Sandini Pty Ltd v Commissioner of Taxation
[2017] FCA 287
•22 March 2017
FEDERAL COURT OF AUSTRALIA
Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287
File number: WAD 754 of 2015 Judge: MCKERRACHER J Date of judgment: 22 March 2017 Catchwords: INCOME TAX – capital gains tax – roll over relief – whether a family court order transferring shares to a family trust may in some circumstances attract roll over relief pursuant to subdiv 126-A of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’) – whether s 126-15(1) of the ITAA extends to transfers to companies or trusts associated with a spouse or former spouse – whether transferee must be an individual for the purposes of ss 126-5 and 126-15 of the ITAA - whether change in beneficial ownership constitutes a change in ownership for the purposes of s 104-10(2) of the ITAA – disposal of ownership by operation of law - whether the making of a family court order constituted a CGT event A1 – whether steps taken in furtherance of a family court order constituted the appropriation of shares pursuant to that order - whether there was a change in ownership by reason of constructive receipt of shares - whether there was a change in ownership by reason of s 103-10 of the ITAA - whether a spouse or former spouse’s involvement in the change of ownership is sufficient to enliven ss 126-5 and 126-15 of the ITAA
ADMINISTRATIVE LAW – jurisdiction – whether the court has jurisdiction to grant declaratory relief pursuant to s 39B(1A) of the Judiciary Act 1903 (Cth) – whether there is a genuine controversy between the parties that is susceptible to judicial determination – whether declaratory relief is available when a tax assessment is yet to be issued – whether Court should exercise its discretion to grant declaratory relief
TRUSTS AND TRUSTEES - shares held on trust – certainty of trust property - whether possible to have trust of a certain number of shares out of a larger parcel of shares
Legislation: Family Law Act 1975 (Cth) s 79
Federal Court of Australia Act 1976 (Cth) s 21
Income Tax Assessment Act 1936 (Cth) ss 19, 95, 160D, 160M(1), 160M(2), 160ZZMA(1)
Income Tax Assessment Act 1997 (Cth) subdiv 126-A, 126-5, 126-5(1), 126-15, 126-15(1), 126-15(1)(a), Pt 3‑1, Pt 3-3, ss 1-3, 6-5(4), 102-5, 103-10, 104-10, 104-10(3), 104-10(3)(a), 104-10(3)(b), 104-55, 106-50, 108-5, 960-100(3), 995-1(1)
Judiciary Act 1903 (Cth) s 39B(1A), 78B
Taxation Administration Act 1953 (Cth) Pt IVC
Cases cited: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564
Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477
Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR 203
Anning v Anning (1907) 4 CLR 1049
Batagol v Commissioner of Taxation (Cth) (1963) 109 CLR 243
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 246 ALR 361
Baumgartner v Baumgartner (1987) 164 CLR 137
Bellinz Pty Ltd v Commissioner of Taxation (Cth) (1998) 84 FCR 154
BHP Petroleum (Timor Sea) Pty Ltd v Minister for Resources (1994) 49 FCR 155
Bob Jane T-Marts Pty Ltd v Commissioner of Taxation (1999) 94 FCR 457
Bons (t/a Scale Aviation Australia) v Commissioner of Taxation (Cth) (1994) 28 ATR 239
Brooks v Commissioner of Taxation (Cth) (2000) 100 FCR 117
Burt v Commissioner of Taxation (1912) 15 CLR 469
CGU Insurance Limited (ACN 004 478 371) v Blakeley (2016) 327 ALR 564
Chang v Registrar of Titles (1976) 137 CLR 177
Commissioner of Taxation v Guy (1996) 67 FCR 68
Corin v Patton (1990) 169 CLR 540
Coshott v Woollahra Municipal Council [2008] NSWCA 176
Commissioner of Stamp Duties v Livingston (1964) 112 CLR 12
Federal Commissioner of Taxation v H (2010) 188 FCR 440
Craven v Official Trustee in Bankruptcy (unreported, Supreme Court of New South Wales, Needham AJ, 26 July 1991)
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1980] 1 NSWLR 510
Easterbrook v Young (1977) 136 CLR 308
Federal Commissioner of Taxation v ElecNet (Aust) Pty Ltd (2015) 239 FCR 359
Federal Commissioner of Taxation v Linter Textiles Australia Ltd (in liq) (2005) 220 CLR 592
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
George Attenborough & Son v Solomon [1913] AC 76
Herdegen v Commissioner of Taxation (Cth) (1988) 84 ALR 271
Human Rights and Equal Opportunity Commission v Mount Isa Mines Pty Ltd (1993) 46 FCR 301
Hunter v Moss [1994] 1 WLR 452
In the Marriage of Bourke (1993) 114 FLR 89
In the Marriage of Michiels (1991) 103 FLR 1
James v Commonwealth (1939) 62 CLR 339
Jones v Daniel (2004) 141 FCR 148
Kinch v Walcott [1929] AC 482
Kent v Vessel "Maria Luisa" (No 2) (2003) 130 FCR 12
Lysaght v Edwards (1876) 2 Ch D 499
Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217
Oil Basins Ltd v Commonwealth (1993) 178 CLR 643
Oliver v Malanos (2011) 199 FCR 136
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Re Judiciary Act 1903-1920 and Navigation Act 1912-1920 (1921) 29 CLR 257
Re London Wine Co (Shippers) Ltd [1986] PCC 121
Re McBain; Ex parte Australian Catholic Bishops Conference (2002) 209 CLR 372
Re Rose [1952] Ch 499
Re Transphere Pty Ltd (1986) 5 NSWLR 309
Scott v Bowden (2002) 194 ALR 593
Shell's Self Service Pty Ltd v Deputy Commissioner of Taxation (Cth) (1989) 98 ALR 165
Shortall v White [2007] NSWCA 372
Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315
Taras Nominees Pty Ltd v Federal Commissioner of Taxation (2015) 228 FCR 418
Vasudevan v Becon Constructions (Australia) Pty Ltd (2014) 41 VR 445
WA Trustee Executor & Agency Co Ltd v Commissioner of State Taxation (WA) (1980) 147 CLR 119
White v Shortall (2006) 68 NSWLR 650
Wingadee Shire Council v Willis (1910) 11 CLR 123
Wise v Whitburn [1924] 1 Ch 460
Date of hearing: 19 and 20 September 2016 Registry: Western Australia Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 199 Counsel for the Applicants: Mr SHP Steward QC with Mr FD O'Loughlin Solicitor for the Applicants: Jackson McDonald Counsel for the First Respondent: Mr JC Vaughan SC with Ms HA Tiplady Solicitor for the First Respondent: Australian Government Solicitor Counsel for the Second and Third Respondents: Mr S Owen-Conway QC with Mr J Park Solicitor for the Second and Third Respondents: Park Legal Solutions ORDERS
WAD 754 of 2015 BETWEEN: SANDINI PTY LTD (ACN 008 921 417) AFT THE KARRATHA RIGGING UNIT TRUST
First Applicant
WABELO PTY LTD (ACN 008 921 426) AFT THE ELLISON FAMILY TRUST
Second Applicant
CHRISTOPHER JAMES ELLISON (and another named in the Schedule)
Third Applicant
AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA
First Respondent
DEBBIE MAREE ELLISON
Second Respondent
WAVEFRONT ASSET PTY LTD (ACN 139 479 968) ATF THE FELSTEAD FAMILY TRUST
Third Respondent
JUDGE:
MCKERRACHER J
DATE OF ORDER:
22 MARCH 2017
THE COURT DECLARES THAT:
1.For the income year 30 June 2011, the first applicant is entitled to the roll-over consequences in s 126-5 of the Income Tax Assessment Act 1997 (Cth), due to the operation of s 126-15(1)(a) of the Income Tax Assessment Act 1997 (Cth) in relation to its disposal of the 2,115,000 Shares in Mineral Resources Limited as processed in 4 October 2010.
THE COURT ORDERS THAT:
2.The parties are to file submissions on costs to be dealt with on the papers, unless any party wishes to be heard on costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
TABLE OF CONTENTS
CAN A FAMILY COURT ORDER TRANSFERRING TO A FAMILY TRUST ATTRACT ROLL-OVER RELIEF?
[1]
RELEVANT STATUTORY FRAMEWORK
[6]
FACTUAL CIRCUMSTANCES
[12]
The entities and their resolutions
[12]
Family Court Order and transfer of MIN Shares
[17]
The dispute with the Commissioner
[26]
DOES THE COURT HAVE JURISDICTION?
[28]
Consideration
[42]
SHOULD THE COURT EXERCISE ITS DISCRETION?
[50]
Consideration
[52]
APPLICANTS’ ARGUMENT ON ROLL-OVER
[55]
Ms Ellison CGT event A1
[56]
Ms Ellison’s involvement
[77]
THE COMMISSIONER’S POSITION ON ROLL-OVER RELIEF
[81]
MS ELLISON’S POSITION ON ROLL-OVER RELIEF
[103]
CONSIDERATION
[118]
The effect of the Family Court Order
[123]
Defects
[161]
Certainty
[172]
The effect of Ms Ellison’s involvement
[188]
A final point
[189]
CONCLUSION
[190]
MCKERRACHER J:
CAN A FAMILY COURT ORDER TRANSFERRING TO A FAMILY TRUST ATTRACT ROLL-OVER RELIEF?
Mr Christopher James Ellison, Sandini Pty Ltd, as trustee for the Karratha Rigging Unit Trust (KRUT), Wabelo Pty Ltd, as trustee for the Ellison Family Trust (EFT), and Ellison (WA) Pty Ltd (EWA) seek declaratory relief. That relief is opposed by the Commissioner of Taxation, Mr Ellison’s former wife, Ms Debbie Maree Ellison, and Wavefront Asset Pty Ltd. Since 17 September 2009, Ms Ellison has been the sole director, secretary and shareholder of Wavefront.
Essentially, the applicants seek a declaration that a transfer of shares made at the instance of Mr Ellison, in accordance with directions apparently given by Ms Ellison and pursuant to orders of the Family Court of Western Australia, attracts ‘roll-over relief’ pursuant to subdiv 126-A of the Income Tax Assessment Act 1997 (Cth) (1997 Act). The Commissioner’s position turns on analysis of the transaction. Ms Ellison’s position is that the Court has no jurisdiction as no ‘matter’ has arisen in the constitutional sense; secondly, in its discretion, the Court should not exercise its jurisdiction in the circumstances; and thirdly, roll-over relief should not apply for reasons similar to those advanced by the Commissioner.
The primary and apparently simple issue in this case is whether Sandini should be entitled to CGT roll-over relief in circumstances where:
(1)such relief would normally be available when an asset was transferred by and to a former spouse under a family court order.
But in this instance:
(2)was transferred to a corporate entity solely controlled by the former spouse;
(3)in accordance with the former spouse’s direction as to the manner of compliance with the court order.
As the Commissioner argues, there is genuine doubt as to this point.
For reasons which follow, on the facts of this case, my conclusion is that the Court has and should exercise jurisdiction and that the applicants are entitled to the declaratory relief sought.
RELEVANT STATUTORY FRAMEWORK
This proceeding involves construction of subdiv 126-A of the 1997 Act. From the provisions extracted below it may be seen that CGT roll-over relief (effectively a deferral) is relevantly provided for in respect of certain CGT events referred to as ‘trigger events’ that happen in the context of a marriage or relationship breakdown.
Section 126-5 (a CGT event involving spouses) relevantly provides that there is a roll-over if a CGT event (the ‘trigger event’) happens involving an individual (the ‘transferor’) and his or her spouse or former spouse (the ‘transferee’) because of a court order under the Family Law Act 1975 (Cth): s 126-5(1)(a). In a disposal case, only CGT events A1 and B1 are relevant: s 126‑5(2)(a). Section 126-15 (a CGT event involving a company or trustee) relevantly provides that there are the roll-over consequences in s 126-5 if the trigger event involves a company or a trustee (the ‘transferor’) and a spouse or former spouse (the ‘transferee’) of another individual because of a court order under the Family Law Act: s 126-15(1)(a). For a roll-over under s 126-A to be applicable the following elements are essential:
(a)there must be a relevant CGT event (in this case, the relevant trigger event must be CGT event A1);
(b)the CGT trigger event must involve a spouse or former spouse (as defined in s 995-1(1)) as a transferee; and
(c)the CGT trigger event must occur ‘because of’ a court order under the Family Law Act.
The provisions must be seen in context, even if they are not all immediately relevant to the factual situation described in the next part of these reasons. They provide as follows:
Subdivision 126-A - Marriage or relationship breakdowns
Table of sections
126‑5CGT event involving spouses
126‑15CGT event involving company or trustee
126‑20Subsequent CGT event happening to roll‑over asset where transferor was a CFC or a non‑resident trust
126‑25Conditions for the purposes of subsections 126‑5(3A) and 126‑15(5)
126-5 CGT event involving spouses
(1)There is a roll‑over if a *CGT event (the trigger event) happens involving an individual (the transferor) and his or her *spouse (the transferee), or a former *spouse (also the transferee), because of:
(a)a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses; or
(b)a maintenance agreement approved by a court under section 87 of the Family Law Act 1975 or a corresponding agreement approved by a court under a corresponding *foreign law; or
(c)[repealed]
(d)something done under:
(i)a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or
(ii)a corresponding written agreement that is binding because of a corresponding foreign law; or
(da)something done under:
(i)a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975) that is binding because of section 90UJ of that Act; or
(ii)a corresponding written agreement that is binding because of a corresponding foreign law; or
(e)something done under:
(i)an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or
(ii)a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or
(f)something done under a written agreement:
(i)that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; and
(ii)that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside.
(2) Only these *CGT events are relevant:
(a)CGT events A1 and B1 (a disposal case); and
(b)CGT events D1, D2, D3 and F1 (a creation case).
Note:The full list of CGT events is in section 104‑5.
(3)However, there is no roll‑over if:
(a)the *CGT asset involved is *trading stock of the transferor; or
(b)for *CGT event B1—title in the CGT asset does not pass to the transferee at or before the end of the agreement.
(3A)There is no roll‑over because of paragraph (1)(d), (da) or (f) unless the conditions set out in section 126‑25 are met.
(4)A *capital gain or a *capital loss the transferor makes from the *CGT event is disregarded.
Consequences for the transferee (disposal case)
(5)For a disposal case where the transferor *acquired the asset on or after 20 September 1985:
(a)the first element of the asset’s *cost base (in the hands of the transferee) is the asset’s cost base (in the hands of the transferor) at the time the transferee acquired it; and
(b)the first element of the asset’s *reduced cost base (in the hands of the transferee) is worked out similarly.
Example:Your spouse transfers land to you because of a court order under the Family Law Act 1975. Any capital gain or loss your spouse makes is disregarded.
If the land’s cost base at the time you acquired it is $10,000, the first element of the land’s cost base in your hands becomes $10,000.
Note 1:There are special indexation rules for roll‑overs: see Division 114.
Note 2:A roll‑over under this Subdivision may have an effect on the transferee’s main residence exemption: see sections 118‑178 and 118‑180.
(6)For a disposal case where the transferor *acquired the asset before 20 September 1985, the transferee is taken to have acquired it before that day.
Note:A capital gain or loss you make from a CGT asset you acquired before 20 September 1985 is generally disregarded: see Division 104. This exemption is removed in some situations: see Division 149.
(7)For a disposal case where the transferor *disposed of a *collectable or *personal use asset, the transferee is taken to have *acquired one.
Note 1:Capital losses from collectables can be subtracted only from capital gains from collectables: see section 108‑10.
Note 2:Capital losses from personal use assets are disregarded: see section 108‑20.
Consequences for the transferee (creation case)
(8)For a creation case, the first element of the asset’s *cost base (in the hands of the transferee) is the amount applicable under this table. The first element of its *reduced cost base is worked out similarly.
Creation Event No. Applicable amount D1 the *incidental costs the transferor incurred that relate to the trigger event D2 the expenditure the transferor incurred to grant the option D3 the expenditure the transferor incurred to grant the right F1 the expenditure the transferor incurred on the grant, renewal or extension of the lease The expenditure can include giving property: see section 103‑5.
126-15 CGT event involving company or trustee
(1)There are the roll‑over consequences in section 126‑5 if the trigger event involves a company (the transferor) or a trustee (also the transferor) and a *spouse or former spouse (the transferee) of another individual because of:
(a)a court order under the Family Law Act 1975 or under a *State law, *Territory law or *foreign law relating to breakdowns of relationships between spouses; or
(b)a maintenance agreement approved by a court under section 87 of the Family Law Act 1975 or a corresponding agreement approved by a court under a corresponding *foreign law; or
(d)something done under:
(i)a financial agreement made under Part VIIIA of the Family Law Act 1975 that is binding because of section 90G of that Act; or
(ii)a corresponding written agreement that is binding because of a corresponding foreign law; or
(da)something done under:
(i)a Part VIIIAB financial agreement (within the meaning of the Family Law Act 1975) that is binding because of section 90UJ of that Act; or
(ii)a corresponding written agreement that is binding because of a corresponding foreign law; or
(e)something done under:
(i)an award made in an arbitration referred to in section 13H of the Family Law Act 1975; or
(ii)a corresponding award made in an arbitration under a corresponding State law, Territory law or foreign law; or
(f)something done under a written agreement:
(i)that is binding because of a State law, Territory law or foreign law relating to breakdowns of relationships between spouses; and
(ii)that, because of such a law, prevents a court making an order about matters to which the agreement applies, or that is inconsistent with the terms of the agreement in relation to those matters, unless the agreement is varied or set aside.
…
126-20…
126-25 …
CGT event A1 is the subject of s 104-10 of the 1997 Act which provides as follows:
104-10 Disposal of a CGT asset: CGT event A1
(1) CGT event A1 happens if you *dispose of a *CGT asset.
(2)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 if you stop being the legal owner of the asset but continue to be its beneficial owner.
Note: A change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee.
(3) The time of the event 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).
It can be seen that subs (1) provides that CGT event A1 happens if a taxpayer disposes of a CGT asset. The concept of a ‘CGT asset’ is provided for in s 108-5 of the 1997 Act and includes any kind of property or a legal or equitable right that is not property. It can include an equitable interest. Section 104-10(2) provides that a taxpayer disposes of a CGT asset if a ‘change of ownership’ occurs from the taxpayer to another entity, whether because of some act or event or by operation of law.
It further provides that a change of ownership does not occur if the taxpayer stops being the legal owner of the asset, but continues to be its beneficial owner.
FACTUAL CIRCUMSTANCES
The entities and their resolutions
The transfer of shares in issue was a transfer of 2,115,000 shares by Sandini in Mineral Resources Limited (MIN) (MIN Shares) made following an order of the Family Court made on 21 September 2010 by consent (Family Court Order). MIN was and is a public company. Its shares were listed for trading on the Australian Securities Exchange.
Prior to 21 September 2010, Sandini owned 35,804,065 shares in MIN, including the MIN Shares. As noted (in [1]), Sandini is and was, at all material times the trustee of the KRUT. Wabelo, in its capacity as trustee for the EFT was the sole holder of units in the KRUT during the whole of the 2011 income year. Wabelo was the trustee of the EFT, a discretionary trust. The EWA was a proprietary company with one issued share. That share was beneficially owned by Mr Ellison. EWA and Mr Ellison were members of the class of beneficiaries able to participate in discretionary distributions from the EFT.
Ms Ellison was married to Mr Ellison on 15 February 1992. They remained married until 9 May 2010. Wavefront was a proprietary company. As discussed above, since 17 September 2010, Ms Ellison has been the sole director, secretary and shareholder of Wavefront. In September 2010, Wavefront was the trustee of the Felstead Family Trust (FFT). Wavefront and the FFT, as an entity, are not connected with Mr Ellison.
On 30 June 2011, Sandini, as trustee of the KRUT, made a resolution in the following terms:
RESOLUTION OF TRUSTEE
SANDINI PTY LTD ATF KARRATHA RIGGING UNIT TRUST
HELD ON 30 June 2011
PRESENT: [Mr Ellison] (Chairman) APPLICATION OF INCOME: RESOLVED that the net income of the trust for the accounting period ended 30 June 2011 be applied for the benefit of the undermentioned ordinary unit holders in the proportion to their ordinary unit holdings that the unit holder entitlements to be credited to them in the trust books of account. Unit Holder Percentage Wabelo Pty Ltd ATF Ellison Family Trust 100% SIGNED AS A CORRECT RECORD: [SIGNATURE OF MR ELLISON]
On 30 June 2011, Wabelo, as trustee of the EFT, made a resolution in the following terms:
RESOLUTION OF TRUSTEE
WABELO PTY LTD ATF ELLISON FAMILY TRUST
HELD 30 JUNE 2011
PRESENT: [Mr Ellison] (Chairman) APPLICATION OF INCOME: RESOLVED that the net income of the trust, exclusive of the amount of any capital gain included in such income, for the accounting period ending 30 June 2011 be applied for the benefit of the undermentioned beneficiaries in the proportions or amounts stated and that the beneficiaries’ entitlements be credited to them in the trust books of account. Beneficiary Proportion or Amount Ellison (WA) Pty Ltd 100% APPLICATION OF CAPITAL GAINS: RESOLVED that pursuant to the provisions of the Trust Deed relating to partial vesting of the trust capital, the amount of – 1) The taxable capital gain of the trust; or 2) The whole of the capital gain included in the trust accounts for the accounting period ending 30 June 2011 be applied for the benefit of the undermentioned beneficiaries in the proportions or amounts stated and that the beneficiaries’ entitlements be credited to them in the trust books of account. Beneficiary Proportion or Amount [Mr Ellison] 100% SIGNED AS A CORRECT RECORD: [SIGNATURE OF MR ELLISON]
Family Court Order and transfer of MIN Shares
On 27 March 2008, Ms Ellison commenced proceedings in the Family Court with Mr Ellison as respondent, seeking, amongst other things, alteration of property interests pursuant to s 79 of the Family Law Act. On 20 June 2008, the Family Court made initial orders relating to the division of the matrimonial property of Mr and Ms Ellison. On 23 September 2009, the Family Court made further orders relating to the division of the matrimonial property of Mr and Ms Ellison (23 September 2009 Orders). The 23 September 2009 Orders required Mr Ellison to transfer the shares in MIN to the value of $2,500,000 if Mr Ellison did not pay a cash settlement amount in full by 1 December 2011. On 8 April 2010, the Family Court ordered in relation to the marriage of Mr and Ms Ellison that ‘a divorce order be made, such divorce order to take effect and thereby terminate the marriage on the ninth day of May 2010’.
On 21 September 2010, the Family Court Order was made as follows:
1.[Sandini] as Trustee for the [EFT] (‘Sandini’) be joined to these proceedings as second respondent.
2.Pursuant to s 79A of the Family Law Act 1975 as amended Orders 2.3-5 inclusive of the orders made by consent on 23 September 2008 be set aside.
3.Within 7 days of orders being made Sandini do all acts and things and sign all documents necessary to transfer to [Ms Ellison] 2,115,000 [MIN Shares].
Contrary to the description in Order 1, Sandini has never been the trustee of the EFT.
Whilst it is not common ground, I accept on the evidence, which I will discuss further below, that the applicants have established that:
(a)on 28 September 2010, a transfer form was partly prepared for the transfer of the MIN Shares;
(b)on 29 September 2010, Mr Ellison received an email sent that day from Ms Ellison (29 September Email). The 29 September Email was sent from the email address used by Ms Ellison for email communications;
(c)the 29 September Email was in response to an email sent to Ms Ellison by Mr Ellison on 28 September 2010;
(d)Ms Ellison sent the 29 September Email;
(e)Ms Ellison was responsible for the instruction given to Mr Ellison in the 29 September Email; and
(f)the MIN Shares referred to in the 29 September Email were the shares required to be transferred pursuant to the Family Court Order.
On 29 September 2010, the transfer form referred to above was completed with the details provided in the 29 September Email. On 30 September 2010, Sandini as trustee for the KRUT, executed a Standard Transfer Form for the transfer of 2,115,000 shares, being the MIN Shares, to Wavefront as trustee of the FFT.
It is not common ground, but I accept on the evidence, which I will discuss further below, that the applicants have established that on 30 September 2010:
(a)Ms Ellison also executed the same Standard Transfer Form for the transfer of the MIN Shares to Wavefront as trustee of the FFT;
(b)the executed Standard Transfer Form referred to above was in accordance with Ms Ellison’s directions; and
(c)on 4 October 2010, the transfer of the MIN Shares was registered.
By an affidavit relied upon by Ms Ellison in this proceeding and sworn on 14 September 2016, she deposed that she had no recollection of writing or sending the 29 September Email and she believed that it did not appear to have been written by her because it included language she did not normally use. She acknowledged that it is possible that she wrote and sent the email, but submits that it is improbable that she did so because she did not recall doing so. It includes reference to ‘SRN’ and ‘ATF’, when her evidence was that she did not know what SRN and ATF meant at that time. Although she knew that at 29 September 2010 the FFT had been set up with Wavefront as trustee of that Trust, she did not then understand the purpose of a family trust or how she should ‘use it’. The trust had been set up by her former accountant in September 2009.
Ms Ellison also says she has no recollection of prior discussions with Mr Ellison or any other person about the 29 September Email. The first time she recollects seeing the email was when the ATO brought it to her attention in November 2014. She does not deny signing the Standard Transfer Form. The signature on it appears to be her signature. Mr Ellison also swore an affidavit of 12 July 2016 that annexed an email of 28 September 2010 which he sent to Ms Ellison requesting from her the details of where she wanted the MIN Shares transferred to.
I have no reason to doubt that Ms Ellison has no recollection of these particular events as she says. Nonetheless, there is also absolutely no reason to doubt, having regard to common experience in all the circumstances and the nature of the exchanges, the logic and the absence of any other explanation, that Ms Ellison did authorise the transaction, which was made in accordance with her request and direction. I accept the applicants’ submission that in circumstances where:
(a)on 21 September 2010, the Family Court ordered the 2,115,000 MIN Shares be transferred by Sandini to Ms Ellison;
(b)on 28 September 2010, Mr Ellison sent to Ms Ellison an email enquiring as to her particulars for the transfer of those Shares;
(c)the 29 September Email was by way of response to the 28 September 2010 email to Ms Ellison;
(d)the 29 September Email was received by Mr Ellison from Ms Ellison’s email address;
(e)the entities referred to in the 29 September Email were entities that were closely connected with and controlled by Ms Ellison;
(f)on 30 September 2010, Ms Ellison signed a share transfer form conforming to the particulars supplied in the 29 September Email; and
(g)there was no evidence to contradict the assertion that Ms Ellison sent the 29 September Email,
I have no hesitation in finding that Ms Ellison did in fact send that email.
The dispute with the Commissioner
On 20 August 2015, the Commissioner sent a letter to Mr Ellison notifying him that the Commissioner intended to conduct an audit in relation to the 2011 income year regarding the risk of ‘unreported capital gains’ arising from the transfer of the MIN Shares from Sandini. On 4 September 2015, the Commissioner sent a letter to Mr Ellison setting out his position paper regarding the audit. On 13 October 2015, Mr Ellison’s tax advisers, RSM Bird Cameron, sent a letter to the Commissioner responding to the position paper. This letter stated, amongst other things, that upon the Family Court making its order of 21 September 2010, or on 28 September 2010, being the date by which the orders needed to be performed, beneficial ownership in the MIN Shares passed to Ms Ellison. One of the central disputes, which follows in the discussion below, is whether the effect of the Family Court Order was to pass beneficial ownership in the MIN Shares to Ms Ellison.
On 1 December 2015, the Commissioner sent a letter to Mr Ellison replying to the RSM letter of 13 October 2015. The Commissioner did not accept the contentions advanced in the RSM letter. Instead the Commissioner asserted that the transfer of the MIN Shares to Wavefront was such as to constitute a CGT disposal of the MIN Shares from Sandini, as trustee of the KRUT to Wavefront, which disposal did not attract subdiv 126-A (roll-over relief) under the 1997 Act. The disposal, of course, was not made directly to Ms Ellison.
DOES THE COURT HAVE JURISDICTION?
The applicants pursue declaratory relief pursuant to s 39B(1A) of the Judiciary Act 1903 (Cth) and s 21 of the Federal Court of Australia Act 1976 (Cth). Relevantly, s 39B(1A) of the Judiciary Act provides that the original jurisdiction of this Court includes jurisdiction under any matter arising under any laws made by the Parliament, other than a matter in respect of which a criminal prosecution is instituted or any other criminal matter. Section 21 of the Federal Court Act provides that the Court may, in civil proceedings in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is, or could be, claimed. Moreover, s 21(2) of the Federal Court Act provides that a suit is not open to objection on the ground that a declaratory order only is sought.
The key word for this part of the debate between Mr Ellison and Ms Ellison in s 21 is ‘matter’ in s 39B. Broadly speaking, a ‘matter’ is a controversy for determination by the Court. Without an immediate right, duty or liability to be established by a determination of the Court, there cannot be a matter: Re Judiciary Act 1903-1920 and Navigation Act 1912-1920 (1921) 29 CLR 257 per Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ (at 265); Re McBain; Ex parte Australian Catholic Bishops Conference (2002) 209 CLR 372 per Gleeson CJ (at 389), per Gaudron and Gummow JJ (at 405) and per Haynes J (at 459).
A matter exists when it is necessary to determine a disputed right or defence or a disputed title, privilege or immunity. A dispute concerning an issue which does not involve any justiciable controversy is not capable of being a matter: Scott v Bowden (2002) 194 ALR 593 per McHugh J (at [7]).
In Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334, Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ observed (at [45]) that a declaration ordinarily involves ‘a conclusive or final decision based on a concrete and established or agreed situation which aims to quell a controversy’.
There is nothing novel about the usage of declarations in the context of revenue law to determine rights and obligations arising under laws that impose commonwealth taxes. In Oil Basins Ltd v Commonwealth (1993) 178 CLR 643, Dawson J (at 651) affirmed the Court’s power to make declaratory judgments in circumstances where an assessment had not only not been made, but there was not any immediate prospect of one being made. Nonetheless, there were real questions as to the operation of the Petroleum Resource Rent Tax Assessment Act 1987 (Cth) (PRRT Act) and real obligations and liabilities not wholly contingent on assessments.
In arguing there is no ‘matter’, Ms Ellison relies upon Bob Jane T-Marts Pty Ltd v Commissioner of Taxation (1999) 94 FCR 457 per Hill, Sundberg and Mansfield JJ. In that case, the Court concluded that declaratory relief was not an appropriate process given the factual matters that still required resolution and that the evidence before the Court did not allow that resolution. There was no conclusion, (nor in my respectful opinion, could there be), that declaratory relief would not be available in revenue cases.
In this case, as explained, there is a clear controversy between the applicants and the Commissioner. A critical element of the controversy is who or which, if anyone, should be taxed. The nature of the controversy is whether or not Sandini is entitled to roll-over relief and, if so, who should be taxed as a consequence. If Sandini is entitled to roll-over relief, it is not required to include any taxable capital gain in its net income as understood by s 95 of the Income Tax Assessment Act 1936 (Cth) (1936 Act). If it is not entitled to roll-over relief, it will be required to include taxable capital gains in its s 95 net income which, in turn, affects the income tax liabilities of the other applicants.
There is nothing hypothetical about the facts which have all occurred in the past. It is only the appropriate tax response which requires consideration on the established facts. Moreover, in this situation, unlike Bob Jane T-Marts, the facts are all substantially agreed. Those that are not agreed are in short compass (eg, the 29 September Email on which a finding has been made).
Ms Ellison points to the fact that the Commissioner served a notice pursuant to s 78B of the Judiciary Act (s 78B notice), due to the contention that there is no matter arising under the Constitution for determination by the Court. I note that no Attorney seeks to intervene. It is also, in my experience, the position that from time to time without s 78B notices being served, submissions are raised to the effect that a proceeding does not involve a ‘matter’. Whether that is the correct course or not does not matter in this instance as the s 78B notice has been served.
A justiciable controversy is identifiable independently of the proceedings brought for its determination. It is the whole controversy in respect of which it is the function of the court or courts exercising the judicial power of the Commonwealth to quell. It is the ‘subject matter for determination in a legal proceeding’. The context and width of the concept of ‘matter’ lies at the heart of the notions of federal jurisdiction and the judicial power of the Commonwealth. The word ‘matter’ is central to the operations of s 75, 76 and 77 of the Commonwealth Constitution. The ‘matter’ is the justiciable controversy between the actors to it comprised, as the superior courts have long held, of the substratum of facts and claims representing or amounting to the dispute or controversy between or amongst them. The meaning of ‘matter’, as the High Court recently noted in CGU Insurance Limited (ACN 004 478 371) v Blakeley (2016) 327 ALR 564, is comprised of two elements (in turn citing Burmester H, “Limitations on Federal Adjudication”, in Opeskin B and Wheeler F (eds), The Australian Federal Judicial System (Melbourne University Press, 2000) p 232):
[…] the subject matter itself as defined by reference to the heads of jurisdiction set out in Chapter III, and the concrete or adequate adversarial nature of the dispute sufficient to give rise to a justiciable controversy.
Ms Ellison contends that the declaratory relief sought would merely be an advisory opinion or an abstract declaration in the manner discussed in Re Judiciary Act 1903-1920; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 and CGU Insurance, but see also the discussion in Oil Basins (at 651).
Ms Ellison also submits that when Sandini did transfer the MIN Shares to Wavefront on 30 September 2010, it did so as trustee for the KRUT and not the EFT. The apparent error made by the applicants in ‘joining the wrong trust entity’ is said to be crucial because the Family Court Order was incapable of being carried out on its precise terms and, as such, Sandini is not entitled to roll-over relief. Ms Ellison says it is not possible to ignore the terms of the Family Court Order and read it as if the KRUT was substitutable for the EFT. Ms Ellison’s point is that it has always been open and a matter for the applicants to make an application to the Family Court to amend the Family Court Order, if they have grounds to do so. Indeed, that has been recognised because Wabelo as trustee for EFT filed an application in the Family Court on 21 June 2016 to amend the Family Court Order nunc pro tunc to be:
[Sandini] as trustee for the Karratha Rigging Trust (‘Sandini’) be joined to these proceedings as second respondent.
Unless and until the Family Court Order is amended in the terms sought by the applicants, which amendment is opposed by Ms Ellison on various grounds, Ms Ellison says there is no justiciable controversy that supports the declarations sought by the applicants because the terms of the Family Court Order as they stand cannot be carried out and were never carried out. As such, Ms Ellison contends, the proposed declarations are, at best, both ‘abstract’ and ‘hypothetical’.
Ms Ellison also deposes to the fact (in an affidavit sworn on 14 September 2016) that, in any event, if Mr Ellison’s application currently before the Family Court to amend the Family Court Order nunc pro tunc is successful insofar as the Family Court pronounces orders on that application, she will appeal that decision.
Consideration
Unlike Ms Ellison, the Commissioner does accept, and I agree, that the Court has jurisdiction to make a declaration as to whether Sandini is entitled to roll-over relief under subdiv 126-A of the 1997 Act in relation to the disposal of the MIN Shares. The Commissioner agrees substantially with the contentions advanced on behalf of the applicants. However, the Commissioner does not share the characterisation of the question as being not knowing who to tax, but rather the Commissioner’s position, as set out by letter of 1 December 2015 from the Australian Taxation Office (ATO), is that there is ‘genuine doubt’ about the proper application of the law in the circumstances. For that reason, unless the relevant uncertainty can be practicably resolved, the Commissioner foreshadowed the issue of alternative assessments. The case relied on by the applicants concerned the meaning of the term ‘present legal obligation’ in a particular context: Federal Commissioner of Taxation v H (2010) 188 FCR 440. But it was accepted in H, that unless and until an assessment was made, income tax was not due and payable. The applicants make it clear that they are not suggesting to the contrary.
In relation to the error the parties made in drafting the Family Court Order, for reasons below, this error does not preclude the granting of declaratory relief.
There is a genuine question in dispute as to whether Sandini is entitled to roll-over relief. A declaration in relation to that question will resolve that dispute.
Although the Commissioner is yet to issue an assessment, that does not affect the fact that there is a genuine controversy between the parties that is susceptible to judicial determination. The lack of any assessment does not render, hypothetical, the declaratory relief sought. Whether Sandini is entitled to roll-over relief turns on the operation of the 1997 Act upon past events and is not contingent on an assessment being made. It is clear from Oil Basins (especially at 651) that declaratory relief is available in circumstances when no assessment has been issued. In that particular case, the Court otherwise considered the circumstance to be inappropriate.
It is necessary to make a ruling on the facts as they occurred and when they occurred. If some future changes arise then the consequence of those changes can be revisited. Were it otherwise, it would never be possible to make a ruling and there would never be a justiciable controversy in circumstances such as these merely because there was a possibility of events changing sometime in the future.
Indeed, put another way, it may be that the outcome of this proceeding would assist the parties in their arguments and possibly the Family Court in determining how such existing or future applications should be addressed.
I do not accept the submission made for Ms Ellison that the declaratory relief sought in the originating summons cannot be made until at least such time as the existing Family Court proceedings have been dealt with, ‘including any prospective appeals being heard and determined’.
The Commissioner also suggests, and I agree, that if a declaration is to be made, the appropriate declaration should be:
In calculating the net income of the trust estate of The Karratha Rigging Unit Trust for the income year 30 June 2011, the first applicant is entitled to the roll-over consequences in s 126-5 [of the 1997 Act], due to the operation of s 126-15(1)(a) [of the 1997 Act] in relation to its disposal of the 2,115,000 Shares in Mineral Resources Limited as processed in 4 October 2010.
SHOULD THE COURT EXERCISE ITS DISCRETION?
Ms Ellison also advances the argument, which is opposed by both the applicants and the Commissioner, that there is an appropriate legislative scheme under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA) which provides a mechanism for the conduct of taxation objections, reviews and appeals. The present situation involves the Commissioner having undertaken an audit of the taxation affairs of Sandini and, having concluded in its position paper that Sandini is not entitled to claim roll-over relief in relation to the MIN Shares, has made clear its intention to issue Sandini with a notice of amended assessment in respect of the MIN Shares. Ms Ellison points to Oil Basins where a prospective taxpayer sued the Commissioner in advance of an assessment. As noted above, Dawson J rejected the contention that the declaration sought would be hypothetical because his Honour found it would produce a consequence for the parties. In that case, the Commissioner had not only not issued any assessments pursuant to the PRRT Act, but he conceded he had given no indication that he had formed a view that the plaintiff was or was not liable to pay the relevant tax. Ms Ellison stresses that this case is quite different because the Commissioner has reached a view as to Sandini’s entitlement.
Ms Ellison also contends that if declaratory relief were granted in this case it would set an undesirable precedent whereby taxpayers, having been informed by the Commissioner that they are about to receive a notice of assessment, may choose to seek a declaration before the Court in an endeavour to have their objections to their assessment heard and determined shortly prior to service of the notice of assessment. This, it is argued, would have the effect that no obligation on the taxpayer to pay tax would arise prior to the determination of the issues by the Court and would render substantially ineffective the scheme providing for objections to be dealt with under Pt IVC of the TAA. Hence, the Court should exercise its discretion, it is contended, to decline the declaratory relief sought on the grounds that there is an established and more appropriate procedure available to challenge the validity of the notice of assessment after it is issued.
Consideration
It may be accepted that one matter to take into account in exercising discretion to grant or to refuse a declaration is the availability of an alternative remedy: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 per Gibbs and Walsh JJ (at 438) and Bob Jane T-Marts (at [4]).
Beyond this, I am unable to accept the submissions advanced by Ms Ellison. This particular case raises entirely novel questions of construction on which respectable opposing views are advanced. There are no outstanding factual matters to be resolved. It is, as the applicants and the Commissioner accept, an entirely suitable vehicle for declaratory relief. The fact that the formerly married parties may wish to revisit or recast orders made in the Family Court or to seek new or different orders does not bear upon the facts as they exist now. Those hypothetical possibilities will remain. In the meantime, it is desirable that this matter be resolved. As indicated above, resolution of this matter may aid in determining appropriate courses to be pursued, if any, in relation to any existing or proposed matters in the Family Court.
Relevant to both topics is the factual dispute about whether or not Ms Ellison sent the 29 September Email and whether, if sent, it was sent as a director of Wavefront rather than in her personal capacity. As I have indicated, I have found that she did send the 29 September Email and that it was also sent on behalf of Wavefront, as she was the sole directing mind and will of Wavefront. Nonetheless, the Commissioner submits that the case can be determined without the necessity for any findings on those issues. That depends upon the main debate on whether or not roll-over relief can arise. I turn to that issue.
APPLICANTS’ ARGUMENT ON ROLL-OVER
The applicants argue that there are two bases on which Sandini is entitled to a roll-over. The first being because there was a CGT event A1 within the meaning of s 104-10 of the 1997 Act with Ms Ellison becoming the owner of the MIN Shares enlivening s 126-5 and s 126-15 (Ms Ellison CGT event A1). The second alternative is on the basis that Ms Ellison was sufficiently involved in Sandini transferring the MIN Shares to Wavefront in respect of which there was at least one CGT event A1 to as to enliven s 126-5 and s 126-15 (Ms Ellison’s involvement).
Ms Ellison CGT event A1
Dealing with the first of these, the Ms Ellison CGT event A1, the applicants argue that either by reason of the Family Court Order alone or by reason of the steps taken to give effect to it, by 30 September 2010, Ms Ellison became the owner of the MIN Shares. Her becoming the beneficial owner constituted a change in ownership of those shares attracting the terms of s 104-10. Further, that change of ownership occurred because of the Family Court Order and thus the terms of s 126-5 and s 126-15 are satisfied.
This construction turns on a notion of beneficial ownership, which is perhaps the key issue in dispute in the proceedings. The applicants argue that CGT event A1 is concerned with changes in beneficial ownership of CGT assets, referring to s 104-10, which spells out that CGT event A1 happens if you dispose of a CGT asset, and that such a disposal occurs 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 if you stop being the legal owner of the asset but continue to be the beneficial owner.
Note: a change in the trustee of a trust does not constitute a change in the entity that is the trustee of the trust (see subsection 960-100(2)). This means that CGT event A1 will not happen merely because of a change in the trustee.
If a person who owns an asset in one capacity becomes an owner of it in another capacity, he or she is recognised differently by the 1997 Act: see s 960-100(3), which provides as follows:
960-100 Entities
…
(3)A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity.
Example: In addition to his or her personal capacity, an individual may be:
Ÿsole trustee of one or more trusts; and
Ÿone of a number of trustees of a further trust.
In his or her personal capacity, he or she is one entity. As trustee of each trust, he or she is a different entity. The trustees of the further trust are a different entity again, of which the individual is a member.
A change in beneficial ownership without a change in legal ownership can arise in a number of ways. However, only one is specifically provided for under the CGT Rules in Pt 3-1 and Pt 3-3 of the 1997 Act and that is by CGT event E1, set out in s 104-55, declaring oneself to be trustee for another. If a trust relationship is imposed, and it is not the result of the asset owner’s declaration, then the terms of s 104-55 are not met.
The applicants contend that CGT event A1 is not limited to situations where there is a change in both legal and beneficial ownership of CGT assets. The applicants argue that the text used in s 104-10, the context in which those words are used and the evident purpose of the CGT Rules do not suggest such a limitation. To the contrary, they argue, the context and purpose of the CGT Rules suggest that a mere change in beneficial ownership, without a change of legal ownership, is sufficient.
The applicants argue that if it were not so, events that cause a change in beneficial ownership of an asset without legal ownership changing would not fall within subdiv 104-E of the 1997 Act. For example, a purchaser paying or providing all of the consideration required under a purchase contract for an asset or a court order vesting an asset in a person might never be treated as CGT events.
It follows, on the applicants’ argument, that the CGT Rules focus on ownership. They can be contrasted with other statutory schemes that, in the context of shares, focus on shareholdings and shareholders with an apparent legislative preference to be guided by the certainty that the share register provides.
The basis and focus of the applicants’ primary submission is that on making the Family Court Order, or on 28 September 2010, being the date at which the order was to be performed, beneficial ownership in the MIN Shares passed to Ms Ellison. The applicants rely on In the Marriage of Michiels (1991) 103 FLR 1 (at 6-7); In the Marriage of Bourke (1993) 114 FLR 89 (at 94-95); Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 and Jones v Daniel (2004) 141 FCR 148 per Hill, Moore and Allsop JJ (as the Chief Justice then was). The applicants contend that the order altered the interests of Sandini in the subject matter of the Family Court Order, namely, the MIN Shares. It does not matter, they say, that the form of the Family Court Order was not expressed to have an immediate dispositive effect: see Jones per Moore J (at [8]), with whom Hill and Allsop JJ agreed and per Allsop J (at [20]) with whom Hill J agreed. Whatever interest Sandini had in the MIN Shares vested in Ms Ellison, the applicants contend. This is not a case where Ms Ellison needed to do anything or to pay anything to perfect or complete her interest. The applicants argue that in terms of s 104-10, as the shares pre-existed the Family Court Order, and Ms Ellison came to be their owner, she must have acquired them and Sandini must have disposed of them, such that the test for the section to become operative was satisfied: see Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR 203 per Lockhart, Burchett and Gummow JJ (at 209-210).
The applicants argue that what was done after this time to give effect to the Family Court Order was a matter for Ms Ellison. By the time the transfer documentation was registered in accordance with Ms Ellison’s directions, the MIN Shares were already hers.
The applicants contend that the mis-description of Sandini in the Family Court Order is irrelevant. Any interest in the MIN Shares before the Family Court Order was made, or when it became effective, on whatever basis those interests were held or enjoyed, were extinguished by reason of the Family Court Order. Further, the applicants argue, this is not a case in which there have always been a co-existent legal and beneficial ownership of property: see, for example, Commissioner of Stamp Duties v Livingston (1964) 112 CLR 12. As such, there was not an order impossible of observance by reason of mis-description of any ownership interests to be divested.
Essentially, it is argued that all that was necessary for the roll-over was that the change of ownership in the MIN Shares be because of the Family Court Order; but for the order, there would have not been a CGT event of any description involving the MIN Shares and the parties to the dealings in them presently under review.
It is not to the point, the applicants argue, that Sandini owned a larger parcel of shares in MIN that included the MIN Shares. There is nothing to prevent a vesting of ownership of part of a larger parcel of shares in favour of the new owner. This is what occurred in White v Shortall (2006) 68 NSWLR 650 per Campbell J, which I consider at length below. If, to the contrary, the MIN Shares coming from a larger parcel precluded Ms Ellison’s beneficial ownership of the MIN Shares arising upon the making of the Family Court Order, or the time within which it needed to be met, then, the applicants argue, there were steps taken in furtherance of the Family Court Order which constituted an appropriation of the MIN Shares to the Family Court Order and the beneficial ownership fixed upon that appropriation. The applicants invite a comparison with a goods context, where the focus of attention is usually the passing of property at law, and where an act consistent with the terms of a bargain or obligation can be enough to be an appropriation to the contract. Thus, in James v Commonwealth (1939) 62 CLR 339 per Dixon J (at 377) shipping goods in some circumstances was sufficient and in Akron Tyre Co Pty Ltd v Kittson (1951) 82 CLR 477 per Latham CJ (at 484-485) attaching tyres to vehicles was sufficient.
As with chattels or goods, shares can also be appropriated to an agreement, instrument or arrangement under which beneficial ownership is intended to pass and thereby pass beneficial ownership before the passage of title: Beconwood Securities Pty Ltd v Australia and New Zealand Banking Group Ltd (2008) 246 ALR 361 per Finkelstein J (at [57]), where his Honour said:
Put another way, OPS has the freedom to decide how and from whom it will obtain securities that answer the description of “Equivalent Securities”. Crucially, there is no provision in the SLA restricting OPS from disposing of the lent shares or requiring OPS to keep on hand at any time specific securities for delivery to Beconwood as Equivalent Securities. In these circumstances, Beconwood cannot obtain a legal or equitable interest in any shares, even if they meet the description of Equivalent Securities, before shares that satisfy the description are appropriated to the agreement: Re Goldcorp Exchange Ltd [1995] 1 AC 74. This is no more than an application of the rule that until property which is previously unidentified is appropriated to an agreement, neither a legal nor an equitable interest in that property can be created by that agreement: Hoare v Dresser (1859) 7 HLC 290 [11 ER 116]; Citizens’ Bank of Louisiana v First National Bank of New Orleans (1873) LR 6 HL 352.
In the current situation, the applicants argue, Mr Ellison, as director of Sandini, initiated steps to have a share transfer document prepared to transfer the MIN Shares as contemplated by the Family Court Order. He sought details of Ms Ellison’s required particulars for the transfer, instructed that the transfer document be prepared, delivered the transfer document to her, executed the transfer and delivered it for registration. Each of those steps was a step consistent with the terms of the Family Court Order. Each was an appropriation, if the preceding step was not already an appropriation, of the shares represented by the transfer document to the Family Court Order and the beneficial ownership consistent with the order fixed in favour of Ms Ellison.
The applicants also argue that, as an alternative, there was a change of ownership of the MIN Shares to Ms Ellison either by reason of her constructive receipt of those shares or by reason of s 103-10 of the 1997 Act, which relevantly provides that Pt 3-3 will apply if you receive money or other property if it has been applied for your benefit, including by discharging all or part of a debt you owe, or as you direct. Section 103-10(2) provides as follows:
…
(2)Those Parts apply to you as if you are entitled to receive money or other property:
(a) if you are entitled to have it so applied; or
(b) if:
(i) you will not receive it until a later time; or
(ii) the money is payable by instalments.
The intent of the 1997 Act is that one does not escape the reach and operation of the Act by directing vested entitlements to others. The applicants note that historically that philosophy has found its expression in an income tax context where an amount is derived by receipt or constructive receipt by being dealt with as directed by the person entitled to receipt. For income to be derived, the taxpayer must beneficially own it, free of restriction. Ownership of the income, a receipt, a receivable or property entitlement is a threshold feature of derivation and assessability. That ownership can be recognised one of three ways. First, by actual receipt (or accrual of an entitlement to receipt) by a taxpayer, second, by constructive receipt of a vested entitlement of a taxpayer, or third, by force of statute, namely, s 19 of the 1936 Act and s 6-5(4) of the 1997 Act. The applicants point to the fact that the income tax constructive receipt principles have been replicated in the CGT context both at its inception by s 160D of the 1936 Act and in the current CGT Rules by s 103-10 of the 1997 Act. The same principles and concepts apply.
Equally, there is no doubt that there was the requisite direction for the purposes of s 103-10. As already indicated, the evidence in substance is that Mr Ellison emailed Ms Ellison at 10.27 am on 28 September with an email saying ‘can you please send me the full details of where you want the [MIN Shares] transferred to’. The following day, at 10.39 am there was a reply to that email from the same email address (which I find to be the address of Ms Ellison, the 29 September Email). There was no dispute that an email from that address (the 29 September Email) was received by Mr Ellison in response. Mr Ellison swore to receiving it. The 29 September Email states:
Can you please transfer the [MIN Shares] I don’t have the SRN as Wavefront has never brought shares only property, the name of the company is Wavefront Asset Pty Ltd ATF Felstead family trust, the ABN is 61 535 574 469.
Entirely consistent with this exchange, the response from Ms Ellison was forwarded to Mr Goulds, the MIN company secretary, who then completed a standard transfer form naming Wavefront as the transferee and gave it to Mr Ellison. Mr Ellison gave him the transfer back duly signed by each of Mr Ellison and Ms Ellison. Ms Ellison signed on behalf of Wavefront, together with the words ‘as the sole director I am authorised by the company to complete this form’. There is absolutely no doubt that the transfer was to the trustee as a result of direction or instruction from Ms Ellison.
The Commissioner also says that putting aside the direction question, the transfer to the trust is not for the benefit of the spouse transferee. I unable to see why this would be so, particularly in this case where the transferee is a sole controller of the discretionary trust of which she is a beneficiary. ‘Benefit’ is intended legislatively to capture a broad concept, not some limited legal concept. In my opinion, under the s 103-10 point, there are no words of limitation. If it is necessary for Ms Ellison to have had the asset, she has had the benefit of the Family Court Order. Ms Ellison has had the beneficial ownership in the MIN Shares. Secondly, the effect of the deeming or benefits section is that it was unnecessary for her to have been a transferee personally. Her deemed receipt of the shares by reason of s 103-10, either by deriving the benefit or making the direction, satisfies the requirement. Any further transfer of beneficial ownership to another entity (which she happened to totally control) was a matter for her. If s 103-10 is intended to be limited to receipts, as the respondents contend, in the present context Ms Ellison is deemed to have received something. This is so, albeit that the actual transfer was to the FFT at her direction.
The effect of Ms Ellison’s involvement
The second alternative argument, which was not addressed orally for Mr Ellison was whether the transfer to Wavefront as trustee was a transfer in which Ms Ellison as a former spouse was involved for the purpose of s 126-15. As to the second alternative argument that, in terms of s 126-15, Ms Ellison is still involved in the trigger event, the Commissioner argues that the spouse or former spouse must be involved in the trigger event as transferee. It can only apply where a natural person’s spouse or former spouse is the transferee. According to the Commissioner, that does not mean simply participating in, but actually being involved as a transferee. Reading s 126-15 in the context of, and combination with, s 126-5, it is clear that the transferee is to be the acquirer and the only nominated transferee in terms of s 126-15 is the spouse or former spouse. Further, the Commissioner says that the construction that the natural person only is involved is consistent with the previous s 160ZZMA. For the reasons discussed at [185]-[186], by directing the disposition of the MIN Shares, I consider that she was sufficiently involved for the purposes of s 126-15.
A final point
The respondents also make the point that the other natural corollary of the applicants’ argument is that it would have the effect of providing that the so-called directing spouse, in this case Ms Ellison, would have a cost base in respect of an asset that she does not ‘own’. That is because s 126-15 says that where there is a roll-over event, then the consequences are as in s 126-5. In s 126-5, one of the consequences is to provide for the cost base in the hands of the transferee. That makes sense where the transferee is the spouse or former spouse who receives the CGT asset, but it ‘makes no sense’, the Commissioner argues, where the person who, in this case is Ms Ellison, is said to have, in the terms of s 103-10, property applied to her benefit or as she directs. In that case, she does not have the assets. The Commissioner says it does not make sense to suggest that there should be a cost base in respect of her for an asset she does not ‘hold’. As a policy consequence, I am not certain that this is necessarily correct. The objective of the provisions discussed is to defer CGT liability in special circumstances of what is, in effect, a non-voluntary transfer. If the analysis of the text and context of the statute is correct, this objective is still achieved. The only factor which distinguishes this case from every other roll-over case under these provisions is that the transfer was made pursuant to a Family Court order at the direction of the receiving spouse to a family trust controlled by the spouse. If there is difficulty in making sense of the purpose of the provisions in this instance, (which is not readily apparent to me), then it is a general difficulty. There is nothing particular about this case beyond the distinction to which I have just mentioned. More importantly, if inequities or unexpected adverse outcomes are experienced as a result of application of the provisions, they may be something to take into account in the determination of the terms of Family Court orders dealing with property adjustments. The fact that a transfer is to a family trust rather than a particular spouse does not appear to create the unexpected outcome to which the respondents point.
CONCLUSION
In my view, the Family Court Order did cause a CGT event A1 to happen. All that is required pursuant to s 104-10 of the 1997 Act is a change of beneficial ownership of CGT assets and a Family Court order. This is consistent with the decisions in Jones and Mateo. The result of the Family Court Order was that Ms Ellison became the equitable owner of the MIN Shares specified in the Family Court Order.
As to the question of whether changes in equitable ownership alone are sufficient for a CGT event A1 to occur, by way of summary, I prefer the applicants’ argument on the following basis.
First, one can be an owner of property which is a CGT asset with equitable title only. This is evident, for example, in Kent v Vessel "Maria Luisa" (No 2) per Tamberlin and Hely JJ (at [61] and [66]) cited above.
Secondly, a consequence of the position advanced for the respondents (that it is necessary for legal as well as beneficial ownership to pass for a CGT event A1 to happen) would be that whenever there is a disposition of equitable ownership without legal ownership (that is, not by way of a declaration or settlement, which is a CGT event E1), there are no taxable gains arising and, as a consequence, no CGT would ever be assessable.
Thirdly, the statutory context of s 104-10 of the 1997 Act and its incorporation of s 106-50, dictates a construction focussed on beneficial ownership: see the discussion in Taras (at [10]) cited above.
Fourthly, the content of Note 1 under s 104-10(3), or the example given, should not be treated as being decisive in this regard: see the observations concerning this in Brooks (at [65]-[66]). Notes and examples may be incorrect. In relation to the predecessor of CGT event A1, s 160M(1) and (2) of the 1936 Act, in the discussion in Brooks, the Court said that anything which involved a change in the beneficial ownership of an asset was treated as being a disposal and as giving rise to an acquisition. Further, it is irrelevant, the Court said, how that change in ownership is brought about by virtue of s 160M(2) of the 1936 Act, whether it be by way of a transaction and instrument or by operation of law or the doing of some act or thing or the occurrence of an event: see the discussion in Brooks (at [13]) cited above. (Brooks is binding on me.)
Fifthly, Ms Ellison’s further argument that in any event the Family Court Order, because of its error, did not confer full beneficial ownership, in my view, should not be accepted. Albeit that there was an error in one aspect of the Family Court Order, it is clear that:
(a)the Orders were absolute and unqualified in their terms. All that was required to execute the document to transfer registration was stipulated: see the discussion in Mateo (at 234, 248 and 254);
(b)the defects in the Orders do not change their effect: see the discussion in BHP Petroleum (at 172). It would be a challenging argument for Mr Ellison to seek to advance that he was not required to comply with the terms of the Family Court Order because of the technical defect that both parties had made in consenting to the Order. There is no doubt as to what the substance of the Family Court Order required and there is no doubt that (but for the transfer to Wavefront, which is another issue), the Family Court Order was performed;
(c)the timing of the transfer of the registration document is irrelevant; and
(d)finally, there was sufficient certainty of subject matter for beneficial ownership to pass within the parameters discussed in cases such as White (at [230]-[234]), where the decision of Herdegen v Commissioner of Taxation (Cth) (1988) 84 ALR 271 is discussed and explained.
If this analysis is not correct, then there is, in my view, substance in the alternative cases advanced by the applicants. There is nothing in the words of s 103-10 of the 1997 Act which limit its operation to deeming receipt of capital proceeds. Constructive receipt arises under that provision where the money or property is applied for the benefit of the taxpayer. A transfer of shares to a trust controlled by a person with dispositive power over those shares is clearly an application of property for that person’s benefit: see the discussion in Vasudevan per Nettle JA, Beach JA and McMillan AJA (at [23] and [26]) where their Honours said (footnotes omitted):
23 Secondly, the natural and ordinary meaning of a requirement that something be for “for the benefit of” a person is that it be “for the advantage, profit or good” of the person. So, in this context, just as moneys paid by A to B to discharge C's indebtedness to B would ordinarily be conceived of as paid to B for the benefit of C, so too the incurrence by A of obligations to B in order pro tanto to relieve C of his obligations to B would naturally and ordinarily be conceived of as being for the benefit of C.
…
26 With respect, however, I disagree. As I see it, the close associate provisions are designed to catch a benefit flowing to a close associate whether or not the benefit has the effect of legally or financially advantaging the director in question. In contrast, the natural and ordinary meaning of “for the benefit of” in s 588FDA is calculated to catch a benefit which legally or financially advantages the director in question regardless of whether it is paid or directed to a close associate of the director. Since the two regimes are aimed at different albeit potentially intersecting sets of possibilities, it would run counter to the evident intention of the legislation to read down either to the point of mutual exclusion.
(emphasis added)
Because the transfer of the shares to the FFT was for Ms Ellison’s benefit, in my view, the provision is satisfied. I am also satisfied that there is no doubt that Ms Ellison gave the requisite direction for the purpose of s 103-10 of the 1997 Act. As previously noted, there is no doubt that this transfer would not have occurred had she not done so. Ms Ellison directing the disposition was sufficient involvement in whatever CGT event A1 happened. The words of the section did not require her to be the transferee and the use of that term in s 126-15 of the 1997 Act is to identify a person, not to prescribe a necessary capacity of that person.
For all these reasons, I consider that the applicants are entitled to the declaration in the alternative form posited by the Commissioner which I accept is the preferable form. I will make no order on costs as requested by the Commissioner. Unless the parties wish to be heard, (in which case I will do so), costs will be dealt with on the papers.
The Court declares that:
(1)For the income year 30 June 2011, the first applicant is entitled to the roll-over consequences in s 126-5 of the Income Tax Assessment Act 1997 (Cth), due to the operation of s 126-15(1)(a) of the Income Tax Assessment Act 1997 (Cth) in relation to its disposal of the 2,115,000 Shares in Mineral Resources Limited as processed in 4 October 2010.
The Court orders that:
(2)The parties are to file submissions on costs to be dealt with on the papers, unless any party wishes to be heard on costs.
I certify that the preceding one hundred and ninety-nine (199) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate:
Dated: 22 March 2017
SCHEDULE OF PARTIES
WAD 754 of 2015 Applicants
Fourth Applicant:
ELLISON (WA) PTY LTD (ACN 135 966 773)
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