The Commissioner of Taxation of the Commonwealth of Australia v Cajkusic & Ors

[2007] HCATrans 157

[2007] HCATrans 157

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M167 of 2006

B e t w e e n -

THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

MILIV0J CAJKUSIC, BRANKA CAJKUSIC AND DANIEL CAJKUSIC

Respondents

Application for special leave to appeal

KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 24 APRIL 2007, AT 10.59 AM

Copyright in the High Court of Australia

MR N.J. YOUNG, QC:   May it please the Court, I appear with my learned friends, MR J.W. DE WIJN, QC and MS D.M. HARDING, for the Commissioner.  (instructed by Australian Government Solicitor)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friends, MR I.J. HARDINGHAM, QC and MR F.D. O’LOUGHLIN, for the respondents.  (instructed by Hall & Wilcox Lawyers)

KIRBY J:   Such a large line‑up, Mr Jackson.  It must be an important case.

MR JACKSON:   I knew your Honour would say that, if I may say so, with respect, but the numbers sometimes outweigh the matters.

KIRBY J:   We will see.

MR YOUNG:   If the Court pleases, the Full Court’s decision turned on two legal propositions, each of which was expressed in unqualified language.  The first concerns the meaning of the expression “income of a trust estate” and the second concerns the effect of a provision such as clause 8(u) of the trust deed.  Can I ask the Court to go to page 27 of the application book.

KIRBY J:   Yes.

MR YOUNG:   In paragraphs 33 and 34 their Honours addressed the phrase “income of a trust estate”.  In this instance we are found in section 101.  Until the Full Court’s decision there was no case determining that that phrase meant “distributable net income” which is what their Honours say in paragraph 34. 

KIRBY J:   I thought things like that had been said in earlier cases, including in this Court, I thought, by Justice Fullagar.

MR YOUNG:   Things like that have been said of the combined expression found in section 97, that is “income of the trust estate” when linked with the words “present entitlement”.  This phrase itself has never been given that meaning.  In our submission, while it is true that that phrase has the same meaning throughout Division 6, for instance in section 96, 97 and 101, it does not mean distributable net income.  So much we would say is apparent simply by considering that phrase in the context of section 101.  We would make these submissions about the meaning of the phrase in section 101. 

Section 101 is concerned with discretionary payments or applications of income made during the course of a year “to or for the benefit of . . . a beneficiary”.  In the context of section 101 the phrase refers to the gross income from which the payment emanates.  It refers, in other words, to what constitutes income on ordinary conceptions.  It is not concerned with distributable net income.  Section 101 is a deeming provision.  The Court will see that its effect, where there is a payment or application, is to deem the beneficiary “to be presently entitled”.  The notion of distributable net income, as I indicated, derives from the cases on present entitlement.

HAYNE J:   The taxpayer says against you that your argument simply does not grapple with this notion of present entitlement.  I have in mind page 88, paragraph 24.

MR YOUNG:   Yes, I will come to that directly, your Honour, but the first point we make is the phrase is used in section 101 which has no notion of present entitlement.  It deems a present entitlement to exist.  The idea that there must be a legal right to demand and receive payment has no place in the context of section 101 as some kind of loss or qualification on the meaning of the expression “income of the trust estate”.

The policy underpinning section 101 is that if a beneficiary receives a payment or the benefit of a payment made by a trustee, the beneficiary is to be assessed on it.  That is the harmonious policy that underpins the provisions of Division 6.

KIRBY J:   What is the point you make – I think it is in paragraph 42 – that originally the claim was made that this was a business expense but that that claim was withdrawn.  How is that relevant to this argument?

MR YOUNG:   It is relevant here, your Honour, because the findings of the Tribunal adopted in the Full Court was that this was not the business expense and was a voluntary payment that reached the applicants.  As such, it cannot be ‑ ‑ ‑

HAYNE J:   But can I come back a stage.  Is the only question at issue, who is assessable, the trustee or the beneficiary?  The trustee happens to be insolvent.  Is, ultimately, that the only question?

MR YOUNG:   No, that is not the only question because the effect of the interpretation given to these provisions by the Full Court is not simply to shift the burden of tax between a beneficiary and the trustee, it may result effectively in there being an avoidance of tax.

HAYNE J:   May or does, Mr Young?

MR YOUNG:   In this case?

HAYNE J:   Yes.

MR YOUNG:   In this case it does because the trustee, when assessed, is bereft of funds but that is not the only ‑ ‑ ‑

HAYNE J:   No, assume contrary to the fact, is there any question of avoidance of tax that intrudes its way into this case?

MR YOUNG:   It does not intrude on the facts of this case, your Honour, but the effect of the interpretation given to these provisions is that it would intrude in other cases.  Let me give you an example.  If the trust deed were to be amended so as to provide that the income of the trust estate is limited to $5,000 and that shall be distributed to the Salvation Army and the balance is capital, the distribution to the Salvation Army would thereby be the whole of the distributable net income.

HAYNE J:   The Act may or may not speak in such a case and let us look at it when it arises, Mr Young.  Why should we look at it in this case where there is no question of avoidance that intrudes?

MR YOUNG:   I am trying to explain the effect of the interpretation, your Honour.  If in that case the Salvation Army received the $5,000, they would be assessed for the $5,000 plus the balance of the net section 95 income as determined under the Act.  Let us say it is one million and fifty and $5,000, the Salvation Army would be tax exempt.  The large assessment would not worry them.

The balance of the income of the trust estate would not be assessable either under section 101 or section 97 or section 99A on the meaning that the Full Court has given to the expression “income of a trust estate”.  So it is not simply an interpretation that leads to a shifting of the burden of tax between beneficiaries and the trust deed, it can have more far reaching consequences.

KIRBY J:   In any case, it is the phrase that is used by the Federal Parliament and it has to be given meaning and you contest the meaning that is given and that is, in your submission, a point of general significance but that is all.

MR YOUNG:   Yes, it is, your Honour, because this is the first case in which a court has said the words “income of a trust estate” wherever used in Division 6 as the meaning of “distributable net income”.  There is no qualification about that in this judgment.

KIRBY J:   I think you have tendered an offer of paying the respondent’s costs in this Court if the matter is given special leave?

MR YOUNG:   Yes, we did.

KIRBY J:   It is not like Mr Jackson to be so ungrateful to the Commissioner.

MR YOUNG:   Yes.  Your Honours, the other point about this interpretation of section 101 is that if “income of a trust estate” in section 101 does not mean ordinary income, it means “distributable net income”, it would effectively emasculate section 101.  Can I turn to the other point.  The other point concerns the way in which the Full Court said that the provision of the trust deed operated.  The conclusion is at paragraph 30.  There the Full Court said that the financial accounts properly disclosed a distributable net income, as indicated there, and they went on to say that the amount that the Tribunal found was a non‑business expense of a voluntary nature that was “properly applied against the income of the Trust”.  The only foundation for the conclusion of a proper disclosure and a proper application is found in paragraph 20 of the reasons.  In short, that the trustee:

consistently with the power vested in it by cl 8(u) of the deed, treated the outgoings in question as being on revenue account.

The Full Court said that was conclusive, that treatment.  It came after the end of the year but it was conclusive because of the presence of clause 8(u).  That is made clear by linking paragraphs 20, 27 and 30.  In paragraph 27 the Full Court said that the case was “concerned with a proper determination of the net distributable income” and “the terms of the trust instrument will prevail”.  There was no evidence of any exercise of the power vested in clause 8(u).  It was simply a case of the Full Court saying the ultimate accounts are consistent with 8(u) having been invoked by the trustee, therefore, the trustee’s treatment of this outgoing was to be regarded as conclusive of what constitutes distributable net income.

KIRBY J:   That is your attack.  You say this is a self‑fulfilling prophecy and really a bootstraps argument.  But as against that Mr Jackson says that you have not really propounded a case so that this is in breach of any accounting principles or ordinary accounting principles or that this is a case that would attract the criminal provisions of the Act.

MR YOUNG:   The first part of that is not correct, your Honour.  We say it is inconsistent with the findings of fact that this was a voluntary non‑business payment.  To say that such a payment can, in the words of the Full Court, properly be applied against income of the trust to arrive at distributable net income.  All of the cases refer to proper accounting treatment and proper recognition of outgoings and incomes.

KIRBY J:   Where did Mr Olney say that?

MR YOUNG:   I was referring to the authorities to which the Full Court referred at paragraphs 24, 25 and 26.

KIRBY J:   You said the Tribunal had decided.

MR YOUNG:   The finding of fact is at page 6 of the application book, line 45.

KIRBY J:   I see.

The contributions served no business purpose; they were clearly voluntary payments which in no way affected the capacity of Intex to derive income.

MR YOUNG:   Given that finding of fact, how could the Full Court find that this was a proper treatment of these outgoings as a business expense? The only basis advanced by the Full Court was the presence of clause 8(u).  That means, in effect, that if you have a trust deed that contains something like clause 8(u) or a trust deed, as amended, to contain something like clause 8(u), the trustees determination of what constitutes income and what constitutes capital is going to be regarded as conclusive for the purposes of the operation of section 97.

KIRBY J:   But Mr Jackson says there are criminal penalties in the Act to meet any improper or fraudulent claim.

MR YOUNG:   But this would not be improper or fraudulent on the basis of the Full Court’s reasoning because, in their words, it is consistent with clause 8(u) of the trust deed.

HAYNE J:   All that is still taking us away from section 97 and the concept present entitlement.

MR YOUNG:   No, with respect, it is not, your Honour.  Section 97 uses the expression “income of the trust estate” and the effect of the Full Court’s reasoning is that income of a trust estate to which a beneficiary is presently entitled can be conclusively determined by a trustee – not by the Act but by the trustee – provided there is a provision like clause 8(u) in the trust deed.  That is a novel proposition.  It is not consistent with the authorities.  Can I quickly go to ANZ in the High Court.

HAYNE J:   Before you do that, where in the notice of appeal do I find these two points best articulated?  There are many grounds advanced in the draft notice.

MR YOUNG:   Yes.  At page 35 the notice of appeal commenced.  The point I have just been making is made in paragraph 3 and paragraph 5. 

KIRBY J:   Yes.

MR YOUNG:   Can I go to ANZ to make good the proposition that this ‑ ‑ ‑

KIRBY J:   Did the Full Court purport to actually reverse Mr Olney’s statement that the payment served no business purpose?

MR YOUNG:   No, your Honour.  The Full Court adopted it.

KIRBY J:   Looking at this matter naively, one would think determination of the application of the statute is simply a question of fact in each case.  This is an ordinary English word.  Does this fall within the English language of the statute?

MR YOUNG:   That is what we would have thought was the correct approach.  We would say income of the trust estate means income on ordinary conceptions.

KIRBY J:   And you had a finding of fact in your favour in the Tribunal.

MR YOUNG:   Yes.

KIRBY J:   QED one would have thought.

MR YOUNG:   Yes, your Honour, but it was overridden by the meaning given to the words “income of the trust estate” and by the role or the consequences attached to clause 8(u) of the trust deed.

KIRBY J:   Effectively that was to read words into the Act which were limiting and which were not in the statute.

MR YOUNG:   Yes.

HAYNE J:   You said section 97 was engaged, did you not?

MR YOUNG:   No, your Honour.

HAYNE J:   No?

MR YOUNG:   I said that the notion of being able to demand payment derives from the words “present entitlement” which are not found in section 101.

HAYNE J:   Which section supports the assessment that the Commissioner makes?

MR YOUNG:   Both.

HAYNE J:   Section 97?  Is section 97 engaged?

MR YOUNG:   Your Honour, can I put it this way; if there is a distribution in favour of the applicants, section 101 is engaged.  If it is found there is no distribution in favour of the applicants within the meaning of section 101, then this income is to be calculated without regard to this voluntary payment, therefore the income of the trust estate is greater than considered by the Full Court and section 97 is engaged and that part of the income is assessable to the beneficiaries.

HAYNE J:   That is, it is income to which the beneficiary is presently entitled.

MR YOUNG:   Yes, because it is not being distributed.

HAYNE J:   Where does the present entitlement come, save under the trust deed?

MR YOUNG:   Under clause 3(a)(v) because if not distributed to beneficiaries pursuant to section 101 there was no distribution of the properly calculated income of the trust and the default position under 3(a)(v) at page 58 of the application book is that each of the beneficiaries is presently entitled.

KIRBY J:   You were going to take us to ANZ.

MR YOUNG:   I was.  Page 337 under tab 21 in the judgment of the Chief Justice.

KIRBY J:   Yes.  Which paragraph?

MR YOUNG:   At paragraph 15 his Honour said that:

the whole of the annuity amounts received by the trustee constituted income of the trust.

The trust instrument did not alter that by treating part of that amount as capital, in effect.  What is said against us and what was said by the Full Court at paragraph 29 was that those remarks of the Chief Justice were directed to the calculation of the section 95 net income.  That cannot be

right.  Section 95 defines “net income” for the purposes of the Act in terms of “assessable income”.

The assessable income does not include any portion that is exempt income.  Part of the whole of the annuity amount was exempt income.  What his Honour was referring to was what constituted income on ordinary conceptions.  That is why he referred to the reasons earlier given at paragraph 5 and again at 9.  His Honour discussed the ordinary conception of income and said that an annuity was entirely income at common law.  The whole of the annuity amount is not income as defined in section 95, part is exempt.  The fact that the trust deed treated the part that was exempt as capital was not regarded as conclusive.  His Honour said it could not be conclusive.  Exactly the contrary conclusion is reached by the Full Court in this case. 

In our submission, both these points are points of general principle.  They concern important provisions of the Act.  The court’s conclusions are expressed as unqualified legal propositions.  In our submission, there is a serious argument that each proposition is wrongly stated and unless this Court considers this matter the Full Court decision will stand as authority for both propositions and that will have far‑reaching consequences for the administration of Division 6 of the Act.

KIRBY J:   Yes, thank you, Mr Young.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, may I say first that I will deal, if I may, with the question relating to the income of the trust estate and then to the section 101 question in that order.  May I say just this about them before dealing with the first of those things and that is that our learned friend’s argument and indeed the materials that are before the Court really demonstrate that in addition to the correctness or at least the result arrived at by the Full Court the position is one that the case is not a suitable vehicle for the resolution of either of those questions and I will come to elaborate on that, if I may, in a moment.

Your Honours, may I just say first of all that in order to make the respondents, rather than the trustee – and this is dealing with the first point – liable for the amounts, two things had to appear.  The first is that in calculating the “net income of the trust estate” that is the term defined by section 95, two things had to appear.  The first of them, and your Honours, this is where there is, if I may say so with respect, a source of confusion in our learned friend’s argument, the first is that in calculation that – I am sorry, I should start again. 

To make the respondents liable two things had to appear.  The first was that they were not allowable deductions in terms of section 95.  In that step the Commissioner was successful in the AAT.  So they were not allowable deductions as being business deductions.  That does not really resolve the question of whether they were or were not income or capital for the purposes of the trust as between trustee and beneficiaries.

There was a also a second step in order to make the respondents liable, that was that it had to be demonstrated that they were presently entitled to a share of the income of the trust estate.  There are two features, your Honours, about present entitlement to which we would wish to refer.  One is that the terms of section 97, in dealing with present entitlement, refer to present entitlement to a share not of the net income of the trust estate, the defined term, but refer, rather, to a present entitlement to a share of the “income of the trust estate”, a non‑defined term.

To deal with the latter matter, the interest in the present entitlement to a share of the income of the trust estate, requires one to look at the terms of the trust.  Could we give your Honours the references that are referred to in our written submissions at page 87 of the application book in paragraph 19.  I do not think I need to take your Honours to the cases in any detail but it is clear that the distinction has been drawn between the two concepts “income of the trust estate” and “net income of the trust estate”.

Your Honours will see that we submit, and correctly, in our submission, that as Justice Sundberg said in Zeta Force v Commissioner of Taxation the “income of the trust estate” when used in the provisions refers, he uses the expression:

“to distributable income, that is to say income ascertained by the trustee according to appropriate accounting principles and the trust instrument”

The second aspect, your Honours, is that it really concerns the content of present entitlement and what it involves is a present right to demand payment of income.  We have given your Honours a reference to Harmer and to the other cases referred to in paragraph 20.  Your Honours, necessarily, that derives from the terms of the trust but this case was one of a discretionary trust and there could be no present entitlement, leaving aside section 101, absent one of two things.  One was that there be an exercise of discretion and the other was in default of the exercise of a discretion.

KIRBY J:   Did you challenge in the Full Court the determination by Mr Olney that there was no business reason for the trustee’s decision?

MR JACKSON:   Your Honour, I think we challenged the question of whether it was a deduction in terms of the calculation of net income of the trust estate.  Whether it was a business deduction, we challenge that, for it was something we lost.

KIRBY J:   What could be the explanation of overturning that determination by Mr Olney?

MR JACKSON:   I am sorry, your Honour, what was ‑ ‑ ‑

KIRBY J:   What was the reason that the Full Court effectively overturned that?

MR JACKSON:   But they did not.  They did not, your Honour.  What he decided was that simply it was not a deduction which was an allowable deduction.  We accept that for present purposes.

KIRBY J:   But does not that then run into Mr Young’s complaint that this then becomes a self‑fulfilling prophecy, the trustee decides and that is it.

MR JACKSON:   Not at all, your Honour.  What it means is simply this; that this was a case where there was no income because as you will see in Mr Olney’s reasons for his decision accept that the moneys had actually been paid out by the trustee.  I will give your Honour a reference to that in a moment, if I may.  What that means is that the ‑ ‑ ‑

KIRBY J:   The result of the payment, though, was that they ended up with the beneficiaries.

MR JACKSON:   Your Honour, if I may say so, that is not 100 per cent clear at all.  That is one of the reasons why we submit this is not an appropriate vehicle but may I come to that in just a moment.  What I am going to say about it your Honours is this; that none of the finding of Mr Olney affects the quantum of the net income of the trust estate – I am sorry, his finding affects the net income of the trust estate because he says there is no allowable deduction.  The liability to tax in respect of it is something that exists.  It exists whether it is payable by us or payable by the trustee.  The finding that it was not an allowable deduction affects the quantum of it but all that the absence of there being income of the trust estate means so far as beneficiaries and trustee is concerned ‑ ‑ ‑

KIRBY J:   You may be right but it is an odd result, it seems to me.

MR JACKSON:   Not really, your Honour.  If one looks at the structure of the statute which the Court accepted in Prestige Motors, for example, if one looks at the structure of the provisions which have the result that the trustee is liable to pay and the beneficiaries are not, and it happens that three years after these events the trustee company ended up in liquidation.  Your Honours, what I was going to say was that if you look at what was actually said by Mr Olney – it is summarised by the Full Court at page 19 in paragraph 10 – you will see in paragraph 10 that it is said:

Despite the state of the evidence, the respondent did not put in issue before the Tribunal that the alleged contributions –

the respondent being the Commissioner –

to the employee benefit trust had never been incurred by Intex nor that the applicants had not discharged their onus in this regard.  The Tribunal therefore proceeded to determine the applications before it on the basis set out in [9] of its reasons –

If I could invite your Honours to look at the first six lines of paragraph [9] there quoted and what is accepted as being appropriate to treat the amounts claimed as deductions as having been paid pursuant to the plan described in the evidence.  Now, what that means is that whilst those amounts might not be allowable deductions, as found, for the purpose of calculating net income of the trust state at the same time, it had the effect that there was no income of the trust because the moneys, it was accepted, had actually been paid out.

Now, that being so, there was no present entitlement to income of the trust which had the result – in the beneficiaries – which had the result that the trustee is the one liable to pay.  That is the way the Act works, your Honour.  It is not unstrange result; it is the result that the Act dictates and if trustees engage in conduct where for particular casts of mind or by reason of particular casts of mind they end up without the money to pay, then there are fairly condign sanctions provided for by the various statutory provisions which are contained in the book that we have given your Honours, but, that is simply the way the Act works.

Could I say in relation to section 101 that we would seek to say essentially two things about it.  The first is that no reliance at all was placed by the Commissioner on section 101 before the AAT.  You will see that referred to in the Full Court’s reasons at page 26, paragraph 32, and you will see, your Honours, at about line 40, “This particular submission was not run below”.  That makes the case a really very unsuitable vehicle, in our submission, for the agitation of the issue sought to be raised now.  It is unsuitable because the evidence adduced and the findings made were directed to different issues. 

Whilst one accepts that we bore the burden before the AAT, we were entitled to know the basis of the amended assessments or the provisions being relied on to support the amended assessments.  The unsuitability, your Honours, is demonstrated by ‑ ‑ ‑

KIRBY J:   Just before you come to unsuitability, do you accept that the statement in paragraph 34 of the Full Court’s reasons that “reference to ‘income of a trust estate’ in this section is a reference to the distributable net income” is not a principle that has previously been endorsed by this Court?

MR JACKSON:   Your Honour, what I would accept about it is that there is no case which has endeavoured to treat income of the trust estate in section 101 as having a meaning different from the concept used in the other provisions of section 97.  The point that is new is our learned friend’s point.

KIRBY J:   But is that not an important principle for the administration of the Act?

MR JACKSON:   Your Honour, it could be, in some circumstances, but this is not an appropriate case, that is the first thing I want to say about it, both in terms of the way in which the matters arise and, secondly, in relation to the substance of it.  I am dealing with the former of those at the moment and may I just say something more about it.  Your Honours, what I was going to say was that the unsuitability is demonstrated by the way in which the findings made in the decision are stated.

Could I take your Honours to page 4 and to paragraph 6.  I’m speaking of the reasons of the Tribunal.  Perhaps I should start with paragraph 9 which is on page 6.  That is the paragraph I have referred to earlier.  Your Honours will see that the Member says at about line 24:

it is appropriate . . . to treat the amounts . . . as having been paid pursuant to the plan described in Daniel Cajkusic’s evidence.

That plan is referred to in paragraph 6.  What seems to have been the case is that amounts were paid by the trustee to the trustees of various employee benefit funds and then at about line 36, “It is said further that Intex incurred administrative costs” and then at about line 40:

Under the arrangement the trustees of the employee benefit trusts provided the applicants with interest‑free loans to purchase units in the employee benefit trusts following which the trustees invested the funds in various entities which were related parties so that the funds were effectively provided back to Intex.

Now, your Honours will see also that in paragraph 8 around line 40 and following he speaks of the somewhat unsatisfactory nature of the evidence but then proceeds to make the finding in the first sentence of paragraph 9.  The result of it, your Honours, is that there has simply been no examination

of the issue in the light of section 101 and that is, of course, because the Commissioner did not rely on it and that, your Honours, really makes it a quite unsuitable vehicle, we would submit. 

The second thing is that the material does not sufficiently demonstrate that section 101 might have applied.  At best, all you have is what is in the three paragraphs to which I have referred in the AATs decision.  Your Honours, it was not a case where there was a sham suggested.  The exact nature of the payments, to whom exactly they were made does not appear to have been explored.  There is talk of there being payments made to a trust and then payments made back and payments in the end.  As you will see at the end of paragraph 6:

the trustees invested the funds in various entities which were related parties so that the funds were effectively provided back to Intex.

There is no allegation of sham.  But in the end the applicant’s argument seems to involve the proposition that any payment made by a trading trustee who is trustee of a discretionary trust to or in some way not very well defined for the benefit of a person who is both an employee and a possible beneficiary necessarily attracts section 101.  But, your Honours, that seems a very large proposition.  It may be the right proposition to be tested by the Court one day but hardly one to be decided by the Court, in our submission, in circumstances where it was not raised at first instance and where the facts have not been found sufficiently in relation to it.

Your Honours, may I deal with one other matter that appeared from our learned friend’s submissions.  The Court is being invited, really, in this regard – and it turns on paragraph 20 of the Full Court’s reasons at page 23 – the Court is really being invited to say whether on the facts the Full Court was right in taking the view that the accounts of the trustee sufficiently evidenced an exercise of discretion.  Your Honours will see that what the Full Court said in paragraph 20 was, “As evidenced by the financial accounts” these consequences followed.

Now, it is not, in our submission, an appropriate case for the Court to have to entertain the question whether there was sufficient evidence to demonstrate there had been an exercise of discretion.  Our learned friend’s argument really invites the Court to enter upon a trivial matter which, in our submission, is again one that appears really for the first time.

KIRBY J:   A trivial matter, Mr Young?

MR YOUNG:   No, your Honours.  The last point ‑ ‑ ‑

CRENNAN J:   Mr Young, do you agree that there was no reliance on section 101 before the AAT?

MR YOUNG:   There was no reliance on section 101 at the Tribunal.  It was invoked for the first time in the Full Court but then the Full Court went on and made findings as to the meaning and operation of section 101 which have far‑reaching consequences.

HAYNE J:   Their Honours said that section 101 was not pressed during the hearing of the appeal, did they not, at page 36, lines 40 and 41, which would mean section 101 arises in this Court for the first time, is that right?

MR YOUNG:   No.  Section 101 did arise in the Full Court, your Honour.

HAYNE J:   What did their Honours mean by “it was not understandably pressed during the hearing of the appeal”?

MR YOUNG:   It is far from clear to me, your Honour, because it was relied upon.  There was debate in the transcript of the Full Court as to whether it could or should be relied upon but, notwithstanding that, the Full Court went on and dealt with it and made findings in terms of section 101.

KIRBY J:   It is a point of law, is it not?

MR YOUNG:   It is a point of law, your Honour.

KIRBY J:   And the matter is going back under the orders of the Full Court to the Administrative Appeals Tribunal.

MR YOUNG:   Yes.

KIRBY J:   That was what they required.

MR YOUNG:   Yes.

KIRBY J:   Is there any procedural ‑ ‑ ‑

HAYNE J:   I am sorry, section 101 a point of law?  There are points of law about section 101 but is there not a factual base for its engagement?

MR YOUNG:   We would say that the only factual issues raised by the taxpayer, your Honour, concerned whether there was or was not an exercise of discretion to distribute income to or for the benefit of the beneficiaries.

HAYNE J:   But the taxpayer says at the AAT, “I was not faced with reliance on 101 as a ground for assessment”.  Is not this a question of fact about whether the discretion was or was not exercised?

MR YOUNG:   No, your Honour.  The Full Court’s decision turned on a proposition of law.  There was no net distributable income, therefore, no matter what the facts, section 101 could not apply.

KIRBY J:   That was the original way the applicant presented their case, was that not?

MR YOUNG:   Yes.

KIRBY J:   And then before the Administrative Appeals Tribunal that case collapsed.

MR YOUNG:   Yes.  Can I just go to the factual matters that Mr Jackson relied upon.  They are summarised in paragraph 26 at page 89 of the application book in the taxpayer’s submissions.  That passage demonstrates that the factual matters they rely upon really cannot stand consistently with Mr Olney’s findings.  I refer to lines 23 to 25.  That is directly contradicting the facts as adopted by the Full Court, namely, the proposition that:

The payment was in the nature of a payment made by the trustee to meet an outgoing of the business.

That is how they seek, on the facts, to defeat section 101.  The second significance of section 101 is when it is compared with section 97 it demonstrates that income of the trust estate cannot have the meaning ascribed to it in either provision.  Those are our submissions.

KIRBY J:   Yes.  The Court will adjourn for a short time to consider the course it will take in this matter.

AT 11.39 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.48 AM:

KIRBY J:   In this application I would grant special leave.  However, a majority of the Court is of the view that special leave should be refused and the reason for, and pronouncement of, orders will be given by Justice Hayne.

HAYNE J:   The applicant, the Commissioner of Taxation, seeks special leave to appeal from orders of the Full Court of the Federal Court of Australia.  That court, Justices Kiefel, Sundberg and Edmonds, unanimously upheld an appeal from the Administrative Appeals Tribunal constituted by the Honourable Howard Olney, a Deputy President.  The Deputy President had found that the Commissioner’s objection decisions in respect of the taxpayer’s amended assessment should be set aside and remitted for fresh decisions in accordance with the Tribunal’s decision.  In the Full Court that order was set aside and different decisions effectively required of the Commissioner favourable to the taxpayer.

The point or points in issue concern the meaning of certain expressions in Part VI of the Income Tax Assessment Act 1936 (Cth). In the Tribunal the Commissioner did not rely on section 101, but in this Court would seek to agitate certain questions connected with that section. The Commissioner contended that the point raised is of general importance for the administration of the Act on the ground that the Full Court’s approach effectively allows the trustee rather than the law to determine the “income of the trust estate”. The Commissioner offers to pay the costs of the taxpayer, treating the case as a test case.

The actual decision of the Full Court of the Federal Court is, in our opinion, not attended by sufficient doubt to warrant a grant of special leave.  The applicant criticises some particular aspects of the Full Court’s expression of its reasons.  The particular manner of expression of those reasons presents no point of principle calling for consideration by this Court.  We would add in deference to one point that emerged in the course of argument that there was no evidence in this case of any conspiracy on the part of the trustee or others to defeat the Commissioner and that there are criminal sanctions were that to be shown. 

In this case special leave to appeal should be refused.  It must be refused with costs.

KIRBY J:   Such is the order of the Court. 

AT 11.50 AM THE MATTER WAS CONCLUDED