the amount of the assessment:

   “… mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed.  Given the validity of the exercise of the power to make an assessment …, the ultimate question is whether the amount of the assessment is excessive.  The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. …”[33]

   [32] McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464 at 270-271; 465-466 per Dixon CJ, McTiernan and Webb JJ

   [33] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 20 ATR 1370; (1990) 64 ALJR 166; 90 ATC 4088 at 623; 345; 1374; 169; 4092 per Brennan J

1. Therefore, merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer’s burden of proof under s 14ZZK(b)(i) in relation to an assessment for the burden is to prove that “the assessment is excessive”.  The point was made in Dalco:

   “… A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. …”[34]

No burden of proof on Commissioner and no obligation to put forward material establishing a particular view

[34] [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 20 ATR 1370; (1990) 64 ALJR 166; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J with whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed

1. At [44]-[45] above, I have referred to passages from the judgment of Mason J in Gauci, in which he set out the consequences of a taxpayer’s carrying the burden of proof.  I refer also to the case of Galea v Commissioner of Taxation,[35] in which Hill J said:

   “          To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance.  As is clear from Dalco, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant’s assessable income was at least a particular figure.  The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by s 190(b) of the Act to show, that the assessment is excessive.  The Commissioner’s failure to establish a positive case, if that is what he sought to do, leaves the tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case.”[36]

   [35] [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108

   [36] [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108 at [34]; 5,067; 1116 See also Vu v Commissioner of Taxation [2006] FCA 889; (2006) 63 ATR 341 at [9]; 344 per Finn J

1. I would add that the imposition of the burden of proof upon the taxpayer removes any obligation on the Tribunal of the sort identified in Minister for Immigration and Citizenship v SZIAI[37] (SZIAI).  That was an obligation to make an obvious inquiry about a critical fact, when that inquiry could easily be made.[38] Section 14ZZK of the TAA clearly places the responsibility for that entirely in the hands of the individual and removes it from the Commissioner and so, on review, from this Tribunal. Nothing else changes, though. The Tribunal’s task on review continues to be to reach the correct or preferable decision. The rules of procedural fairness continue to apply if the Commissioner should choose to obtain further information.

   [37] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123; French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ

   [38] [2009] HCA 39; (2009) 259 ALR 429; 111 ALD 15; 83 ALJR 1123 at at [25]; 436; 21; 1129 per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ and at [52]; 441-442; 27; 1133 per Heydon J to like effect on the facts.

ISSUE: was the net capital gain derived in the 2007 or 2008 income year?

1. If Pierre and Andrée are successful in establishing that the CGT event happened in the 2008 income year, rather than the 2007 income year, the outcome will be that both reviewable objection decisions should be set aside.  The applicants contend that CGT event B1 is applicable while the Commissioner contends that CGT event A1 is applicable.

The legislative framework

A.Overview

1. A taxpayer’s assessable income includes that taxpayer’s net capital gain for the income year.[39]  “Net capital gain” is calculated by adding up all of a taxpayer’s capital gains for the relevant income year and deducting certain capital losses from the total figure.[40]  A taxpayer can only make a capital gain or incur a capital loss if a CGT event happens.[41]  A capital gain is made if a taxpayer receives, or is entitled to receive, capital amounts from the CGT event and those capital amounts (called “capital proceeds”[42]) exceed the taxpayer’s total costs associated with that event.[43] 

   [39] ITAA97; ss 100-10(1) and 102-5(1)

   [40] ITAA97; s 100-10(1)

   [41] ITAA97; s 100-20(1) and see also s 102-10. The converse is not true for a CGT event may still happen even if it results in neither a capital gain or a capital loss: ITAA97; s 102-25

   [42] ITAA97; s 100-40(1)

   [43] ITAA97; S 100-35

1. Section 116-20 sets out what makes up “capital proceeds” for all CGT events.  Section 116-20(1) applies to all CGT events, other than CGT events F1, F2, H2 and K9.  Those CGT events are not relevant in this case.  In so far as 116-20(1) applies in this case, it provides:

   “The capital proceeds from a *CGT event are the total of:

   (a)the money you have received, or are entitled to receive, in respect of the event happening;

   (b)…

   Note 1: …”

1. Division 104 of Part 3.1 of ITAA97 sets out the CGT events for which a taxpayer can make a capital gain or incur a capital loss and how to work out the amount of that capital gain or capital loss. That Division goes on to tell a taxpayer how to work out the time at which the event happened. Some of the CGT events are qualified by exceptions but they do not arise in this case.

1. Only two of the CGT events may be relevant in this case.  They are A1 and B1 summarised in s 104-5.  The relevant entries are:

CGT events
Event number and description	Time of event is:	Capital gain is:	Capital loss is:
A1 Disposal of a CGT asset [See section 104-10]	when disposal contract is entered into or, if none, when entity stops being asset’s owner	capital proceeds from the disposal less asset’s cost base	asset’s reduced cost base less capital proceeds
B1 Use and enjoyment before title passes [See section 104-15]	when use of CGT asset passes	capital proceeds less asset’s cost base	asset’s reduced cost base less capital proceeds

1. Section 102-25 sets out what happens if more than one CGT event can happen.  I will return to that provision later in these reasons.

B.A “CGT asset”

1. Both CGT events refer to a “CGT asset”.  That expression is defined in s 108-5:[44]

   [44] ITAA97; s 995-1(1)

   “(1)     A CGT asset is:

   (a)any kind of property; or

   (b)a legal or equitable right that is not property.

   (2)       To avoid doubt, these are CGT assets:

   (a)       part of, or an interest in, an asset referred to in subsection (1);

   (b)       goodwill or an interest in it;

   (c)       an interest in an asset of a partnership;

   (d)       an interest in a partnership that is not covered by paragraph (c).

   Note 1: Examples of CGT assets are:

   ·land and buildings;

   ·shares in a company and units in a unit trust;

   ·options;

   ·debts owed to you;

   ·a right to enforce a contractual obligation;

   ·foreign currency.

   Note 2:An asset is not a CGT asset if the asset was last acquired before 26 June 1992 and was not an asset for the purposes of former Part IIIA of the Income Tax Assessment Act 1936: see section 108-5 of the Income Tax (Transitional Provisions) Act 1997.”

C.       CGT event A1: Disposal of a CGT asset

1. CGT event A1 happens if a taxpayer disposes of a CGT asset.[45]  Section 104-10(2) prescribes how a taxpayer disposes of a CGT asset:

   “You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.  However, a change of ownership does not occur:

   (a)if you stop being the legal owner of the asset but continue to be its beneficial owner; or

   (b)merely because of a change of trustee.”

CGT event A1 does not happen if the disposal of the asset was done to provide or redeem a security, because of the vesting of the asset in a trustee under the Bankruptcy Act 1966 or under a similar foreign law or because of the vesting of the asset in a liquidator of a company or the holder of a similar office under a foreign law.[46]

[45] ITAA97; s 104-10(2)

[46] ITAA97; s 104-10(7)

1. The time of the event is set out in s 104-10(3).  That time is:

   “(a)     when you enter into the contract for the *disposal; or

   (b)if there is no contract – when the change of ownership occurs.

   Example:In June 1999 you enter into a contract to sell land.  The contract is settled in October 1999.  You make a capital gain of $50,000.

   The gain is made in the 1998-99 income year (the year you entered into the contract) and not the 1999-2000 income year (the year that settlement takes place).

   Note 1:If the contract falls through before completion, this event does not happen because no change in ownership occurs.

   Note 2:If the asset was compulsorily acquired from you: see subsection (6).”[47]

   [47] As the Spirou business was not compulsorily acquired, the qualifications set out in s 104-10(6) do not apply.

1. In the case of CGT event A1, the taxpayer makes a capital gain if the capital proceeds from the disposal are more than the asset’s cost base.  A capital loss is incurred if those capital proceeds are less than the asset’s reduced cost base.[48]  At this stage in this case, there is no need to explain how an asset’s cost base or reduced cost base is calculated.  A capital gain or capital loss is disregarded in the circumstances set out in s 104-10(5).

   [48] ITAA97; s 104-10(4)

D.       CGT event B1: Use and enjoyment before title passes

1. CGT event B1 happens if:

   “… you enter into an agreement with another entity under which:

   (a)the right to the use and enjoyment of a *CGT asset you own passes to the other entity; and

   (b)title in the asset will or may pass to the other entity at or before the end of the agreement.

   Note:Division 240 provides for the inclusion of amounts under hire purchase agreements in assessable income.”[49]

The time of the event is provided for in s 104-15(2).  It happens “… when the other entity first obtains the use and enjoyment of the asset.” 

[49] ITAA97; s 104-15(1)

1. If a CGT event B1 happens, a taxpayer makes a capital gain if the capital proceeds from the agreement are more than the asset’s cost base.  A taxpayer incurs a capital loss if those capital proceeds are less than the asset’s reduced cost base.[50] 

   [50] ITAA97; s 104-15(3)

1. Section 104-15(4) provides that:

   “A *capital gain or a *capital loss you make is disregarded if:

   (a)title in the asset does not pass to the other entity at or before the end of the agreement; or

   (b)you *acquired the asset before 20 September 1985.”

E.Order of application of CGT events

1. Section 102-25 sets out the order of application of CGT events.  Various situations are provided for but only that in s 102-25(1) may be relevant in this case.  Omitting its qualification, s 102-25(1) provides:

   “Work out if a *CGT event … happens to your situation.  If more than one event can happen, the one you use is the one that is the most specific to your situation.”

The evidence

A.       Contract for sale of Spirou business

1. On 3 May 2007, Azrae signed a Contract of Sale of Business (Contract) as the vendor.  Earlier, on 30 April 2007, it had been signed on behalf of the purchaser, Culliford.  Under the Contract:

   “The vendor sells and the purchaser buys –

   the business including the assets in Schedule A (the business) for the price and the marketable stock of the business (the stock) for the value of the stock

   upon the conditions in this contract.”[51]

The Contract stated that it included the Particulars of Sale, the General Conditions, the Special Conditions and Schedules A, B and C.

[51] Documents lodged under s 37 of the AAT Act (T documents); T24 at 437

1. The Particulars of Sale stated that the date of sale was 3 May 2007 and settlement date was 2 July 2007.  The price was $16,485,000.00 (GST exclusive) plus stock at valuation.  The figure of $16,485,000.00 was itemised in Schedule A.  It was made up of $4,000,000.00 for plant, equipment, fittings and other assets together with $12,485,000.00 for goodwill.[52]  A deposit of $1,648,500.00, of which $50,000.00 had already been paid, was due as a deposit on the day the Contract was signed.  The balance of $14,836,500.00 was due on settlement date.[53] 

   [52] T documents; T24 at 452

   [53] T documents; T24 at 438

1. The General Conditions set out Azrae’s obligations.  They included:

   “2.1     The vendor must have the right to sell the business on the day of sale.

2.2	(a)	The vendor must transfer the business and the stock to the purchaser at the settlement date free from all encumbrances.
(b)	The parties must perform the obligation in this contract by the settlement date unless otherwise indicated.
(c)	Ownership of the business passes when the whole of the price is paid.

2.3The vendor must deliver the assets to the purchaser on the settlement date in the same state of repair (fair wear and tear excepted) as at the day of sale and in proper working order unless otherwise inspected or agreed.

…

2.7The vendor must give the purchaser quiet possession of the business.

…

7.1The vendor must maintain the goodwill of the business and carry on the business in a proper and businesslike manner until the settlement date.”[54]

[54] T documents; T24 at 439-440

1. Azrae was required by cl 5.1 of the General Conditions to make the lease available for inspection by Culliford within 7 days of 3 May 2007.  By the settlement date, it was required to have obtained either a transfer of the current lease it then had with Corbelius, the landlord, or a new lease in accordance with Schedule C to the Contract.[55]  Both parties had to take reasonable steps to obtain either the transfer or a new lease.  That was required by cl 5.3(a).  Clause 5.3(c) provided that:

   “The vendor must perform all the vendor’s obligations under the lease up to the settlement date.”

Culliford was entitled to end the Contract if Corbelius did not consent to a transfer of the lease or did not grant a new lease.[56]

[55] T documents; T24 at 440; cl 5.2

[56] T documents; T24 at 440; cl 5.5

1. Various licences were required to operate the business.  One of them was the subject of cl 5.1 of the Special Conditions.  It stated that the contract was conditional upon the relevant regulatory authority’s transferring the relevant licence to Culliford on the same terms as existed before the settlement date and doing so by 15 June 2007.[57]  Clause 5.2 required Culliford to make its application to the relevant regulatory authority for the transfer no later than seven days after 3 May 2007 and to take all steps necessary to obtain the transfer.  For its part, Azrae was required to sign all documents prepared by Culliford and to do whatever else was reasonably necessary to obtain the transfer of the licence.

   [57] T documents; T24 at 446; cl 5.1

1. Clause 7 of the Special Conditions dealt with the name under which Azrae operated the Spirou business and variations of it.  Under cl 7.2, Culliford agreed that:

   “(a)     it must not use or trade under the Business Name except in connection with the business conducted at the Premises;

   (b)it must not use or trade under any name other than the Business Name at the Premises;

   (c)it must use, trade under and maintain registration of the Business Name during such period as it occupies the Premises;

   (d)any contract for the sale of the business conducted at the Premises or any lease of the Premises must include a clause similar to this clause to ensure that the business at the Premises is conducted under the Business Name;

   (e)upon termination of the Lease of the Premises, it must immediately transfer the Business Name to the Vendor or to such person or entity nominated by the Vendor.”

Azrae also agreed to transfer a Business Name that took the form of an internet domain name to Culliford.[58]

[58] T documents; T24 at 447; cl 7.3

1. The Particulars of Sale also noted that Azrae occupied the Spirou business premises as lessee.[59]  Clause 5.2 of the General Conditions required Azrae to obtain a lease of the premises for Culliford and to do so by the settlement date.  That might be achieved either by transfer of the current lease with the landlord’s (being Corbelius’s) consent or by a new lease that accorded with that set out in Schedule C.  If the business premises were subject to a mortgage or charge, Azrae was required to give evidence of the mortgagee’s or chargee’s consenting to the transfer of the lease.[60]

   [59] T documents; T24 at 438

   [60] T documents; T24 at 440; cl 5.4

1. A default clause is found in cl 11 of the General Conditions.  Clauses 11.1 and 11.2 provide:

   “11.1    Time is of the essence in this contract.

   11.2If the purchaser defaults in the payment of money and does not remedy that default within 10 business days after written notice to the purchaser requiring it to be remedied, the vendor may sue for the unpaid money immediately, without mediating and without affecting any other rights.”[61]

   [61] T documents; T24 at 442

2. Employees of the Spirou business were the subject of cl 2 of the Special Conditions.  Culliford acknowledged that Azrae intended to terminate the employment of all of its employees in the Spirou business.  Termination would occur before the settlement date.  Twenty one days before that day, provision was made in cl 2.4 for Culliford to advise Azrae if it wished to retain the employees or some of them.  It was to advise Azrae of the names of those employees it wished to retain.  For its part, Azrae was to assist Culliford in securing those employees within the following seven days and, in addition, would use its best endeavours to encourage existing employees to become transferring employees.  Culliford undertook to retain those employees who accepted employment with it (transferring employees) for a minimum of 30 days.  Azrae would calculate each employee’s entitlements and, in relation to the transferring employees, would:

   “… place in a trust account in the name of the Purchaser or its Nominee the transferring employees’ entitlements up to settlement date and thereafter the Purchaser shall become liable for and indemnify the Vendor for all employee entitlements of transferring employees.”[62]

   [62] T documents; T24 at 446; cl 2.2

B.Licence issues

1. Culliford did not apply for the relevant licence in time for it to be granted it before the settlement date on 2 July 2007.  Consequently, the licence could not be transferred to it from Azrae by 15 June 2007 or by the settlement date on 2 July 2007.  Settlement did not take place on 2 July 2007.

C.       Pierre’s evidence

1. Pierre referred to events leading to the Contract signed by Azrae on 3 May 2007 and by Culliford on 30 April 2007.  He said that, when settlement day (2 July 2007) arrived, Culliford’s solicitors contacted those of Azrae wanting another week to organise two things.  The first was the transfer of the licence and the second was Culliford’s wish that Azrae consider a mortgage of the lease.  A mortgage of the lease had never previously been raised and, in any event, the contract was unconditional.  Pierre said that he was surprised by Culliford’s requests and refused to entertain them.  Culliford advised that it would terminate the contract.  In response to Azrae’s enquiry, Culliford advised that its bank had insisted that there be a mortgage of the lease.

1. The following exchange took place between Mr Halperin and Pierre regarding events that occurred on or about 9 July 2007:

   “… I am talking about what happened on 9 July in terms of – you signed a Heads of Agreement, why did you have a Heads of Agreement? --- Well, because they were unable to settle according to the contract.  The issue of the … licence was still outstanding, and it was going to be outstanding for quite some time, and the mortgage of lease issue hadn’t been resolved.  So according to the Heads of Agreement you gave them – or the Deed of Licence – do you recall the Deed of Licence?---Yes, I do.

   And according to it they were going to go into occupation of the business and the premises, was that what happened? --- Yes.

   What happened after that? --- Well, ostensibly my major concern was that it was a very dangerous period, because – dangerous in the sense that there could have been damage done to the business by … [Culliford], so – and we weren’t sure whether the … licence would transfer – we didn’t know when the … licence was going to transfer, if at all, and of course we had the outstanding issue with the bank, that we were actually then dealing with the bank directly.

   This is in relation to what? --- To the mortgage of lease, and those negotiations had become quite protracted.  We wanted changes in the mortgage of lease, the bank refused to change their contract or their mortgage of lease document.  So I was concerned that during that period where it was a sort of transitional period that I didn’t want any damage done to the business, and so we made sure via the Heads of Agreement that they had very limited involvement in the business or any decision making.

   Yes? --- So they weren’t able for instance to hire and fire staff, because I was primarily concerned that they would – you know, they would reduce the number of staff to cut costs, et cetera, et cetera, which they had done previously … .

   Whose staff were they from 9 July? --- They were theirs.

   So who was paying them? --- They were.

   Do you recall the transfer of the business names? --- Yes.  Well, not specifically to the day, but, yes, I do.

   Why didn’t they transfer on 9 July? --- Well, because the contract hadn’t been completed in our view so we weren’t prepared to give them the business names.

   When did you intend to give them – based on what you understood at the time? --- We intended to transfer the business names when the … licence had been approved and the issue of the lease had been resolved and the lease had been transferred.”[63]

   [63] Transcript at 21;lines 42-46 and at 22; lines 4-42

1. Azrae issued a series of invoices to Culliford in the period following 9 July 2007 until the settlement of the sale.  They include invoices for management fees, sponsorship payments and goods covered by other stock invoices together with some wage and superannuation payments.  Pierre said that Culliford had also wanted, and Azrae had delivered:

   “… some additional services that they wanted from us in terms of accounting and bookkeeping, which basically the bookkeeping continued very much as part of our group, so we just continued to invoice them for the services they wanted, and a general administration.”[64]

Pierre said that they had agreed on these things on 9 July 2007.[65]

[64] Transcript at 23; lines 7-10

[65] Transcript at 23; line 12

D.       Deed of Licence

1. On 9 July 2007, Azrae and Culliford entered a Deed of Licence with Azrae as the Licensor and Culliford as the Licensee respectively (Deed of Licence).  It begins with a statement that the Schedule to the Deed forms part of it and then recites that:

   “(a)     The Licensor is as at the 09/07/07 the proprietor of the business and lawful tenant of those premises set forth in the Schedule (which schedule forms part of this Deed (hereinafter called ‘the business premises’) which the Licensee has agreed to sell and transfer to the Licensee pursuant to a Contract of Sale the date of which is also set forth in the Schedule (hereinafter called ‘the contract’).

   (b)The Licensee desires to enter into occupation of the business and premises as Licensee to effect financial adjustment completion of the contract to which the Licensor has agreed pursuant to the Heads of Agreement signed contemporaneously with this Deed on the following terms and conditions …”[66]

   The “Business & Premises” are described in the Schedule to the Deed in terms of the Spirou Premises.

   [66] T documents; T10 at 311

1. Six clauses followed setting out what had been agreed and declared between Azrae and Culliford regarding the licence:

   “1.       The Licensee shall enter into occupation of the business and premises as Licensee of the Licensor on the date set out in the Schedule (called ‘the occupation date’) hereto until the date or for the period referred to in the Schedule (the termination date).

   2.The Licensee shall during the continuance of this licence pay a licence fee stated in the Schedule hereto (the Licence fee).

   3.The Licensee shall pay from the occupation date, all rates, rentals, account wages and other amounts arising from the operation of the business from monies received by the Licensee from the operation of the business.

   4.The Licence hereby created shall be personal to the Licensee and the covenants herein contained shall rest in contract only and shall not be capable of assignment in any way. The Licensee shall obtain no proprietorship to the business and tenancy leasehold interest in the business and premises or any part thereof nor shall this Deed be construed as conferring upon the Licensee any of the rights referred to in Section 42 of the Transfer of Land Act 1958.

   5.This Deed of Licence is expressly distinct and separate from the Contract and the Licensor and Licensee expressly reserve all their rights powers and privileges upon it as Purchaser and Vendor under the Contract and/or at Law after the 16^th July 2007.

   6.The execution of this Licence shall be, and is, an acknowledgment that the parties accept the business and premises in its present condition and will make no claim for any defect in or of the premises nor any defect in or on title.”[67]

   [67] T documents; T10 at 311

1. The date of occupation was shown in the Schedule as 9 July 2007.[68]  The termination date was the later of three dates specified in cl 7 of that Schedule.  The three dates specified were 16 July 2007, the date on which the relevant regulatory body transferred the licence from Azrae to Culliford and any other date upon which the two parties agreed. 

   [68] T documents; T10 at 313; Schedule, cl 5

1. The occupancy of the business premises and the use of the business was deemed to be undertaken by Pierre as a director and nominee of Azrae.  That was provided for in cl 1 of the Special Conditions set out in the Schedule to the Deed.  Clause 2 provided:

   “Unless a manifest situation arises the right of hire and fire of staff employed at the business is limited to a joint decision of the licensor and the licensee with the licensors [sic] consent to any staff dismissal not being unreasonably withheld.”[69]

   [69] T documents; T10 at 314

1. Clause 3 went on to provide:

   “On the occupation date the licensor and licensee shall exchange an agreed and signed:-

   (a)List of chattels passing with the ultimate sale provided for in the contract.

   And

   (b)An agreed stock list detailing goods being acquired by the licensee under the pursuant to the provisions of the contract.

   And

   (c)A statement of adjustments disclosing proper adjustments as would be applicable to the sale and purchase of a business and in accordance with good and proper commercial practice.”[70]

   [70] T documents; T10 at 314

   E.Heads of Agreement

2. Even though the Heads of Agreement was signed on the same day as the Deed of Licence, the parties had already agreed upon a change in the termination date from 16 July 2007 to 19 July 2007 or any other date they agreed upon in writing.  Subject to their complying with the Heads of Agreement, cl 2 stated that:

   “… the parties hereby release and forever discharge each other from all obligations under the Contract of Sale of Business dated 3 May 2007 (‘the Contract’) relating to the operation of the business being the subject of the Contract and arising from the settlement of the Contract on the 9^th July 2007.”[71]

   [71] T documents; T 10 at 307; cl 2

1. Clause 5 provides that:

   “By their respective execution of these Heads of Agreement and subject to its compliance the vendor and purchaser hereby release and forever discharge each other from all claim, suits, demands, causes of action, liabilities and costs of whatsoever kind and wherever kind and wherever situate arising out of or incidental to:

   (a)       the Licence Agreement;

   (b)the negotiations between the vendor and purchaser which preceded the execution of the Licence Agreement;

   (c)the Contract;

   and which, but for the execution of these Heads of Agreement, they may otherwise have been entitled to make, bring, enforce or recover against or from the other party.”[72]

   [72] T documents; T 10 at 308

2. Clause 6 is a saving provision:

   “Save and except to the extent to which they have been expressly or impliedly varied, amended or rendered inoperative by these Heads of Agreement, the terms of the Contract and the Licence Agreement shall continue to bind the parties PROVIDED HOWEVER that the parties shall not be entitled to assign any of their rights under the Licence Agreement to any other person.”[73]

   [73] T documents; T 10 at 309

1. Clause 4 required Azrae to do all that was necessary for Culliford to be assigned the benefit of the lease and obtain the benefit of certain licences.  Azrae was to do that by 19 July 2007 or any other date agreed upon by the parties.  The assignment of the lease was effected by a Deed of Assignment dated 9 July 2007 but effecting the assignment on the Assignment Day i.e. the settlement date of the Contract.[74]  The Deed of Assignment was executed on behalf of Corbelius (as owner and Landlord of the premises), Azrae (as the Assignor of its interest as tenant under the Lease), Culliford (as the Assignee of that interest) and a person agreeing to guarantee Culliford’s obligations under the Lease.[75]

   [74] T documents; T10 at 318; cll 1.1 and 2

   [75] T documents; T10 at 316-353

1. Finally, cl 8 to the Heads of Agreement is relevant.  It provides:

   “These Heads of Agreement are supplemental to and not in substitution to the terms contained in the Contract and to the extent required constitute a Variation of the Contract.”[76]

The submissions

[76] T documents; T 10 at 310

A.       The applicants

1. Mr Halperin submitted that CGT event A1 is directed at a straightforward change of ownership from one entity to another.  It is predicated on a change in beneficial use coinciding with a change in legal ownership and makes no provision for a situation in which use and enjoyment passes before a change of ownership occurs.  As events turned out, there was no change of ownership on 9 July 2007, which was the settlement date under the Contract.

1. CGT event B1 deals with a more complex situation where a right to the use and enjoyment of the CGT asset passes to the other entity before title passes.  In that situation, the sale is staggered and possession predates the transfer of title at settlement.  That perfectly describes what happened in this situation, Mr Halperin submitted.  Had the Contract made on 3 May 2007 proceeded to settlement in accordance with its original terms, then CGT event A1 would have applied to the disposal of the Spirou business.  As it turned out, though, the sale did not proceed in accordance with its original terms.  It proceeded instead in accordance with terms of the Contract that had been varied by the Heads of Agreement and the Deed of Licence.  The Deed of Licence must be read and construed conjunctively with the Heads of Agreement and regarded as supplementing it because:

   “a)      Clause 1 of the HOA specifies the term of the Licence and its termination date.

   b)Recital (b) of the Licence provides for the … [Culliford’s] purchaser’s use and enjoyment of the business and premises pursuant to the HOA signed contemporaneously with the Licence.

   c)Clause 3 of the HOA provides for adjustments to be made between vendor and purchaser under the original contract based on the terms of the occupancy under the Licence.

   d)The Licence was necessary so that the … [Culliford] purchaser could have the use and enjoyment of the business but subject to it fulfilling its completion obligations in relation to the sale, including obtaining approval from … [the relevant regulatory authority] for the transfer of the … licence, as provided under special condition 5.1 of the original contract.”[77]

   [77] Applicant’s Statement of Facts, Issues and Contentions at [3.12]

1. The time at which Culliford first obtained the use and enjoyment of the Spirou business was on 9 July 2007.  That was CGT event B1 and happened within the 2008 income year and not within the 2007 income year.  To treat it as a CGT event A1 would require, Mr Halperin submitted, an artificial reading of the various agreements.  It would require the Contract to be read separately from the Heads of Agreement and the Deed of Licence when they should sensibly be read as a whole.  He relied on Federal Commissioner of Taxation v Sara Lee Household & Body Care (Australia) Pty Ltd[78] (Sara Lee), Tallerman & Co Pty Ltd v Nathan’s Merchandise (Victoria) Pty Ltd[79] (Tallerman) and Hoyt’s Pty Ltd v Spencer[80] (Hoyts).

   [78] [2000] HCA 35; (2000) 201 CLR 520; 172 ALR 346; 44 ATR 370; [2000] ATC 4378; Gleeson CJ, Gaudron, McHugh, Hayne and Callinan JJ

   [79] [1957] HCA 10; (1957) 98 CLR 93; Dixon CJ, Fullagar and Taylor JJ; Williams and Kitto JJ dissenting

   [80] [1919] HCA 64; (1919) 27 CLR 133; Knox CJ, Isaacs and Rich JJ

1. Clause 10.6 makes provision for the exercise of Azrae’s powers concerning the income of the Spirou Unit Trust as well as for any distribution of income under any part of the SUT Deed.  It states:

   “10.6    For the purposes of any determination by the Trustee concerning the income of the fund and/or the distribution of the income of the Fund under any part of this Deed

   10.6.1The Trustee shall have the power to determine income to be of a particular type or character and to determine to distribute or accumulate according to the nature, type, source or character of such income.

   10.6.2In making such determination the Trustee shall have regard to the income source and whether it is

   (a)-(m)…

   (n)any combination of the above

   10.6.3In the event that the Trustee shall fail to make a determination for a particular income year, income shall have the character and be distributed in accordance with the determination made in the immediately preceding income year and, if the Trustee shall have failed to make a determination in the preceding year, the income shall maintain the type and character attributed to it at its source.”

1. Clause 10.7 then goes on to state:

   “As soon as practicable after the Trustee has determined the amount of any distribution in respect of an accounting period the Trustee shall distribute amongst the Unit holders in accordance with the entitlement of the units so held the amount decided to be distributed in respect of the accounting period PROVIDED HOWEVER that in making such distribution of income the Trustee may with the consent of the Unit Holders issue to the Unit Holders additional or further units either in whole or part satisfaction of the distribution of income.  Where the Trustee has determined to distribute income the distribution will be to the Unit Holders in proportion to the number of units held by them.”

   B.Azrae’s unsigned resolution regarding distribution of net income of Spirou Unit Trust

2. An unsigned document describes itself as the Minutes of a Meeting of Directors of Azrae held on 28 June 2007.  It states that, acting as trustee of the Spirou Unit Trust, Azrae:

   “… resolved that in accordance with the trust deed of the … [Spirou Unit Trust], the net income of the trust for the year ended 30^th June 2007 be distributed as per the Unit Holdings. …”[124]

   [124] T documents; T9 at 284

3. Pierre was shown a copy of this document when giving evidence and the following exchange took place between him and Mr Halperin:

   “Can you tell us whether you – perhaps this prompts your memory – can you tell us whether you made any decision before or on 30 June 2007 as to what the income of the trust would be? --- No.

   You’re saying you didn’t make a decision or you don’t recall making a decision? --- I didn’t make a decision.

   Do you recall making the decision in terms of what that minute says? --- No, I don’t recall.

   Do you recall making a decision before or on 30 June 2007 whether the net income of the trust would be a specific amount? --- No.

   Do you recall making any decision relating to the net income of the trust before 30 June 2007? --- No.

   Do you recall making a decision on or before 30 June 2007 that the trust’s net income would be nil? --- No.”[125]

   C.Corbelius’s unsigned resolution regarding distribution of net income of Pierre Family Trust

   [125] Transcript at 24; lines 18-35

4. An unsigned document describes itself as the Minutes of a Meeting of Directors of Corbelius held on 28 June 2007.  It states that, acting as the trustee of the Pierre Family Trust, Corbelius:

   “… resolved that in accordance with the trust deed of the … [Pierre Family Trust], the net income of the trust for the year ended 30^th June 2007 be distributed as follows:

   Income

   … Pty Ltd  -  100%

   Capital

   … [Andrée]  -   50%

   … [Pierre]  -   50%

   …”[126]

   [126] T documents; T9 at 282

D.       The accounts of the Spirou Unit Trust

1. The Income Statement for the 2007 income year for the Spirou Unit Trust reads, in part:[127]

   [127] T documents; T27 at 523

Note	2007	2006
…	…	…
(Net loss) profit	(834,420)	818,604
Retained earnings (Accumulated losses) at the beginning of the financial year	-	(305,743)
Total available for distribution (loss)	(834,420)	512,861
Distribution to beneficiaries	-	512,861
Balance at 30 June 2007	(834,420)	-
Beneficiaries distribution
… [Corbelius] ATF … [Pierre Family Trust]	-	512,861
512,861

1. At the foot of the Income Statement appears a note, which reads in part “The accompanying notes form part of these financial statements. …”.[128]  The first note to the Financial Statements begins by stating that:

   [128] T documents; T27 at 523

   “This financial report is a special purpose financial report prepared in order to satisfy the requirements of the Trust Deed. The trustee has determined that the trust is not a reporting entity.

   This financial report has been prepared in accordance with the requirements of the following Australian Accounting Standards:

   AASB 110:Events after the Balance Sheet Date

   AASB 116:Property, Plant and Equipment

   AASB 137: Provisions, Contingent Liabilities and Contingent Assets

   AASB 1031:Materiality

   No other Australian Accounting Standards or other authoritative pronouncements of the Australian Accounting Standards Board have been applied.

   …”[129]

   [129] T documents; T27 at 525

1. The Income Tax Reconciliation for the 2007 income year showed the loss of $834,420.  It then added to that figure those items that were non-deductible (superannuation – June 2007, holiday pay, depreciation-accounting and fines and penalties).  That reduced the loss to $446,092.  After deducting the deductible items of superannuation – June 2006 and depreciation – taxation, the taxable loss amounted to $778,287.  The losses carried forward for the 2007 income year were the same amount.[130]

   [130] T documents; T27 at 522

Consideration

1. On behalf of the Commissioner, Mr Broadfoot accepted that the unsigned determinations, of which this is one, were effective to confer present entitlement but only if there was income of the relevant trust estate within the meaning of s 97 of ITAA36. Present entitlement would be conferred first on Corbelius under the Spirou Unit Trust and then, under the Pierre Family Trust, on Pierre and Andrée.

A.          The submissions

1. On the papers, the SUT Deed, the unsigned determination and the Income Statement are all I have to help me to make a decision.  At the hearing held before Azrae withdrew its application for review, Mr Broadfoot submitted that, from the evidence:

   “… it should probably be inferred in the proceeding brought by … [Azrae] (in the absence of evidence to the contrary from … [Pierre] or his accountant) that the trustee made a determination, as contemplated by cl 10.3 and as it was obliged to do, of the ‘net income of the Trust Fund’…”[131]

   [131] Respondent’s Outline of Argument at [66]

1. After Azrae had withdrawn its application for review, the Commissioner’s position changed but understandably so.  Rather than putting forward a summary of various scenarios that might be applicable when both the trustee and the beneficiaries were seeking review of their assessments, he took a firmer position.  In his submission made after Azrae had withdrawn its application, Mr Broadfoot referred to the onus of proof that each of Pierre and Andrée carry and submitted:

   “It follows that the only basis for the applications brought by … [Pierre and Andrée] to be allowed on the basis that … [Azrae] was assessable under s 99A of ITAA 1936, … would be for … [Pierre and Andrée] to establish by evidence, that … [Azrae] was assessable under s 99A. In order to do this the Tribunal would need to determine as a matter of fact, that … [Azrae] (as trustee of the … [Spirou Unit Trust]) made a determination under cl 10.3 of the Trust Deed,… to the effect that there was no distributable income.  However, the unchallenged evidence given by … [Pierre] in chief was that no determination was made. …”[132]

   [132] Respondent’s Outline of Submissions following the withdrawal of the application at [14] (footnotes omitted).  The submission was made on the assumption that the Tribunal did not determine that the relevant CGT event happened in the 2008 income year.

1. Mr Halperin did not address this issue in his submissions following Azrae’s withdrawal of its application. Before that time, he had relied on cl 10. 5 and I have referred to his submissions at [137] above. In outline, they are that, if Azrae failed, under cl 10.3, to make a determination of the Spirou Unit Trust’s net income, then its net income is that determined in accordance with s 95(1) of ITAA36. Spirou Unit Trust’s net income is determined by reference to cl 10.5 and each of Pierre and Andrée held a beneficial interest in that net income by virtue of cl 2.3 of the SUT Deed.

B.What is the status of the unsigned determination?

1. I will begin with the consideration of the income of the Spirou Unit Trust.  Under cl 10.3 of the SUT Deed, Azrae was, at the end of each financial year, obliged to determine the “net income of the Trust Fund arising during that financial year having regard to the provisions of …” cl 10.4.  Given the requirement of cl 10.5 that, should there be no such determination, the “income of the Trust Fund for that financial year shall be the ‘net income’ of the Trust Fund determined in accordance with Section 95(1) …”, the reference to the “net income of the Trust Fund” in cl 10.3 is to be read as equivalent to the “income of the Trust Fund” i.e. as a reference to the income as calculated under the SUT Deed.  It is not to be read as a reference to the “net income of a trust estate” as that term is defined in s 95(1) of ITAA36. In practice, it may be that there is no real difference between the two for cl 10.4.1 provides that the trustee may, in determining the income derived by the Trust Fund during each financial year:

   “treat as income any receipt profit or gain which is assessable income of the Trust Fund for the purpose of determining the ‘net income’ of the Trust in accordance with Section 95(1) of the Income Tax Assessment Act 1936 (as amended from time to time) or any corresponding enactment in substitution therefore; …”.

1. Mr Broadfoot’s initial submission brings to mind a principle that has come to be known as the principle of regularity[133] but I acknowledge that he did not frame his submission in those terms.  The principle was considered by Griffith CJ in McLean Bros & Rigg Ltd
   v Grice:[134]

   “          There is also a presumption which arises from the ordinary course of business.  In regard to that, I will read two passages from Starkie on Evidence, 10^th ed., at p. 741.  First:- ‘A presumption may be defined to be an inference as to the existence of one fact, from the existence of some other fact, founded upon a previous experience of their connection.  To constitute such a presumption, it is necessary that there be a previous experience of the connection between the known and inferred facts, of such a nature, that as soon as the existence of one is established, admitted or assumed, the inference as the existence of the other immediately arises, independently of any reasoning upon the subject.’  And again, at the conclusion of the chapter, at p.762: – ‘It would, however, be a vain endeavour to attempt to specify the numerous presumptions with which the knowledge of a jury, conversant in the common affairs and course of dealing in society, necessarily supplies them; it is obvious that such presumptions are co-extensive with the common experience and observation of mankind.’  Another statement of some authority on the same point is found in the judgement of Mr Justice Brewer in Knox County v. Ninth National Bank …: ‘It is a rule of very general application, that where an act can be done legally only after the performance of some prior act, proof of the later carries with it a presumption of the due performance of the prior act.’ …”[135]

[133] The principle of regularity is also referred to under the maxim “omnia praesumuntur rite esse acta”: All acts are presumed to have been done rightly and properly until the contrary appears.

[134] [1906] HCA 1; (1906) 4 CLR 835; Griffith CJ, Barton and O’Connor JJ

[135] [1906] HCA 1; (1906) 4 CLR 835 at 849-850 (citation omitted) per Griffith CJ with whom O’Connor J agreed and see also Barton J at 860

1. His Honour referred to the principle as one of the factors relevant in the case before him in deciding whether a quorum was present at a meeting of shareholders held to decide whether the company should be wound up.  Any resolution to wind it up would only be valid if there were a quorum.  No minutes of the meeting had been kept.  The presumption was clearly a presumption of fact to which his Honour had regard together with matters such as: the fact that a solicitor had been engaged to attend the meeting and to advise when and whether a quorum was present; the duty of the Chairman to ascertain the same thing and of the members to ensure compliance with the company’s Articles of Association; the fact that the Chairman had sent a copy of the resolution to the Registrar-General as required; the fact that the resolution had been published in the Government Gazette; and the presumption against fraud. 

1. These principles have been discussed and adopted in subsequent cases.[136]  They have found expression particularly in a public law context where it operates in this way:

   “          The natural home of the maxim is public law.  Where a public official or authority purports to exercise a power or to do an act in the course of his or its duties, a presumption arises that all conditions necessary to the exercise of that power or the doing of that act have been fulfilled.  Thus a person who acts in a public office is presumed to have been validly appointed to that office: M’Gahey v Alston (1836) 2 M & W 206 at 211; 150 ER 731 at 733; R v Brewer (1942) 66 CLR 535 at 548; Hardess v Beaumont [1953] VLR 315 at 318-319.  And a council which must form an opinion as to whether there will be any detriment upon the granting of a planning permit is presumed to have formed the opinion before granting the permit: Pearce v City of Coburg (1973) 28 LORA 234; [1973] VR 583.”[137]

   [136] More recent examples include Jemena Ltd v Mine Subsidence Board [2012] NSWSC 1509 at [27]-[32]; Rein J; Darley Australia Pty Ltd v Walfertan Processors Pty Ltd [2012] NSWCA 48 at [111]-[12] per McColl J with whom Macfarlan and Whealy JJA agreed.

   [137] Minister for Natural Resources v NSW Aboriginal Land Council (1987) 9 NSWLR 154; 62 LGRA 409; Kirby P, McHugh JA and Clarke A-JA at 164; 418 per McHugh J

1. The principles supporting the presumption do not fit well into a context in which the act under consideration is not an act of a public official acting under some form of regulatory authority granted under an enactment or by authority of delegated legislation.  Certainly, a trustee must comply with legislation such as the Trustee Act 1958 (Vic) but legislation of that sort does not concern itself with determinations of income and its distribution. The trust deed is the source of the trustee’s powers and obligations. It is very much an instrument relating to private interests. A trustee takes advice on the way in which its duties should be exercised under the trust deed having regard to any requirements imposed by enactment or under the general law. The trust deed is not a legislative instrument and a trustee is not a public official. There is no basis on which it can be safely presumed that a trustee will ensure that it has satisfied all conditions necessary to the exercise of its power or the doing of an act under the trust deed have been fulfilled.

1. The presumption does not find expression when it is not the act or the exercise of a power whose legality is in question but whether an act was performed or a power was exercised at all.  That is the situation I have in this case.  I have unsigned determinations that might be expected to precede the making of a determination.  There are Financial Statements that might also have some relevance to a trustee in deciding to make those determinations.  I have cl 10.3 of the SUT Deed under which the trustee is obliged to make a determination.   Even if the presumption were to work in reverse, as it were, which it does not, there is no basis for finding that it should be inferred that Azrae acted on that material to comply with its obligation.   It is not a situation in which it could be said, to adapt the words of Griffith CJ in McLean Bros & Rigg Ltd v Grice, that previous experience of the connection between the known facts and the inferred fact is such that it immediately leads to the conclusion that Azrae must have fulfilled its duty under cl 10.3.  Indeed, cl 10.5 implicitly contemplates that a trustee may fail to perform its duty under cl 10.3.  Why else would it provide for the situation in which a trustee does precisely that? 

1. That brings me to Pierre’s evidence.  He states that he did not make a decision regarding the net income of the Spirou Unit Trust on or before 30 June 2007.  He recalled making neither a decision that it would be a specific amount nor a decision that it would be nil.  After having his attention drawn to the unsigned determination purporting to distribute the net income of the Spirou Unit Trust according to the Unit Holdings, the following exchange occurred between Mr Halperin and Pierre:

   “Can you tell us whether you – perhaps this prompts your memory – can you tell us whether you made any decision before or on 30 June 2007 as to what the income of the trust would be? --- No.

   You’re saying you didn’t make a decision or you don’t recall making a decision? --- I didn’t make a decision.

   Do you recall making a decision in terms of what the minute says? --- No, I don’t recall.

   Do you recall making a decision before or on 30 June 2007 whether the net income would be a specific amount? --- No.

   Do your recall making any decision relating to the net income of the trust before 30 June 2007? --- No.

   Do you recall making a decision on or before 30 June 2007 that the trust’s income would be nil? --- No.”[138]

   [138] Transcript at 24; lines 18-25

1. Pierre’s evidence is consistent with the lack of any documentary evidence in the form of a signed determination by Azrae of the net income of the Spirou Unit Trust as required by cl 10.3 of the SUT Deed.  At the same time, his evidence did not address how it came to pass that he did not ensure that Azrae complied with its duties under the SUT Deed.  Furthermore, it does not explain how the unsigned determinations came about.  It does not explain why Azrae ensured that its duties in relation to the books of account under cll 7.4 and 7.5 of the SUT Deed were complied with but it has overlooked its duties under cl 10.3.  The first note to the Financial Statements for the 2007 income year for the Spirou Unit Trust specifically refers to the fact that they have been prepared to satisfy the requirements of the Trust Deed.  A determination by Azrae that it was not a reporting entity was recorded in the note. 

1. The answer to the questions I have raised may simply lie in the fact that Azrae has put those matters in the hands of its accountants and they have prepared the Financial Statements and supporting document.  In doing so, Azrae is meeting its obligations under the SUT Deed in respect of cl 7.  A determination of income is a matter to which the trustee must address its mind.  In this case, Pierre’s evidence is clear that it did not make a determination of Spirou Unit Trust’s income for the purposes of cl 10.3.  In view of it, I am satisfied that it did not.

C.Outcome

1. In the absence of a determination, cl 10.5 of the SUT Deed comes into play to provide that the net income of the trust is determined in accordance with s 95 of ITAA36. That means that the capital gains from the sale of the Spirou business are part of that net income in the 2007 income year as I have found that CGT event A1 happened in that year. Pierre and Andrée have not led any evidence to suggest that the manner of distribution assumed by the Commissioner is otherwise than to Corbelius and then to them. Therefore, I am satisfied that Pierre and Andrée have not satisfied their burden of proof to establish that the assessments issued to them are excessive.

D.       Looking at the matter from an alternative point of view

1. Mr Halperin had initially relied on cl 10.5 when Azrae’s application was on foot.  His argument necessarily assumed that there was no distribution of that net income by Azrae for he turns to cll 2.1, 2.3, 2.4 and 4 as well as the definition of “the Trust Fund” in cl 1.14 to support his submission that the net income was distributed to Corbelius.  I have set the provisions out above. 

1. The effect of these clauses is that Azrae holds the Trust Fund for the Unit Holder(s) upon the terms and subject to the provisions of the SUT Deed.  That is stated in cl 4.  Under cl 2.3, Unit Holder(s) are “beneficially entitled to the Trust Fund in proportion to the Units registered in their names” but no Unit Holder has any interest in any particular part of the Trust Fund or in any investment. 

1. What is meant by a “beneficial interest” in this context?  It is a proprietary interest conferred upon a Unit Holder in all of the property in that Trust Fund or, if more than one, conferred upon each in proportion to the number of units each holds.  That is a proprietary interest that may be sufficient to found an interest that will support a Unit Holder’s lodging a caveat over real property forming particular assets held by the Trust Fund.[139]  A proprietary interest does not of itself entitle Unit Holders to a distribution.   Whether there is such an entitlement will depend upon the terms of the Trust Deed. 

   [139] See Costa and Duppe Properties Pty Ltd v Duppe [1986] VicRp 9; [1986] VR 90 per Brooking J

1. That this is so is clear from the judgment of Phillips JA in Arjon Pty Ltd v Commissioner of State Revenue[140] when considering multiple Unit Holders:

   “          It is not in dispute, nor could it be, that every individual unit holder has the right to compel the trustee to administer the trust in accordance with the terms of the trust deed; that is a chose in action which is possessed by every beneficiary of a trust and it is critical to the analysis here.  For any individual unit holder, that right of action, considered as a species of property, can fairly be said to be co-extensive with the rights given the unit holder in terms of the trust deed - rights to receive income on terms of the trust deed and an interest in the assets of the fund, but again on terms of the trust deed. …”[141]

   [140] [2003] VSCA 213; (2003) 56 ATR 446; Phillips, Buchanan and Eames JJ

   [141] [2003] VSCA 213; (2003) 56 ATR 446 at [26]; 457 per Phillips JA with whom Buchanan and Eames JJA agreed

1. Immediately following this passage, Phillips JA went on to consider the situation of a single Unit Holder in a Unit Trust saying:

   “… In my opinion, the holder of all of the units in the trust is in a different case; for, quite apart from the terms of the trust deed, the holder of all of the units will ordinarily have the power to bring the trust to an end and, if it so chooses, appropriate the trust assets to itself:  Saunders v. Vautier (1841) 4 Beav.115; 49 ER 282. At one stage in the argument before us it was put that the holder of all of the units in a unit trust has no more than the conglomeration of the rights attaching to each of the units considered severally, but I reject that argument. The holder of all of the units has more than that. First, through holding all the units, it has what all of the unit holders together (if more than one) would have, which, by virtue of clause 7(a) and the opening lines of clause 8(a), is the whole beneficial interest in the entire trust fund, which surely means the full beneficial interest in each and every asset within the trust fund for the time being (subject, perhaps, to any claim that the trustee might have on the fund, the question that I have put aside for the time being). As the only person beneficially interested in the assets, it also has the power to bring the trust to an end at will and to require the transfer to it of the assets (even if only after satisfying any claim that the trustee might have to reimbursement or recoupment for expenses incurred as trustee). On this analysis, Arjon, as the sole unit holder in the GSF Unit Trust, had the full beneficial interest in the Broadmeadows land and, it follows, was the equitable owner of the land: see Chief Commissioner of Stamp Duties v. ISPT Pty. Ltd., a decision of the Court of Appeal of New South Wales.”[142]

   [142] [2003] VSCA 213; (2003) 56 ATR 446 at [26]; 457-458

1. The issue that I must consider is not that of any equitable ownership in, but of present entitlement to the income of, the Spirou Unit Trust.  I have referred to various authorities to which I was referred including Harmer, Whiting and Dwight.  They have been considered in subsequent authorities including Trustees of Estate Mortgage Fighting Fund Trust v Commissioner of Taxation[143] (Estate Mortgage).  In that case, Hill J illustrated principles relating to present entitlement by reference to a deceased estate.  His Honour noted that:

   “          So the beneficiaries of a deceased estate will not, while administration is incomplete, be presently entitled to the income of the estate for, while the trusts to pay administration expenses are in operation, the interest of the beneficiary may be said to be vested but it is not an entitlement which is presently existing.  At the heart of the concept of present entitlement lies the immediate present right of a beneficiary to demand and receive payment of the income of the trust estate or a share of it.”[144]

   [143] [2000] FCA 981; (2000) 102 FCR 15; 45 ATR 7; 175 ALR 482, [2000] ATC 4525; Hill J

   [144] [2000] FCA 981; (2000) 102 FCR 15; 45 ATR 7; 175 ALR 482, [2000] ATC 4525 at [38]; 32; 22; 498; 4,538-4,539

1. Hill J referred to his judgment in Dwight saying:

   “          In Dwight, I suggested that the test laid down in Harmer might be subject to a qualification in that the ability to demand and receive payment of income may not always be a prerequisite of present entitlement.  That this is so appears from the judgments of Latham and Williams JJ in Whiting at CLR 216 where as an alternative to the right to demand payment it was suggested that where, within the meaning of s 19 of the Act, the trustee could reinvest, accumulate, capitalise, carry to any reserve, sinking fund or insurance fund, however designated or otherwise deal with income as the beneficiary directed or on behalf of the beneficiary, there would still be present entitlement in that income. …”[145]

   [145] [2000] FCA 981; (2000) 102 FCR 15; 45 ATR 7; 175 ALR 482, [2000] ATC 4525 at [40]; 33; 22; 498; 4,538

1. Later in his judgment, Hill J referred to authorities supporting a general proposition that, subject to limited qualifications, a person who is indefeasibly entitled to a share in divisible personalty is entitled to have his or her share transferred to him or her even if the trust deed provides to the contrary e.g. that the property be held on trust for sale with power to postpone sale and transfer.  Hill J did not think it necessary to reach a concluded view on the issue in the case before him but put forward the following proposition:

   “          Clearly, if a beneficiary is absolutely and indefeasibly entitled to an aliquot share of the trust fund (or income) and the assets of the trust are money, the beneficiary will usually be entitled to call for the money. Whether there is some residual discretion of the Court where to distribute the money would be contrary to the intention of the trusts may be doubted. If there were, then there would be no present entitlement, since the right to demand income would be conditional on an order of the Court. If there is no such discretion, then, as presently advised, I see no reason why the beneficiary would not be presently entitled.”[146]

   [146] [2000] FCA 981; (2000) 102 FCR 15; 45 ATR 7; 175 ALR 482, [2000] ATC 4525 at [51]; 35; 24; 500-501; 4,541

1. Spender J adopted the reasoning of Hill J in this passage.  He did so in Pearson v Commissioner of Taxation[147] (Pearson) after analysing a number of earlier authorities including Harmer, Arjon and Whiting as well as Estate Mortgage.

   [147] [2005] FCA 250

1. Returning to the present case, the Unit Holder(s) are beneficially entitled to the Trust Fund in proportion to the Units registered in their names.  There is only one Unit Holder under the Spirou Unit Trust.  By requiring it to make a determination under cl 10.3, the terms of the SUT Deed clearly contemplate that Azrae must make a choice whether to distribute income.  It may choose to distribute, or not to distribute, all or any of the income in any income year.  If it does not make a distribution, the undistributed income becomes part of the Trust Fund as an accumulation of income.  As the authorities show, the discretion vested by the SUT Deed in Azrae does not mean that the Unit Holder is not presently entitled to the income even if it is not distributed.  Given the reasoning of Hill J in Estate Mortgage and of Spender J in Pearson, I would have concluded that, by virtue of its having sole beneficial ownership of the units in the Spirou Unit Trust, Corbelius would have been presently entitled to the income of the Spirou Unit Trust had cl 10.5 come into play. Even if that conclusion were not correct, its beneficial ownership would have given it a vested and indefeasible interest in the income. Corbelius and, in turn, Pierre and Andrée, would have been deemed to be presently entitled to that income by virtue of s 95A(2) of ITAA36. The amount of that income would then have been included in the assessable income of Pierre and Andrée by virtue of s 97.

DECISION

1. As it was agreed that these were preliminary matters, I adjourn further consideration.

SUMMARY OF RELATED OBLIGATONS IN CONTRACT, HEADS OF AGREEMENT AND DEED OF LICENCE

Contract  clause	Contract dated 3 May 2007	HOA clause	Obligations imposed by Heads of Agreement dated 9 July 2007	Deed clause	Deed of Licence
General Condition 5.2	“The vendor must obtain for the purchaser by the settlement date a lease of the business premises either- (a) by transfer of the current lease with the landlord’s written consent, or (b) by a new lease in accordance with Schedule C.”	4	“As soon as is practicable and by the 19th July 2007 or any other date agreed to between the parties, the vendor will do all that is necessary for the purchaser to be assigned the benefit of the Lease …”	Recital	“The Licensor is as at the 09/07/07 the proprietor of the business and lawful tenant of those premises set forth in the Schedule … which the Licensee [sic] has agreed to sell and transfer to the Licensee pursuant to a Contract of Sale the date of which is also set forth in the Schedule (hereinafter called ‘the contract’).”
General Condition 7.1 7.1	“The vendor must maintain the goodwill of the business and carry on the business in a proper and businesslike manner until the settlement date.”	2	“Subject to compliance with this Agreement, the parties hereby release and forever discharge each other from all obligations under the Contract of Sale of Business dated 3rd May 2007 (‘the Contract’) relating to the operation of the business being the subject of the Contract …”.	1	“The Licensee shall enter into occupation of the business and premises as Licensee of the Licensor on the day set out in the Schedule (called ‘the occupation date’) hereto until the date or for the period referred to in the Schedule (the termination date).” The termination date was 16 July 2007, the date on which the relevant regulatory authority transferred the licence or any other date agreed upon in writing by the parties: Schedule; cl 7.
Special Condition 2	“Unless a manifest situation arises the right of hire and fire of staff employed at the business is limited to a joint decision of the licensor and the licensee with the licensors [sic] consent to any staff dismissal not being unreasonably withheld.”
General Condition 11	Settlement date was 2 July 2007 and “Time is of the essence of this contract.”	2	“Subject to compliance with this Agreement, the parties hereby release and forever discharge each other from all obligations under the Contract of Sale of Business dated 3rd May 2007 (‘the Contract’) … arising from the settlement of the Contract on the 9th July 2007.”
Special Condition 23	“Except as otherwise provided in this Contract, time shall be deemed to be of the essence of this Contract.”
Clause 11 conferred certain rights on Azrae should Culliford default on settlement.
Special Condition 7	“The Vendor has agreed to transfer the registered Business Names … [Spirou and variations of it] to the Purchaser on the terms of this clause.”  The Vendor also agreed to transfer a domain name on terms set out in cl 7.3.	3(a)	“Upon the execution of these Heads of Agreement, the purchaser shall: (a) Not seek to register the domain names or business name … [Spirou] or similar wording without the vendor first having provided written consent.”
4	“As soon as is practicable and by the 19th July 2007 or any other date agreed to between the parties, the vendor will do all that is necessary for the purchaser to … obtain a registration of the domain name and business name … [Spirou] and Transfer of … registration with the City of Melbourne”.
Special Condition 5	“This Contract is conditional upon … [relevant regulatory authority] transferring the Licence to the Purchaser on the same terms as exist at the date of this Contract before the settlement date … but being no later than 15 June 2007.”	3(b)	“Upon the execution of these Heads of Agreement, the purchaser shall: (b) Use its best endeavours to make arrangements for the purposes of having approved the transfer of the … licence by 19 July 2007, or any later date approved by the vendor.”	Schedule, Special Condition 8	“The occupancy of the business premises and the use of the business shall be deemed to be undertaken by the licensees [sic] principal director … who for all purposes defined under … [the relevant regulatory legislation] shall be the appointed nominee and representative of the licensor.”
General Condition 13.1	“The parties must adjust the price by apportioning the outgoings and expenses payable by the vendor in relation to the business at the settlement date including the following – APPORTIONED OUTGOINGS rent rates land tax licence fees maintenance or rental agreements other recurrent outgoings for which the tenant is responsible under the terms of the lease APPORTIONED EXPENSES Wages for transferring employees at the settlement date holiday pay and annual leave loading for transferring employees at the settlement date …”	3	“The Licensee shall pay from the occupation date, all rates, rentals, account wages and other amounts arising from the operation of the business from monies received by the Licensee from the operation of the business.”
General Condition 8	“The purchaser must pay the vendor the value of the stock up to the maximum stock value.  If there is no maximum stock value specified then the purchaser must buy all of the stock. The parties must carry out a full physical stocktake immediately after close of business on the date which is 8 days prior to the settlement date and compile a complete list of stock ascribing a value to each item of stock listed … … The parties must agree the value of the stock and, failing agreement as to the value by the date which is four days prior to the settlement date, the parties must jointly appoint an independent valuer. …”	Special Condition 3	“On the occupation date the licensor and licensee shall exchange an agreed and signed:- (a) List of chattels passing with the ultimate sale provided for in the contract. And (b) An agreed stock list detailing goods being acquired by the licensee under the pursuant to the provisions of the contract. And (c) A statement of adjustments disclosing proper adjustments as would be applicable to the sale and purchase of a business and in accordance with good and proper commercial practice.”
Special Condition 2	“The purchaser acknowledges that the Vendor intends to, prior to or on the Settlement Date, terminate the employment of all employees of the business. The Vendor shall place in a trust account in the name of the Purchaser or its Nominee the transferring employees’ entitlements up to settlement date and thereafter the Purchaser shall become liable for and indemnify the Vendor for all employee entitlements of transferring employees. … The Purchaser will provide the Vendor with a list of employees it seeks to retain 21 days prior to the settlement date.  The Vendor will use its best endeavours to assist the purchaser in securing those employees within the ensuing 7 days.  Employees who accept employment with the Purchaser are transferring employees. …”	Schedule, Special Condition2	“Unless a manifest situation arises the right of hire and fire of staff employed at the business is limited to a joint decision of the licensor and the licensee with the licensors [sic] consent to any staff dismissal not being unreasonably withheld.”
		3	“The Licensee shall pay from the occupation date, all … account wages … arising from the operation of the business from monies received by the Licensee from the operation of the business.”

LEGEND

…

I certify that the one hundred and ninety six preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie

Signed:            …..[sgd]..............................................

Leah Berardi               Associate

Date of Hearing  18 August 2014

Date of Decision  19 December 2014

Solicitor for the Applicant  Mr Graeme Halperin

Halperin & Co Pty Ltd

Counsel for the Respondent                 Mr Andrew Broadfoot

Solicitor for the Respondent                 Ms Bairbre Molloy

Australian Taxation Office

“ The function of the Tribunal is ... an administrative one. It is to review the administrative decision that is under attack before it.  In that review, the Tribunal is not restricted to consideration of the questions which are relevant to a judicial determination of whether a discretionary power allowed by statute has been validly exercised. ...
”: Drake v Minister for Immigration and Ethnic Affairs (1979) 2 ALD 60; 24 ALR 577; 46 FLR 409 at 68; 589; per Bowen CJ and Deane J.

The question for the determination of the Tribunal is not whether the decision which the decision-maker made was the correct or preferable one on the material before him.  The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal. ...