The Trustee for the Whitby Trust and Commissioner of Taxation (Taxation)
[2019] AATA 5637
•23 December 2019
The Trustee for the Whitby Trust and Commissioner of Taxation (Taxation) [2019] AATA 5637 (23 December 2019)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers: 2016/6108, 2016/6109, 2016/6110, 2016/6124, 2016/6125, 2016/6126 & 2016/6127
Re:The Trustee for the Whitby Trust, Christina Caratti, Natalie Carter, Alisha Caratti & Nicole Caratti
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:F D O’Loughlin QC, Deputy President
Date:23 December 2019
Place:Melbourne
The Tribunal affirms the decisions under review.
......................[sgd]..................................................
F D O’Loughlin QC, Deputy President
Catchwords
TAXATION – distribution of trust assets – disclaimer of legal interests in trusts - whether disclaimer was effective – entitlement to income through a trust – whether the Tribunal is able to amend the grounds of objection – decisions affirmed.
Legislation
Income Tax Assessment Act 1936 (Cth)
Stamp Act 1921 (WA)Taxation Administration Act 1953 (Cth)
Cases
Baker v Archer-Shee [1927] AC 844
Bateman v Davis (1818) 3 Madd 98
Byrnes v Kendle (2011) 243 CLR 253
Cajkusic v Commissioner of Taxation (2006) 155 FCR 430
Cocker v Quayle (1830) 1 Russ & M 535
Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307
Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466.
Commissioner of Taxation (Cth)v Ramsden [2005] FCAFC 39
Cridland v Federal Commissioner of Taxation (1977) 140 CLR 330
DTMP v Federal Commissioner of Taxation [2016] AATA 684
Federal Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180
Gair v Federal Commissioner of Taxation (1944) 71 CLR 388
Greenham v Gibbeson (1833) 10 Bing 363
H. R. Lancey Shipping Co. Pty Ltd v Commissioner of Taxation (Cth) (1951) 9 ATD 267
Imperial Bottleshops Pty Ltd & Egerton v Federal Commissioner of Taxation (1991) 91 ATC 4546
Lewski v Commissioner of Taxation (2017) 254 FCR 14
Mansell v Mansell (1757) Wilm 36
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
MSP Nominees Pty Ltd v Commissioner of Stamps (1999) 198 CLR 494
Nemesis Australia Pty Ltd v Commissioner of Taxation (2005) 150 FCR 152
Orlanski v Spiegel [2015] VSC 662
Perkins v Permanent Trustee Co Ltd (1923) 23 SR (NSW) 358
Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516
Re Gulbenkian’s Settlements [1970] AC 508
Re Hay’s Settlement Trusts [1981] 3 All ER 786
Re Leek (deceased) [1967] 2 All ER 1160
Shi v Migration Agents Registration Authority (2008) 235 CLR 286
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165Wiles v Gresham (1854) 2 Drew 258
Secondary Materials
Bryan G. Garner, A Dictionary of Modern Legal Usage, (1995, 2nd ed, New York, Oxford University Press)
Geraint Thomas, Thomas on Powers (2012, 2nd ed, Oxford University Press)
I J Hardingham and R, Baxt, Discretionary Trusts (1984, 2nd ed, Butterworths)
Lynton Tucker et al (eds), Lewin on Trusts (2015, 19th ed, Sweet & Maxwell)
Neville Crago, Principles of Disclaimer of Gifts (1999) 28 UWALR 65
Snell’s Equity (2010, 32nd ed, Thomas Reuters (Legal) Limited)Underhill and Hayton, Law Relating to Trustees (2006, 17th ed, London, LexisNexis Butterworths)
REASONS FOR DECISION
F D O’Loughlin QC, Deputy President
23 December 2019
The present applications concern disputed assessments to various parties made pursuant to various provisions of Division 6 of Part III of the 1936 Assessment Act[1] consequent upon the Commissioner’s calculation of the Net Income[2] of Whitby[3] as trustee of the Whitby Trust[4] for the 2011 through 2014 Years.[5]
[1]The Income Tax Assessment Act 1936 (Cth).
[2]The net income determined in accordance with s 95 of the 1936 Assessment Act.
[3]Whitby Land Company Pty Ltd (ACN 115 233 193).
[4]The discretionary trust established by the deed dated 27 July 2005 entitled The Whitby Trust, Discretionary Trust Deed executed by Jeremy Robert Birman and Whitby.
[5]A Year being a financial year commencing on 1 July and ending the following 30 June.
While the quantum of the Net Income in each of those Years is not disputed, the question as to who should be assessed in respect of it is.
Following an audit of the activities of the Whitby Trust in relation to the acquisition of the Land,[6] and its subsequent development and disposition in smaller parcels, assessments which have been disputed were made to:
[6]The property situated at, and then known as, Lot 22 (293) Nicholson Road, Forrestdale and before subdivision described in certificate of title Volume 1353 Folio 245.
(a)the Trustee,[7] pursuant to ss 98 and 99A of the 1936 Assessment Act, for the 2011 through 2013 Years because of a combination of:
[7]The trustee of the Whitby Trust in that capacity. Whitby was the Trustee of the Whitby Trust until August 2017.
(i)what the Commissioner says was an ineffective vesting of annual income by exercise of a discretionary power to do so with a consequent automatic vesting of the annual income in the five default beneficiaries (Christina,[8] Alisha,[9] Nicole,[10] Natalie[11] and Ben[12]);
[8]Ms Christina Marcia Caratti.
[9]Ms Alisha Beth Caratti.
[10]Ms Nicole Madeline Caratti.
[11]Ms Natalie Carter.
[12]Mr Benjamin Caratti.
(ii)execution of deeds by the five default beneficiaries purporting to disclaim their annual entitlements;
(iii)the Commissioner accepting that the deeds purporting to disclaim annual entitlements executed by four of the default beneficiaries (namely Christina, Alisha, Nicole, and Natalie) were effective to disclaim relevant entitlements which, if correct, meant there was income to which no beneficiary was presently entitled; and
(iv)the Commissioner not accepting that the fifth default beneficiary (Ben) had disclaimed his entitlement because he was a minor at the time;
(b)to each of Christina, Alisha, Nicole, and Natalie, for the 2014 Year pursuant to s 97 of the 1936 Assessment Act, again because of a combination of:
(i)what the Commissioner says was an ineffective vesting of annual income by exercise of a discretionary power to do so with a consequent automatic vesting of the annual income in default beneficiaries;
(ii)Christina, Alisha, Nicole, and Natalie purporting to disclaim their annual entitlements; and
(iii)the Commissioner not accepting that the annual entitlements had been disclaimed.
FACTS
The Caratti family members
The relevant individuals in the present applications are Mr Caratti,[13] his daughters (who are applicants herein) Christina, Alisha, Nicole, and Natalie, and his son Ben.
[13]Mr Allen Bruce Caratti.
Whitby
Whitby was incorporated on 11 July 2005 and its directors were:
(a)Mr Caratti, appointed 11 July 2005 and in office through to beyond the end of the 2014 Year;
(b)Liang Li, appointed 14 March 2011 and in office through to beyond the end of the 2014 Year;
(c)Christina, appointed 1 February 2011 and in office until 29 November 2012 and re appointed 1 January 2013 and in office through to beyond the end of the 2014 Year.
Whitby’s constitution has a number of provisions which are relevant to the present proceedings as follows:
(a)sub-rule 38(3) which provides for effective resolutions of the members of the Company if all members sign a statement that they are in favour of a resolution in terms set out in the document signed. Such resolutions are deemed to have been passed at a general meeting of the Company;
(b)sub-rule 38(4) which limits sub-rule 38(3) to documents signed by each person who was a member of the Company at the time when the document was last signed;
(c)sub-rule 39(2) which provides that a quorum of members must be present when the meeting conducts its business;
(d)sub-rule 39(4) which provides that a quorum shall be two members entitled to vote or one member where the Company has only one member entitled to vote;
(e)sub-rule 43(1) which provides for voting at meetings to be by show of hands, unless a poll is demanded;
(f)rule 66 which provides that, at a meeting of Directors, the quorum required is the number of directors determined by the Directors and, unless so determined, is two directors; and
(g)sub-rule 5(2) which provides that the provisions of the Constitution relating to general meetings apply, so far as they are capable of application, and mutatis mutandis to every separate meeting of classes of shareholders except that a quorum is constituted by two persons who, together, hold or represent one-third of the issued shares of that class.
ASIC records the members of Whitby at 30 June 2011, 2012, 2013 and 2014 were as follows:
Name of Member Class of Share Number of Shares Held Allen Bruce Caratti Ordinary 2 Liang Li Ordinary 1 Liang Li Red 1,000,000
Liang Li has a residential address in The Peoples Republic of China.
The Whitby Trust
On execution of the Trust Deed,[14] the Whitby Trust was created with Whitby as the Trustee. Whitby remained as the Trustee until August 2017.
[14]The deed dated 27 July 2005 creating the Whitby Trust.
Throughout the 2011 through 2014 Years:
(a)the Primary Beneficiaries of the Whitby Trust were Christina, Alisha, Nicole, Natalie, and Ben;
(b)the General Beneficiaries were, inter alia:
(iv)the Primary Beneficiaries;
(v)Mr Caratti;
(vi)Mr Caratti’s current and former spouses; and
(vii)any Eligible Entity (as defined, which included the trustees of trusts in which an interest is held by a General Beneficiary and a company in which a share is beneficially owned by a General Beneficiary) where the first payment, application or setting aside in favour of that entity had been consented to by the Guardian under clause 16 of the Trust Deed.
The Trust Deed named Mr Caratti and Alisha as joint Guardians.
The Trust Deed:
(a)conferred permissive discretionary powers to distribute its annual income on or before 30 June in any year among the General Beneficiaries or to accumulate it in the following terms;[15]
[15]Clause 3.1.
3.1At any time before the expiration of any Accounting Period, the Trustee may, with respect to all or any part of the net income of the Trust Fund for that Accounting Period, determine:
(1)to pay, apply or set aside all or any part of the income to or for the benefit of any one or more of the Beneficiaries living or existing at the time of the determination; or
(2)to accumulate all or any part of the income.
(b)allowed distributions of annual income to be made in various ways[16] including by a resolution of the Trustee;[17]
(c)provided that … a certificate by the Trustee as to any determination shall be prima facie evidence that the determination was made as and when set out in the certificate;[18]
(d)provided for default distributions[19] of annual income that had neither been distributed nor accumulated by the Trustee before the close of a Year in favour of the Primary Beneficiaries Christina, Alisha, Nicole, and Natalie, and Ben as tenants in common in equal shares;
(e)allowed the Trustee’s determinations in exercising powers conferred by the deed to be to be made in writing signed by all or a majority of trustees,[20] by resolution duly passed at a trustee meeting;[21] by resolution of the company or directors of a corporate trustee;[22]
(f)permitted Trustees, Guardians and Appointors to resign by giving notice which operated prospectively;[23]
(g)prohibited exercise of reserved powers without the consent of the Guardian. The prohibition was expressed in mandatory terms … shall not exercise the Reserved Powers except with the consent of the Guardian …;[24] and
(h)provided that reserved powers included exercise of clause 3 powers (which included distributing annual income) in favour of Eligible Entities.[25]
[16]Clause 3.4(1) to (5).
[17]Clause 3.4(4).
[18]Clause 3.4.
[19]The combined effect of Clauses 3.7, and 4.1 to 4.5.
[20]Clause 6.1(1).
[21]Clause 6.1(2).
[22]Clause 6.1(3) and 6.3.
[23]Clause 15.
[24]Clause 16(4).
[25]Clause 16.8(3).
MNWA
MNWA[26] was a company of which Mr Caratti was a director.
[26]MNWA Pty Ltd (previously names Mammoth Nominees Pty Ltd) ACN 101 717 177).
Acquisition and holding of the Land
On 7 December 2005, in its capacity as Trustee of the Trust, Whitby entered an option agreement to purchase the Land for a purchase price of $28,000,000 and a non-refundable option fee of $2,000,000 was payable.
On 15 November 2007 Whitby (describing itself as a Trustee) made the MNWA Deed[27] indicating that it would acquire the Land for MNWA and hold the Land for MNWA.
[27]The Deed dated 15 November executed by Whitby expressed to be in favour of MNWA as beneficiary in relation to the Land.
On 15 January the Land was transferred to Whitby.
Mr Caratti’s evidence was that Whitby:
(a)carried on business as a property developer and its main asset was the Land;
(b)borrowed from MNWA to purchase the Land and MNWA borrowed from banks;
(c)used the proceeds of sale of the subdivided Land to repay MNWA; and
(d)had acted at all times on the basis that the Land and the income therefrom is part of the Whitby Trust and that MNWA had never claimed any entitlement to the Land or any income from its realisation other than as a creditor in respect of the loans it had made.
MNWA’s financial records as at June 2010 reveal that it had a loan owed to it by Whitby and the balance owing was $29,604,186.50. These records do not reveal any land or real estate assets that could be the Land.
Whitby’s financial records reveal the Land as an asset of the Trust.
Entitlements to the income of the Whitby Trust for the 2011 through 2014 Years
Evidence led of trustee distributions was:
(a)for the 2011 Year, a document bearing the date 30 June 2011 was signed by Mr Caratti purporting to be a minute of a meeting resolving to distribute all of the income of the Whitby Trust for the Year to Dawnlink;[28]
(b)for the 2012 Year, a document bearing the date 30 June 2012 was signed by Mr Caratti purporting to be a minute of a meeting resolving to distribute all of the income of the Whitby Trust for the Year to Dawnlink;
(c)for the 2013 Year, a document bearing the date 30 June 2013 was signed by Mr Caratti purporting to be a minute of a meeting resolving to distribute all of the income of the Whitby Trust for the Year to IME Developments[29] and Success Asset;[30]
(d)for the 2014 Year, a document bearing the date 30 June 2014 was signed by Mr Caratti purporting to be a minute of a meeting resolving to distribute all of the income of the Whitby Trust for the Year to Bernguard;[31] and
(e)for all years, certificates executed on 31 October 2016 by Whitby, as Trustee, purporting to be pursuant to clause 3.4 of the Trust Deed certifying the distributions referred to in (a) to (d) above.
[28]Dawnlink Pty Ltd.
[29]I.M.E Developments Pty Ltd.
[30]Success Asset Pty Ltd as trustee for the Success Trust.
[31]Bernguard Developments Pty Ltd as trustee for the Bernguard Trust.
None of the documents purporting to be minutes of meetings resolving to distribute the Whitby Trust income for the 2011 through 2013 Years reveal who was in attendance at the meetings, or whether there was anyone other than Mr Caratti involved in their execution.
There was no evidence of any consent of the all of the individuals named as Guardians pursuant to the Trust Deed for any of the 2011 through 2014 Year distributions to the named beneficiaries.
Audit and assessments
The Commissioner conducted an audit of the affairs of the Trust. The audit began with an examination of the dealings in the Land and led to assessments to Whitby in its own right. Upon objection the assessments were withdrawn and the audit continued as an audit of the affairs of the Trust. During the course of the audit activities, the Commissioner sought information from Whitby and its officers pursuant to ss 264[32] and 353-10.[33] The information sought included accounting and financial records, related party agreements, trust resolutions and minutes of meetings. Whitby did not comply with the notices before assessments were issued.
[32]S 264 of the 1936 Assessment Act.
[33]S 353-10 of Schedule 1 to the Taxation Administration Act 1953.
From sources available to him the Commissioner was able to estimate the costs incurred in developing the Land, the sales proceeds and was able to estimate that the land development and sales had been profitable.
Based on his estimate of taxable income the Commissioner assessed Whitby in its own right. On objection, those assessments were withdrawn and the audit continued on the basis that Whitby was a trustee.
In the absence of any assertion of distributions of income, and in the face of two potential trusts, (the Whitby Trust and the trust referred to in the MNWA Deed), the Commissioner analysed the Trust Deed and determined that the default beneficiaries were entitled, in equal shares, to the income of the Whitby Trust as his primary, or preferred view of the law. The Commissioner’s issued assessments for the 2011 through 2013 Years to Christina, Alisha, Nicole, and Natalie under s 97 of the 1936 Assessment Act, to Whitby under s 98 on account of Ben’s share to the default entitlement. The Commissioner also issued alternative assessments to MNWA under s 97 of the 1936 Assessment Act for 100% of the taxable income he had calculated, on the footing that the relevant trust was that constituted by the MNWA Deed, and a further alternative assessment to Whitby pursuant to s 99A of the 1936 Assessment Act on the footing that the relevant income was income of the Whitby Trust that no-one was entitled to.
The assessments for the 2011 through 2013 Years to Christina, Alisha, Nicole, and Natalie under s 97 of the 1936 Assessment Act were withdrawn upon the Commissioner accepting the deeds of disclaimer executed by them. The assessment to Whitby under s 98 was not withdrawn as the Commissioner did not accept Ben’s disclaimer on account of his legal incapacity at the time he executed it. A subsequent letter confirming Ben’s intent to disclaim in accordance with the original disclaimer document was not accepted by the Commissioner because it was inadequate in its scope.
Thus the remaining disputed assessments for the 2011 through 2013 Years are the s 99A assessments to Whitby as trustee of the Whitby Trust in respect of 80% of what the Commissioner estimated to be the Net Income of the Whitby Trust and the s 98 assessment to Whitby on account of Ben’s 20% default distribution share of that net income. MNWA has commenced a separate dispute concerning the assessment to it.
The Audit continued and the Commissioner through the same processes estimated what he thought the Trust’s net income was for the 2014 Year and in the absence of any distribution assessed 20% of it to each of Christina, Alisha, Nicole, and Natalie under s 97 of the 1936 Assessment Act. Again, and in equivalent terms to the documents executed in respect of the 2011 through 2013 Years, each of Christina, Alisha, Nicole, and Natalie disclaimed any entitlement to the 2014 default of distribution income entitlement. For the 2014 Year, the Commissioner did not accept that the disclaimers were effective and these assessments remain disputed.
Through the objection processes, Whitby asserted that distributions of the Trust’s income for the 2011 through 2014 Years had been made. Minutes of meetings purporting to have been held which record distribution resolutions were provided to the Commissioner.
The Commissioner made enquiries of the controllers of the beneficiaries named in the distribution resolutions and those enquiries did not reveal anyone who knew about the distributions that were alleged to have been made.
Disclaimers
As noted above, during the course of the audit and subsequent objection processes there have been a number of disclaimers or attempts to disclaim. There have been four relevant events:
(a)the First Disclaimers;[34]
(b)the Second Disclaimers;[35]
(c)Ben’s disclaimer confirmation;[36] and
(d)the Third Disclaimers.[37]
[34]The documents entitled Deeds of Disclaimer executed by Christina, Alisha, Nicole, Natalie, and Ben in or about June 2014 which referred to the 2011 through 2013 Year’s entitlements from the Trust.
[35]The documents entitled Deeds of Disclaimer executed by Christina, Alisha, Nicole, and Natalie in or about November 2015 which referred to the 2014 Year’s entitlements from the Trust.
[36]The document signed on 2 October 2015 by Ben confirming his intentions in relation to the First Disclaimer that he had executed.
[37]The documents entitled Deeds of Disclaimer executed by Christina, Alisha, Nicole, Natalie and Ben in September and October 2016 in respect of all entitlements from the Trust.
The disclaimers were all executed on advice. On the evidence given, as noted below, it can be accepted they were executed by people who were not aware of the finer aspects of what they were doing. The understanding of the Primary Beneficiaries can be assumed to be limited.
The terms of the disclaimer documents were similar.
(a)The First Disclaimers recited:
AThe Whitby Trust (“Trust”) was established by trust deed dated 27 July 2005 between …..
BThe Commissioner of Taxation has assessed me to income tax liabilities for each of the years ending 30 June 2011 to 30 June 2013, because I was entitled to income of the Trust in this year.
COn or about 28 October 2015 I was told of this assessment. I was unaware before this time that I was, or might be, entitled to the benefits and burdens of the income for each of the years ending 30 June 2011 to 30 June 2013 as asserted by the Commissioner.
DI do not desire to receive any of the benefits and burdens of the income for tor each of the years ending 30 June 2011 to 30 June 2013.
EI have not accepted any income of the Trust for the year ending 30 June 2014.
FI desire to disclaim all right title and interest under the Trust I might otherwise have to all income for each of the years ending 30 June 2011 to 30 June 2013
and their operative paragraphs were:
1I hereby disclaim absolutely and irrevocably any and all of my right title and interest to or in the income, or any part of the income, of the Trust tor each of the years ending 30 June 2011 to 30 June 2013.
2Without limiting the generality of the disclaimer in paragraph 1, I disclaim any entitlement to any income which might otherwise have accrued under clause 3.7 of the Trust Deed.
3My disclaimer is intended to take effect on and from 30 June 2010.
(b)The Second Disclaimers recited:
AThe Whitby Trust (“Trust”) was established by trust deed dated 27 July 2005 between ...
BThe Commissioner of Taxation has assessed me to income tax liabilities for the year ending 30 June 2014, because I was entitled to income of the Trust in this year.
COn or about 28 October 2015 I was told of this assessment. I was unaware before this time that I was, or might be, entitled to the benefits and burdens of the income for the year ending 30 June 2014 as asserted by the Commissioner.
DI do not desire to receive any of the benefits and burdens of the income for the year ending 30 June 2014.
EI have not accepted any income of the Trust for the year ending 30 June 2014.
FI desire to disclaim all right title and interest under the Trust I might otherwise have to all income for the year ending 30 June 2014
and their operative paragraphs were:
1I hereby disclaim absolutely and irrevocably any and all of my right title and interest to or in the income, or any part of the income, of the Trust tor the year ending 30 June 2014.
2Without limiting the generality of the disclaimer in paragraph 1, I disclaim any entitlement to any income which might otherwise have accrued under clause 3.7 of the Trust Deed.
3My disclaimer is intended to take effect on and from 30 June 2013.
(c)Ben’s confirmation came after it was apparent that his earlier disclaimer had not been accepted because of his age. It is expressed in no wider terms than the earlier document he signed. After recording that he had disclaimed any income entitlements from th4 Trust for the 2011 through 2013 Years he confirmed the earlier deed in the following terms:
I confirm that the Deed of Disclaimer did, and continues to, reflect my intentions. I confirm that I do not desire to receive, and have not accepted, any income of the Whitby Trust for the years ended 30 June 2011, 30 June 2012 and 30 June 2013.
(d)In 2016, after the objection decisions had been received in respect of the 2014 Year assessments, Christina, Alisha, Nicole, and Natalie and Ben executed the Third Disclaimers. These documents were in much wider terms embracing all right title and interest under the Whitby Trust and any income including for earlier years and any and all right title and interest conferred by clause 3.7 of the Trust Deed.
EVIDENCE LED
Mr Caratti
Mr Caratti’s statement was the substantive evidence led in all matters.
In summary he gave evidence of:
(a)creation of the Trust;
(b)Whitby’s activities;
(c)Whitby’s purchase of the Land;
(d)funding Whitby’s purchase of the Land;
(e)purported distributions of the Trust’s annual income;
(f)the steps that the Commissioner has taken concerning the income of the Whitby Trust including alternative assessments that had been issued in respect of the same income; and
(g)the disclaimers that Whitby had received concerning entitlements to annual income of the Trust.
The Commissioner sought to discredit Mr Caratti by reference to other occasions when he had either been found to have acted or admitted he had acted dishonestly and pressed the Tribunal not to accept Mr Caratti’s evidence.
Noting that just because a person may have been less than honest on past occasions does not mean that they are always less than honest, in the present matter it is not necessary to make a finding as to whether Mr Caratti is to be believed or not. This matter can be resolved without recourse to those sorts of conclusions on the basis of the evidence led and the absence of evidence led that is called for in the circumstances of the present applications.
Alisha
Alisha’s statement was brief. She gave evidence of knowing little, if anything, concerning the Whitby Trust, her father’s business affairs, getting legal advice and disclaiming entitlements from the Trust.
Alisha gave evidence of executing three disclaimer documents, one on 4 June 2014, another on 4 November 2015 and another on 30 September 2016. She said that:
(a)she signed the First Disclaimer because [she] hadn’t received any income from the Trust;
(b)she signed the second document because she wanted to stop all of the actions being taken by the Respondent against [her]. [She] thought [she] was making it clear that [she] had not, would not and did not want to get any proceeds from the Trust;
(c)when she signed the First and Second Disclaimers she had no intention to benefit from the Trust at all [and that she] intended to disclaim absolutely all rights before the commencement of the income year commencing 1 July 2010; and
(d)she signed the Third Disclaimer to confirm the she wouldn’t receive any proceeds from the Whitby Trust ever.
Alisha’s cross examination only confirmed what little she knew of Whitby’s and the Trust’s affairs or how disclaimers operated. The following passages are illustrative::
And was it explained to you that you were entitled to receive income from the trust?---I signed a disclaimer to say that I’m not entitled to receive any income from the trust.
Right?---Nor do I want to.
…
So you say you signed the disclaimer. Is it the case that you spoke to your father about the assessments?---Yeah, and a lawyer.
How did you find the lawyer?---In what manner? What do you mean?
Well, did your dad refer you to a lawyer?---Yes.
Christina
Christina’s statement was similarly brief. She gave evidence of some beliefs concerning the Whitby Trust and its creation but little more than that, and of getting legal advice and disclaiming entitlements from the Trust.
Christina also gave evidence of executing three disclaimer documents, one on 4 June 2014, another on 30 October 2015 and another on 12 October 2016. She said that:
(a)she signed the First Disclaimer because she wanted to disclaim any interests in income under the Trust, given that [she] had not received, nor was [she] paid, any funds from the Trust. By signing the Disclaimer, [she] was declaring that [she] had no financial rights to income from the trust;
(b)she signed the Second Disclaimer to acknowledge that [she] had not received and funds from the Trust and because she wanted to make it clear that [she] had no financial rights under the Trust;
(c)when she signed the First and Second Disclaimers she had no intention to benefit from the Trust at all [and that she] intended to disclaim absolutely all rights before the commencement of the income year commencing 1 July 2010; and
(d)she signed the Third Disclaimer to acknowledge that [she] had never received a financial gain from the Trust and that [she] had signed over all [her] rights to income as beneficiary of the trust. [Her] intention was to make clear that [she] did not have any rights to income from the trust before the commencement of the income year commencing 1 July 2010.
Christina’s cross examination also only confirmed what little she knew of Whitby’s and the Trust’s affairs or how disclaimers operated. The following passages are illustrative:
Was it explained to you that under the trust deed you had a continuing entitlement in respect of property of the trust?---No, I don’t recall that being explained to me. I remember them explaining the present situation for the tax assessment at that time.
..
MR WILLIAMS: When you received this advice, from whom did you receive this advice?---Daniel Romano.
Did he have a copy of the trust deed when you met with him to receive the advice?---No, not that I - not that I know of.
What was the substance of what he told you?---He just explained the position that I was in. I was unaware that I was entitled to any income so he had to explain the whole process, as I was in complete shock when I got this tax assessment, so he needed to go through everything and explain it to me.
MR WILLIAMS: Was it explained to you by Mr Romano that under the trust deed you were entitled to the distributable income of the trust?---Yes.
Did you appreciate that in the years in question that was of the order of four and a half million dollars?---Yes.
Was it explained to you that you had this entitlement because as a residual beneficiary you had an interest in the property of the trust?---Yes.
…
And in re-examination:
The two descriptions of beneficiary that you were asked about were residual beneficiary and principal beneficiary. Can you recall?---I still don’t even know what that means, residual, like what - can you explain it to me quickly?
..
And to the Tribunal questions:
I’m interested to know, you were asked questions about whether you were advised whether you were entitled to the distributable income?---Yeah I wanted - I waived all my rights in 2014 and I believed that was out of the way forever and I was done. I don’t want any - any income from there, I don’t want any burdens, I just don’t want anything to do with it. So I - with my lawyers in 2014 I signed a disclaimer form to get rid of all my rights and I believed it got accepted in 2014 by the ATO and then the next year I got the same tax assessment letter and I thought it was all finished and I was really shocked that I was going through the same process again as I thought it was - I had already - - -
So did Mr Romano differentiate or explain the difference between distributable income and taxable income?---No, I don’t know the difference.
Natalie
Natalie’s statement was also similarly brief. She gave evidence of beliefs concerning the Trust, its creation, of never having seen or read the Trust Deed, and of getting legal advice and disclaiming entitlements from the Trust.
Natalie also gave evidence of executing three disclaimer documents, one on 5 June 2014, another on 3 November 2015 and another on 30 September 2016. She said that:
(a)in the First Disclaimer she believed she was signing away any rights to income prior to then, and from then on, from the Trust. [And she] wanted to disclaim any interests in income under the trust, given that [she] had not received, nor was [she] paid any funds from the Trust;
(b)she signed the Second Disclaimer because she wanted to make it clear that [she] disclaimed any interests in income under the Trust, given that [she] had not received, nor was [she] paid, any funds from the Trust. [She understood that she] was signing the Further Disclaimer with the same meaning as the Disclaimer that [she] had signed previously in that [she] was relinquishing [her] rights to any disbursements from the Trust;
(c)when she signed the First and Second Disclaimers she had no intention to benefit from the Trust at all. [And that she] intended to disclaim absolutely all such rights before the commencement of the income year commencing 1 July 2010; and
(d)the Third Disclaimer was the same as the [earlier two disclaimers and was signed] to confirm that [she] had received nothing from the Trust and that [she] did not want to receive anything from the Trust.
Natalie’s cross examination again also only confirmed what little she knew of Whitby’s and the Trust’s affairs or how disclaimers operated. The following passage is illustrative:
So in substance, and I’m not being critical; in substance you spoke to your father, he referred you to a lawyer, you went along to the lawyer and signed the disclaimer you were given, is that correct?---Yes. Well, I was explained the disclaimer and I was disclaiming all my entitlements and so-called income from it, from that point forever, because I’ve never received any, didn’t want to.
Nicole
Nicole’s statement was also similarly brief.
Nicole also gave evidence of obtaining advice and executing three disclaimer documents, one on 5 June 2014, another on 3 November 2015 and another on 30 September 2016. She said that:
(a)the First Disclaimer was signed because [she] wanted to make it clear that [she] had no claim over any of the distributions from the Whitby Trust. The distributions she spoke of were those leading to the assessments for the 2011 through 2013 Years;
(b)by signing the Second Disclaimer her … intention was to confirm that [she] had no claim over any of the money from the Whitby Trust. [And that she] thought that [she] had done this already
(c)when she signed the First and Second Disclaimers she had no intention to benefit from the Trust at all. [And that she] thought [she] had clearly confirmed that [she] had no claim to the money from the Whitby Trust at all; and
(d)the Third Disclaimer was to confirm that through the [first two disclaimers she] had no claim to the money from the Whitby Trust at all.
Nicole’s cross examination again also only confirmed what little she knew of Whitby’s and the Trust’s affairs or how disclaimers operated. The following passages are illustrative:
Did you ask Mr Romano about your entitlements under the trust deed?---No.
And the disclaimer - how did that come to be prepared?---That was - I just needed to sign that to say that I relinquish all my rights to any money that was on the trust.
You say you just needed to sign that - that was - - -?---I wanted to sign that for myself so that I had no rights or entitlements to any of the trust funds.
Well, your concern was about the tax, was it not?---Of course.
Both Alisha and Christina in their statements, and each of Christina, Natalie and Alisha under cross examination admitted some imperfections or lack of specific recollections in respect of at least some of the events involving the present dispute. Each of Christina, Nicole, Natalie and Alisha had assistance in preparing their statements, Nicole, Natalie and Alisha from lawyers and Christina unsourced but probably from lawyers.
The Applicants’ lawyer
The lawyer who gave advice to Christina, Natalie, Alisha and Nicole was the lawyer who had acted for Mr Caratti, the entities he controlled, and the Trust. No evidence was led from him. And no explanation was given as to unavailability of the lawyer. Nor could there have been any such explanation because the relevant lawyer was the Applicants’ counsel’s instructing solicitor.
Summary of the Applicants’ contentions
In its Statement of Facts Issues and Contentions, Whitby asserted that the Land was an asset of the Trust, that the income on its sale was income of the Trust, that it borrowed from MNWA to purchase the Land, that MNWA did not have any equitable mortgage over the Land, that all of the income of the Whitby Trust had been distributed and it was not the correct taxpayer to which the net income of the Whitby Trust ought be assessed.
In their Statement of Facts Issues and Contentions, Christina, Natalie, Alisha and Nicole asserted the same propositions. They also asserted disclaimers of assessments for the 2011 through 2013 Years and for the 2014 Year.
The Applicants’ submissions tell a rather different story. The submissions begin with the proposition that it is not open to the Tribunal in Part IVC proceedings to question whether an apparently appropriate distribution to a beneficiary is voidable because a named beneficiary was not properly qualified under the Trust Deed. The Applicants call in aid the decision in Cridland.[38] The Applicant’s then assert that the distributions to the named beneficiaries are voidable at the suit of the Trustee or the beneficiaries and not the Commissioner. The resultant proposition is that the assessments made are all incorrect.
[38]Cridland v Federal Commissioner of Taxation (1977) 140 CLR 330
Accepting this proposition, that the assessments that have been made are all incorrect, the Applicants then submit that either MNWA ought be assessed or an assessment to the Trustee is correct.
The contention that the assessment to the MNWA is correct is based on the proposition that MNWA was the beneficial owner of the Land and there was no distributable income of the Trust. The contention that the Trustee is the correct taxpayer is based on the proposition that all of the income of the Whitby Trust was subject to a first ranking equitable charge over the Land until the debt to MNWA was repaid and its rights as a creditor prevailed over the rights of any beneficiaries.
If these propositions are not made good, the Applicants then submitted that for the 2014 Year the assessments to Christina, Natalie, Alisha and Nicole can only be sustained if:
(a)Bernguard was not entitled to the distributable income in accordance with the distribution resolution;
(b)MNWA was not the absolute owner;
(c)MNWA did not have a prior ranking charge on the Land and its income;
(d)Clause 3.7 of the Trust Deed is engaged; and
(e)the disclaimers are ineffective.
The Applicant’s contend that if there was income of the Whitby Trust for the 2014 Year that was available for distribution to beneficiaries, i.e. MNWA was not entitled to it as owner of the Land or by way of a prior ranking charge on the Land and its income, clause 3.7 of the Trust Deed was not engaged and Christina, Natalie, Alisha and Nicole cannot be assessed. In the alternative, the Applicants contend that the disclaimers were effective. And in the alternative, again, whether the disclaimers were effective or not, if the Commissioner maintains that they were effective then as a matter of good administration the Commissioner is bound to adopt the same position that he did in relation to the 2011 through 2013 Year disclaimers and recognise them. This last proposition is that the requirements of good government include that administrative decisions should be fair and consistent and the decision of Kirby J in Shi[39] approving the observation of Smithers J in Brian Lawlor Automotive[40] an early case on the role of the Tribunal:
... In essence the Tribunal is an instrument of government administration and designed to act where decisions have been made in the course of government administration but which are in the view of the Tribunal not acceptable when tested against the requirements of good government.
[39]Shi v Migration Agents Registration Authority (2008) 235 CLR 286 at [30].
[40]Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 24 ALR 307 at 335.
Reliance on Cridland for the proposition that the distributions to the named beneficiaries in the relevant minutes are to be recognised notwithstanding procedural irregularity is misplaced. Cridland concerned people who had been entered on a relevant register and it was that registration that brought those registered within the class of beneficiaries. The distributions were made to people who had satisfied the eligibility criterion and the dispute was whether mistaken registration made a relevant difference. The present circumstances do not involve beneficiaries who satisfied the criterion to be eligible to benefit from the Trust.
In his final submissions at the hearing, the Commissioner conceded that acceptance of the disclaimers for the 2011 through 2013 Years was a mistake. On that footing the Applicants’, at first pass, ambitious submission based on principles of good government and Shi fall away. That said, it would be an extraordinary outcome for the Tribunal to be bound to follow a decision made by the Commissioner in an earlier year if it was of the view that it was clearly wrong.
In a follow up submission Whitby supplemented its earlier submissions concerning defective appointments to the effect that the alleged takers in default Christina, Natalie, Alisha, Nicole and Ben were bound to respect the attempted distributions elsewhere and if that is not accepted, Ben had done enough to disclaim any entitlement and the fact that he was a minor does not prevent his disclaimer being effective.
In a further follow up submission the Applicants withdrew the concession that the purported distributions of annual income to the named beneficiaries who were eligible entities were voidable and until voided needed to be respected by the Tribunal. In its place, the Applicants contend that the distributions were effective because Alisha was not a Guardian because she never knew that she had been appointed to that role and never accepted that office.
Summary of the Commissioner’s contentions
The Commissioner’s contentions are more direct than the Applicants’. In summary they are as set out below.
For the 2011 through 2013 Years, the Commissioner contends that the issues are whether, the net income of the Whitby Trust was properly assessable to the applicant:
(a)as to 80% of that income, pursuant to s 99A(4) (on the basis that no beneficiary was presently entitled to the share of trust income to which that net income corresponds); and
(b)as to 20% of that income, pursuant to s 98 of the 1936 Assessment Act (on the basis that a beneficiary that was presently entitled to the share of trust income to which that net income corresponds, being Ben, was under a legal disability;
and that the answers are yes and yes, and if the Applicant Trustee contends that it had validly distributed the net distributable income of the Whitby Trust for each of the 2011 through 2013 Years then the Applicant needed to prove the facts supporting that contention.
For the 2014 Year, the Commissioner contends that the issue is whether, each of the Applicants (Christina, Alisha, Nicole and Natalie), had effectively disclaimed any entitlement to the income of the Whitby Trust in the 2014 income year and in each case the answer is no. More particularly, the Commissioner contends that:
(a)the Second Disclaimers are only expressed as operating to disclaim part of the gift under the Trust Deed and cannot be effective because they do not extend to the whole of the subject matter of the gift; and
(b)the 2016 disclaimers were not made within a reasonable time.
Originally, the Commissioner contended that whilst he had accepted the First Disclaimers as effective with the result that the applicants were treated as never having been not entitled to any of the income of the Whitby Trust for the 2011 through 2013 Years, that decision is not binding on him in making his decision in respect to the 2014 Year.
Alternatively, the Commissioner contended that even if the Second Disclaimers were effective in relation to the 2014 Year entitlements, the disclaimers did not affect the operation of s 97 of the 1936 Assessment Act for the 2014 Year because they did not alter or remove:
(a)the fact that on 30 June 2014 the applicants were presently entitled to the income of the Whitby Trust; and
(b)the consequent operation of s 97 that the relevant part of the net income of the Whitby Trust was included in each of the Applicant's assessable income.
In his submission at the conclusion of the hearing, the Commissioner accepted that his acceptance that the First Disclaimers were effective was a mistake, and that properly considered those disclaimers should have been regarded as ineffective.
In his submissions the Commissioner says in relation to the 2014 Year that the only issued raised by the Applicant is whether the Trustee distributed the net income of the Whitby Trust to another entity related to it being, in 2011 and 2012 years Dawnlink and in 2013 IME Developments and Success Asset.
The Commissioner notes that there is no evidence of any consent by the Guardian as required by the Trust Deed for distributions to these entities.
Further the Commissioner points to Whitby’s constituent documents and the documents signed by Mr Caratti purporting to distribute the income of the Whitby Trust for the 2011 through 2013 Years. The Commissioner says that those documents do not constitute either a resolution of Whitby as a company or of a meeting of the directors of Whitby and therefore do not constitute any form of resolution which could operate to appoint the income for the relevant years.
The Commissioner also points to enquires made of the beneficiaries who he says reported to him that they had no knowledge of the distributions.
For the 2014 Year the Commissioner submits that the issue is limited to whether the beneficiaries Christina, Alicia, Natalie and Nicole were presently entitled to a share of the net distributable income of the Trust. The Commissioner says they were entitled to their respective shares (20% each) of the distributable net income of the Whitby Trust because:
(a)MNWA was not so entitled for reasons that:
(i)the option to purchase the property was entered into by Whitby as Trustee for the Whitby Trust whereas the MNWA Trust Deed was entered into by Whitby in its own right;
(ii)the MNWA accounts record that it loaned money to Whitby;
(iii)Mr Caratti informed the Commissioner that the Land was purchased by Whitby as Trustee with funds supplied by way of a loan from MNWA;
(iv)the timing of the loan was consistent with the purchase of the Land;
(v)there is no evidence which contradicts Mr Caratti’s explanation;
(vi)the Trustee on its own evidence has acted inconsistently with the MNWA Trust Deed by making distributions to beneficiaries of the Whitby Trust and by seeking to transfer the assets of the Whitby Trust to a new Trustee (293 Nicholson Road[41]) without regard to any interests alleged to have been enjoyed by MNWA;
(vii)Mr Caratti was the sole director, secretary and shareholder of MNWA; and
(viii)the MNWA Trust Deed was not intended to take effect in accordance with its terms consistent with the principles in Raftland;[42] and
(b)Section 27 of the Stamp Act[43] makes the instrument inadmissible.
[41]293 Nicholson Road Pty Ltd.
[42]Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516.
[43]Stamp Act1921 (WA).
The distribution to Bernguard for the 2014 Year suffers the same problems as the purported distributions made for the 2011 through 2013 Years.
In relation to disclaimers the Commissioner says:
(a)for the 2014 Year he is not obliged to make the same decision he did in relation to disclaimers for the 2011 through 2013 Years;
(b)it is plain by its terms that the First Disclaimers do not purport to say anything or do anything in relation to the net income of the Whitby Trust for the 2014 Year such that there can be no suggestion that the First Disclaimers had any effect on entitlements to income for the 2014 Year;
(c)the Second Disclaimers were ineffective for the 2014 Year because the disclaimers were not an absolute rejection of the gift on the terms of the disclaimer;
(d)the principles of construction of a written document do not require regard to be had to the subjective intentions of the parties; and
(e)the Trust Deed has two types of gift the first being gifts made upon the exercise of a discretion by the Trustee and the second being gifts in default of exercise of discretion.
The entitlements which caused the assessable amounts to arise for the Applicants in the 2014 Year arose not by reference to exercise of any discretion but rather by reason of the gift in default of exercise of discretion for any accounting period and that gift arose as a consequence of execution of the Trust Deed in July 2005.
The default of distribution gift which arises as a consequence of clause 3.7 of the Trust Deed vests immediately once the end of the financial year arises and no valid determination has been made by exercise of the Trustees discretion to appoint the income elsewhere or to accumulate it.
The disclaimer executed in 2016 is sufficient in terms of its width to disclaim any entitlement arising in any year by reason of clause 3.7 of the Trust Deed. However, the Commissioner contends that this disclaimer was executed too late, namely beyond a reasonable period after the applicants became aware of their entitlements. The Commissioner says that the applicants Alicia, Natalie and Nicole did not know of the clause 3.7 gift until after receipt of the assessments for the 2011 through 2013 Years which was in April 2014. Soon after they engaged lawyers who had a copy of the Trust Deed and knew of its terms. At that point they are affixed with knowledge of the Trust and the gifts made pursuant to it.
Christina was a director of Whitby and therefore a director of the Trustee from February 2011. The period within which she was fixed with knowledge is longer and makes her position worse.
In the event that the disclaimers were effective, the Commissioner contends that s 97 operates as at 30 June in any year and as at that point in time, irrespective of whether there was a valid disclaimer, s 97 fixes, and an amount is included in assessable income calculated by reference to the relevant proportion of the beneficiary’s entitlements, as at that date, to distributable income of the Trust. The Commissioner contends nothing that was done after that time by way of disclaimer alters the fact that as at 30 June there was that present entitlement attracting the terms of s 97. The Commissioner says the law is not clear in this respect and the position has been left open by the decisions on appeal in Ramsden and Lewski.[44]
Can the Applicants’ contention that MNWA was presently entitled to the income of the Trust or the money representing that income, be accepted so as to dispose of the present matters?
[44]Lewski v. Commissioner of Taxation (2017) 254 FCR 14 at [143].
Before dealing with the substantive propositions it is necessary to deal with a procedural matter.
The Commissioner contends that there are inconsistent statements and actions commenced that make advancing the proposition that MNWA presently entitled to the income of the Whitby Trust an abuse of process. He says:
(a)Mr Caratti is or was at relevant times:
(i)the sole director of MNWA;
(ii)the sole director of Whitby, currently the former trustee of the Trust; and
(iii)the sole director of 293 Nicholson Road, which company became the trustee of the Whitby Trust on or about 22 August 2017;
(b)in the ss 98 and 99A assessment disputes involving the Trustee as the Applicant, among others, the Applicant asserts that the assets of the Whitby Trust were held absolutely for MNWA;
(c)in other AAT proceedings where MNWA is the relevant applicant MNWA asserts that:
(i)it was not entitled to the income from the Trust;
(ii)being unstamped the MNWA Deed could not be relied on; and
(iii)it has no entitlement other than as a creditor to the Land or the Trust’s income;
(d)in Supreme Court of Western Australia proceedings CIV 2262 of 2017, in which the Commissioner is the second defendant, 293 Nicholson Road seeks orders vesting all the Land into the name of 293 Nicholson Road, because it is the new trustee of the Trust;
(e)the vesting orders sought by 293 Nicholson Road must be founded on the premise that the land is held by Whitby as trustee for the Whitby Trust without which 293 Nicholson Road, as the current trustee of the Trust, would have no right to those orders;
(f)the three positions taken in three separate proceedings by entities with the same controlling mind and the same solicitors on the record, are plainly inconsistent:
(i)if the position taken by the Trustee in the present matters is correct, then neither the proposition put in the MNWA proceeding in the Tribunal, nor that by 293 Nicolson Road in the Supreme Court of WA can be correct;
(ii)if 293 Nicholson Road has a right to the vesting orders it seeks, the Land cannot be held on trust by Whitby for the benefit of MNWA; and
(iii)if MNWA is correct, then Whitby holds the Land as trustee of the Whitby Trust and 293 Nicholson can seek the relief it seeks in the Supreme Court of Western Australia;
(g)whichever one of these positions is correct, it is an abuse, liable to bring the administration of the law into disrepute, for the Trustee to assert in these proceedings that MNWA is the beneficial owner of the Land in the face of concurrent denials by MNWA;
(h)similarly, it is an abuse for the Trustee to assert in these proceedings that MNWA is the beneficial owner of the land, whilst the current trustee concurrently asserts in the Supreme Court of WA that it is entitled to have the land vested in its name as the registered proprietor; and
(i)if MNWA is the beneficial owner of the Land, it would be an asset available to the liquidators of MNWA and cannot be transferred to the trustee of the Trust.
While it is not clear what can be done with the proposition that some or all of the arguments are an abuse of process, the disposition of the question of MNWA’s standing and rights below makes dealing with the argument unnecessary.
The Commissioner also contends that the proposition that MNWA was the beneficial owner of the Land and therefore all income from its sale should be rejected because:
(a)the option to purchase the Land was entered into by Whitby in its capacity as trustee of the Trust, whereas the MNWA Deed was entered into by Whitby, and thus the subject matter of the declaration was property it did not own attracting the nemo dat quod non habet principle;
(b)MNWA’s accounts reveal that it loaned in excess of $29 million to Whitby and not an ownership interest in the Land;
(c)before any assessments were issued, Mr Caratti advised the Commissioner that the Land was purchased by Whitby as Trustee with funds borrowed from MNWA;
(d)Mr Caratti repeated this assertion in his affidavit;
(e)the timing of the loan from MNWA is consistent with the timing of the purchase of the Land;
(f)there is no contradictory evidence suggesting that Mr Caratti’s explanation in February 2013 was wrong;
(g)since the MNWA Deed, the Trustee has, on its own evidence, consistently acted inconsistently with that declaration;
(h)Mr Caratti, also failed, consistently, to act in accordance with the MNWA Deed, moreover he acted in a manner repugnant to it;
(i)the relationship between Whitby, the Land and MNWA is one of debtor and creditor and the MNWA Deed was not intended to take effect in accordance with its terms, in the sense referred to in Raftland;[45]
(j)being an unstamped document, under section 27 of the Stamp Act[46]
Except as otherwise provided by a stamp Act no instrument chargeable with duty and executed in Western Australia, or relating, wheresoever executed, to any property situate or deemed to be situate or to any matter or thing done or to be done in Western Australia, shall, except in criminal proceedings, be pleaded or given in evidence or admitted to be good, useful, or available in law or equity, unless it is stamped in accordance with the law in force at the time when it was first executed.
the MNWA Deed cannot be relied upon by the Trustee; and
(k)consequently, the MNWA Deed had no legal effect and should be disregarded.
[45]Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of Taxation (2008) 238 CLR 516 at [35]-[36], [140], [153] - [159] and [177].
[46]Stamp Act 1921 (WA).
The Applicants contend to the contrary. They contend:
(a)the MNWA Deed shows a clear and unequivocal intention of Whitby to hold the Land for MNWA;
(b)exploring whether Whitby subjectively intended to be bound by this deed is inappropriate;
(c)Mr Caratti continued to make income appointments in the subjective belief that MNWA was not the beneficial owner of the income and that income remained to be dealt with by the trustee. On the other hand, he also believed that MNWA’s beneficial interest was by way of security for its provision of funds to purchase the Land, and all the proceeds of the Land, which included income, were in fact paid to MNWA;
(d)the MNWA Deed meant that there was no distributable income of the Whitby Trust in any of the years under review as MNWA was absolutely entitled to the Land and all its proceeds;
(e)whether MNWA’s beneficial ownership of the Land was by way of security or was absolute is not clear;
(f)the circumstances of the Land purchase and Mr Caratti’s subsequent conduct suggest that MNWA’s ownership was intended to be a first ranking equitable charge over all of the Land ahead of any of Whitby’s potential general creditors;
(g)the problem, however, is that there is no evidence of any agreement concerning the arrangements between Whitby and MNWA and Mr Caratti’s subjective belief, despite being the controller of both Whitby and MNWA, is not itself enough. The absence of any evidence of any agreement between Whitby and MNWA is possibly explained by the fact that as controller of both entities Mr Caratti considered the MNWA Deed itself sufficient;
(h)on the state of the evidence, the Tribunal should find that MNWA’s interest in the Land, and therefore its sale proceeds, was absolute;
(i)if that finding is made, then all assessments must be set aside and MNWA was properly liable to be assessed;
(j)if, however, MNWA’s interest was by way of first ranking equitable charge on the Land and its income until the MNWA debt was repaid, then the alternative assessment to the trustee under s 99A was correct because there could be no distributable income available for distribution unless and until the prior ranking charge on that income was released;[47] and
(k)any equitable charge enjoyed by MNWA does not mean it derives or enjoys distributable income as a beneficiary of the Trust, rather the payments in its hands is simply repayment of principal and payment of interest.[48]
[47]The Applicants refer to Lord Blanesburgh in Baker v Archer – Shee [1927] AC 844, at 876
[48]The Applicants refer to Gair v Federal Commissioner of Taxation (1944) 71 CLR 388
The context in which s 14ZZK operates includes s 14ZU of the Administration Act which is in the following terms:
S 14ZU How taxation objections are to be made
A person making a taxation objection must:
(a)make it in the approved form; and
(b)lodge it with the Commissioner within the period set out in section 14ZW; and
(c)state in it, fully and in detail, the grounds that the person relies on.
…..
Together, ss 14ZU and 14ZZK create a statutory scheme for disputing tax assessments which call for specification of grounds of objection and proof that an assessment is excessive by reference to those grounds of objection.[88]
[88]Federal Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180, at [20] Logan J. See also Jagot and Davies JJ at [139] to [141].
Relying on Williams J’s decision in Lancey Shipping,[89] the Full Court in Cajkusic[90] held that s 14ZU calls for identification of the respect in which an applicant says an assessment is wrong, or excessive, and why in the following terms:
Section 14ZU of the Taxation Administration Act 1953 (Cth) provides, inter alia, that a person making a taxation objection must state in it, fully and in detail, the grounds on which the person relies. In H. R. Lancey Shipping Co. Pty Ltd v Federal Commissioner of Taxation (1951) 9 ATD 267 at 273, Williams J said:
‘The grounds of objection need not be stated in legal form, they can be expressed in ordinary language, but they should be sufficiently explicit to direct the attention of the respondent to the particular respects in which the taxpayer contends that the assessment is erroneous and his reasons for this contention. In each case the sufficiency of the grounds is a matter for the Court. Vague grounds such as that the assessment is excessive are not, in my opinion, a compliance with the Act.’
In our view, the applicants’ notices of objection lodged against the amended assessments for the year ended 30 June 1998, in particular the express reference in par (5) to s 97 of the 1936 Act, is sufficiently explicit to direct the attention of the respondent to the fact that his reliance on s 97 is considered to be erroneous, and is put in issue. It is not necessary, in our view, that the component arguments under s 97 of the 1936 Act be articulated at this stage. In this Court, if not in the Tribunal, the medium for that function comes later in the form of the respondent’s appeal statement (O 52B r 5 of the Federal Court Rules) and the applicant’s statement of facts, issues and contentions in response thereto.
[89]H. R. Lancey Shipping Co. Pty Ltd v Federal Commissioner of Taxation (Cth) (1951) 9 ATD 267 at 273.
[90]Cajkusic v Commissioner of Taxation 155 FCR 430 at [17] and [18].
The Trustee’s grounds of objection to the s 99A assessments for the 2010 to 2012 Years were as follows:
3.The Commissioner is not authorised by the ITAA36 or any other enactment to make an assessment contrary to the entitlements to trust income conferred by the distribution resolutions made by Whitby Land Company Pty Ltd (‘Trustee’) of the Whitby Trust (‘Trust’).
4.The Trustee made valid and enforceable distributions of all of the Trust’s distributable income for the years ended 30 June 2011, 30 June 2012 and 30 June 2013 to beneficiaries of the Trust (not including the Taxpayer[the Trustee]).
5.On 30 June 2011, the Trustee … made a distribution to Dawnlink Pty Ltd (ACN 119 620 245) for the whole of the distributable income of the Trust for the year ended 30 June 2011.
6.On 30 June 2012, the Trustee made a distribution to Dawnlink Pty Ltd (ACN 119 620 245) for the whole amount of the distributable income of the Trust for the year ended 30 June 2012.
7.On 30 June 2013, the Trustee made a distribution for the whole amount of the distributable income of the Trust for the year ended 30 June 2013 as follows:
(a)I.M.E. Developments Pty Ltd (ACN 105 461 309): The first $4,200,000 of the net income; and
(b)Success Asset Pty Ltd ATF The Success Trust: The balance of the net income.
….
9.Each of the distribution resolutions passed by the Trustee indicates:
(a)the name of the entity which is being distributed the net income of the Trust; and
(b)the amount of the distribution to the entity.
10.Each of the distributions of the net income of the Trust made prior to the end of each tax period during the Relevant Periods by the Trustee was a valid and enforceable distribution of the distributable income.
11.Unless the distributions from the Trust are nullities, the Commissioner is not authorised by the ITAA36 or any other enactment to make an assessment contrary to the distribution resolutions made by the Trustee of the Trust.
12.On the basis of the distribution resolutions referred to above, pursuant to s 97(1), s 95A and/or s 101 ITAA36, each of the beneficiaries of the Trust (not being under a legal disability) had a present entitlement to a share of the income of the trust estate (see Harmer v Commissioner of Taxation (1989) 91 ALR 550).
13.On the basis of the matters set out above, the Taxpayer was not presently entitled to any distribution from the Trust for the Relevant Periods, nor liable to tax under sections 98, 99 or 99A or any other section for the purposes of Division 6 in Part III ITAA36.
The immediate observations that might be made concerning these grounds of objection are that there is no lack of clarity nor is there any ambiguity as to the scope of the argument to be advanced. These are not higher level assertions, of a kind equivalent to the position in Cajkusic, that s 99A did not apply. The Trustee has gone further and asserted, in detail, why it is so that s 99A could not apply. Nothing in these grounds forecasts or agitates that the s 99A assessments might be set aside on grounds beyond those specified. More specifically, there is nothing in the grounds set out above which, either directly or indirectly, seeks to contend that, if the purported distribution resolutions set out in paragraphs [4] – [7] of the grounds of objection were not valid, another beneficiary of the Whitby Trust had a present entitlement to the Whitby Trust income in any of the Years in issue. To the contrary, the Trustee implicitly accepts at [11] of the grounds of objection that if the distributions as described were nullities, the Trustee would be exposed to assessment under s 99A. The Trustee does not contend default beneficiaries would be the appropriate taxpayer in that circumstance.
The Trustee’s Statement of Facts, Issues and Contentions advanced its case on precisely the same basis as the grounds in the objection, reliant on the respective named beneficiaries as the appropriate taxpayers to be assessed pursuant to s 97 rendering the Trustee not liable to assessment under s 99A.
The hearing of the Trustee’s application proceeded on the same basis. In its written submissions the Trustee’s case was put on the following alternative bases:
(a)all of the trust income of the Whitby Trust was distributed to the named beneficiaries in the resolutions put in evidence:
(b)if that was not correct, then MNWA ought be assessed because of the alleged declaration of bare trust in its favour; and
(c)if neither of these contentions were sustained then the Trustee conceded it was liable to be assessed under s 99A.
The oral submissions on the Trustee’s behalf and further supplementary submissions in relation to the s 98 assessments issued to the Trustee in respect of Benjamin Caratti, who was a minor in the income years 2011, 2012 and 2013, were consistent with the positions taken in the documents previously filed.
Without more, the Trustee not seeking leave to amend the grounds of objection makes the second and third questions raised moot. In this case there is something more than a simple non-application for leave: the Trustee has contended that the Tribunal stands in the shoes of the Commissioner and can exercise all of his powers, is not limited by the grounds of objection, and, relying on the Shi[91] and ANZ[92] decisions, advances that the Tribunal can dispose of the matter on grounds other than as set out in the objection, effectively allowing an expansion of the grounds without any application. That proposition cannot be accepted.
[91]Shi v Migration Agents Registration Authority (2008) 235 CLR 286.
[92]Commissioner of Taxation v Australia and New Zealand Savings Bank Ltd (1994) 181 CLR 466.
The jurisdiction of the Tribunal is limited by the statutes which confer it jurisdiction, and the terms on which that jurisdiction is conferred by those statutes. For present purposes, s 14ZZK of the Administration Act provides that a decision made by the Commissioner may be challenged by a taxpayer. The relevant decision in this case is the objection decision that was made following an objection being made by the Trustee consequent on it being dissatisfied with an assessment. In challenging an objection decision, the Trustee is limited or restricted by s 14ZZK to the grounds of objection raised before the Commissioner and bears an onus of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been by reference to those grounds and not wider considerations.
The ability of the Tribunal to stand in the shoes of decision makers, and the sometimes described inquisitorial powers conferred on the Tribunal by s 33 of the Tribunal Act,[93] do not extend or alter the premise upon which income tax assessments might be challenged, namely by demonstrating or proving an assessment is excessive within the grounds asserted in the objection document as contemplated by the Administration Act which gives the Tribunal jurisdiction in these matters.
[93]Administrative Appeals Tribunal Act 1975 (Cth).
The ANZ decision in particular, does not support the proposition the Trustee advances. The decision concerned consideration of additional factual questions and not power to amend the grounds of objection or to ignore those that have been asserted.
Had the Trustee’s objection to the s 99A assessments issued to it for the 2011 to 2013 income years included a ground that there was no basis to enliven the s 99A assessments because the default beneficiaries were presently entitled to the income of the Trust, the Respondent could have reconsidered the correctness of the position previously adopted in relation to the earlier objection decisions in favour of the default beneficiaries’ objections, and could have issued further amended assessments. When the Trustee’s objection was filed, the Respondent would have been within time to do that. Now he is not. That period passed in relation to the latest year of assessment for all beneficiaries in July 2018.
Loss of an ability to amend an assessment in response to a fresh ground of objection constitutes a relevant prejudice and is sufficient to found a denial of any suggestion that grounds of objection can or ought be expanded.[94]
[94]DTMP and Federal Commissioner of Taxation [2016] AATA 684 canvassed the relevant principles concerning expanded grounds of objection and the outcome that ought be reached where an amendment period precludes an effective response to a new ground of objection.
The conclusion that must be reached in relation to the 2011 to 2013 Years is that the Trustee has failed to demonstrate that the other parties it alleges were presently entitled to the income of the Whitby Trust on which it relied to show that the assessments to it for those years were excessive. Accordingly, the objection decisions must be affirmed.
I certify that the preceding 157 paragraphs are a true copy of the reasons for the decision herein of F D O’Loughlin QC, Deputy President.
......................[sgd]..................................
Associate
Dated: 23 December 2019
Date of hearing: 23, 24 and 25 October 2017 and 8 November 2019. Counsel for the Applicant: Mr Mark Robertson QC Solicitors for the Applicant: Zafra Legal Counsel for the Respondent: Mr Neil Williams SC and Ms C Thompson Solicitors for the Respondent: Australian Government Solicitor
3