Bendel and Commissioner of Taxation (Taxation) [2023] AATA 3074 (28 September 2023)

Deputy President F D O'Loughlin KC and Senior Member K James

TAXATION - income tax - whether an unpaid present entitlement to income or capital of a trust estate is a loan for the purpose of s 109D(3) of the Income tax Assessment Act 1936 (Cth)- whether the Applicant made a loan within the meaning of s 109D(3) on account of its unpaid present entitlements - role of Subdivision EA of division 7A of the Income tax assessment act in construction to be given to s 109D(3) - if a loan is made, whether s 6-25 of the Income tax Assessment Act 1997 (Cth) prevents the remaining deemed dividends from being included in the Applicants' assessable incomes

Income tax Assessment Act 1936 (Cth) ss 44(1), 95, 97, 109D(1), 109D(3), 109Z, 109RB, 109RD, 109UB, 109XA, 109XB

Taxation Administration Act 1953 (Cth) ss 284-30 284-75, 298-20

Australian and New Zealand Savings Bank Ltd v F. C. of T. [1993] FCA 282; (1993) 42 FCR 535

ENT19 v Minister for Home Affairs [2023] HCA 18

Davis v F. C. of T. (1989) ALR 195

Devaynes v Noble (Clayton's case) [1815] EngR 77; (1816) 35 ER 781

F.C. of T. v Carter (2022) 274 CLR 304

F.C. of T. v Radilo Enterprises Pty Ltd (1997) 72 FCR 300

F. C of T. v Reynolds (1981) 34 ALR 46

F. C. of T. v Wade [1951] HCA 66; (1951) 84 CLR 105

Fischer v Nemeske Pty Ltd [2016] HCA 11; (2016) 257 CLR 615

Hyder v F. C. of T. [2022] FCA 264

International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45; (2012) 246 CLR 455.

R v Jacobs Group (Australia) Pty Ltd [2023] HCA 23

Re Montgomery Wools Pty Ltd (As Trustee for Montgomery Wools Pty Ltd Super Fund) and F. C of T. (2012) 87 ATR 282

Board of Taxation, Taxation of Discretionary Trusts (Report, November 2002)

Explanatory Memorandum, Income Tax Assessment Bill 1996

Explanatory Memorandum, Taxation Laws Amendment Bill (No. 3) 1998

Explanatory Memorandum, Tax Laws Amendment (2004 Measures No. 7) Bill 2004

The Hon Peter Costello MP, 'Taxation of Discretionary Trusts' (Media Release, 12 December 2002)

The Hon Rod Kemp MP, 'Taxation of Distributions Disguised as Loans from Private Companies' (Media Release, 27 March 1998)

Gino Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 8th ed, 2022)

Harold Ford et al, The Law of Trusts (Thomson Reuters, last reviewed 26 July 2021)

Deputy President F D O'Loughlin KC and Senior Member K James

1. The critical question for determination is whether an unpaid present entitlement to income (or capital) of a trust estate is a loan for the purpose of s 109D(3) of the 1936 Assessment Act.[1]
2. These reasons use the expressions 'unpaid present entitlement' and/or 'UPE'. Those terms are used to identify or describe an entitlement to income (or capital) of a trust estate that has sufficiently vested, assuming the entitlement is to distributable trust income, to attract s 97 of the 1936 Assessment Act, but in respect of which no step has been taken or event has occurred beyond vesting the entitlement to satisfy that entitlement by payment, set off, or vesting assets in the entitled beneficiary, and which is recorded as not fully satisfied or discharged by the entitled beneficiary and/or the trust/trustee. The typical manifestation of such an entitlement is a resolution to vest an entitlement to annual income in a beneficiary of a family trust without any further step being taken or event occurring to discharge the entitlement.
3. The parties dispute that an amount that is, or has its origins in, an unpaid present entitlement to income of a trust estate conferred upon a corporate beneficiary that remains not fully satisfied or discharged by the lodgment day,[2] is a loan to the trust estate within the reach of s 109D(3). If such an amount is such a loan, one of the threshold conditions for an amount to be taken to be an assessable dividend pursuant to Division 7A and s 44(1) of the 1936 Assessment Act is satisfied.
4. The present dispute is agitated through disputed assessments that were issued to beneficiaries of a trust under s 97. The beneficiaries were presently entitled to the income of the trust estate. The Commissioner says the trustee/trust estate was recipient of a loan in circumstances causing the trust estate to have dividends included in its s 95 net income pursuant to Division 7A. The resultant additional taxable amounts have been included in the beneficiaries' (the Applicants) assessable income pursuant to s 97.
5. The entities involved in the events leading to the disputed assessments were:

(a) the 2005 Trust[3] and Gleewin[4] which was and is the trustee of the 2005 Trust; > > (b) Gleewin Investments[5] who was a discretionary beneficiary of the 2005 Trust who became entitled to a share of the income of the 2005 Trust for the 2013 to 2017 Years[6]; and > > (c) Mr Bendel[7] who: > > > (i) was also a discretionary beneficiary of the 2005 Trust who became entitled to a share of the income of the 2005 Trust for the 2015 and 2017 Years; and > > > > (ii) at the times relevant to the events leading to the present applications, was the sole director and secretary of, and the beneficial owner of the shares in, both Gleewin and Gleewin Investments.

6. Gleewin Investments' entitlements to amounts distributed[8] to it were shown as outstanding. The Commissioner says those outstanding amounts represent a loan to Gleewin that is a dividend and that Gleewin Investments and Mr Bendel have been properly assessed as beneficiaries. Penalty has also been imposed.

1. Did Gleewin Investments make a loan within the meaning of s 109D(3) of the 1936 Assessment Act to Gleewin during each of the 2014 to 2017 Years on account of Gleewin Investments' unpaid present entitlements to 2005 Trust income of the previous year?
2. The parties describe Issue 1 in different ways.

[d]id Gleewin Investments make a loan (as defined in s 109D(3)) to the 2005 Trust during each of the 2014 to 2017 income years by reason of part of the trust income of the previous year that was set aside for it remaining unpaid and held on separate trust on the lodgment day?[9]

(b) The Commissioner describes this issue:

(i) in his SFIC in terms:

whether either Applicant has discharged its onus of proving that Gleewin Investments did not make a 'loan', as defined in s 109D(3) of the [1936 Assessment Act], to the 2005 Trust during any of the 2014 to 2017 income years by reason of part of the trust income set aside for it in the previous year remaining unpaid;[10]

and

(ii) in his submissions in terms first as

... whether, by failing to demand payment of the amounts, Gleewin Investments made a 'loan' to the 2005 Trust for the purposes of section 109D ...[11]

and second as

... whether, in connection with each amount set aside for Gleewin Investments, there was a 'loan' (within the meaning of subsection 109D(3)...) from Gleewin Investments to Gleewin Pty Ltd atf the 2005 Trust in one of the 2014 to 2017 income years.[12]

1. Repeating the various descriptions of Issue 1 is not meant as a criticism. It is probably a reflection of a lack of clarity associated with the concept of an unpaid present entitlement, and the consequent taxation considerations that emerge from such entitlements in some circumstances, such as the present.
2. If the answer to the Issue 1 question (whichever way it is formulated) is yes, subject to Issues 2 and 3 below, the parties do not dispute matters necessary for assessable amounts to arise. The Applicant does not contest the remaining conditions for inclusion of the amounts of the loans in assessable income by operation of ss 44(1), 109D(1), and 109Z of the 1936 Assessment Act bringing the loan amounts into both Gleewin's s 95 net income and the Applicants' assessable income pursuant to s 97 of the 1936 Assessment Act.

1. If the answer to Issue 1 is yes, does s 6-25 of the 1997 Assessment Act[13] prevent the amount that is taken to be a dividend paid from Gleewin Investments' profits from being included in Gleewin's assessable income or, alternatively, the Applicants' assessable incomes on the basis that the same amount has already been included in assessable income?

1. If the answers to Issues 1 and 2 are yes and no, respectively, are the conditions for exercise of the discretion afforded by s 109RB of the 1936 Assessment Act satisfied, and if so, will the Tribunal exercise the s 109RB discretion and either:

(a) disregard the consequences of those answers; or > > (b) allow the amount that is taken to be a dividend paid from Gleewin Investments' profits to be franked?

1. Have penalties been imposed correctly and if so, will the Tribunal remit them?

1. The issues for resolution, call for consideration of the definition of a loan in s 109B, s 109D, former s 109UB, Subdivision EA and s 109RD of the 1936 Assessment Act, and s 6-25 of the 1997 Assessment Act and ss 284-30 284-75 and 298-20 of Schedule 1 to the Administration Act.[14]
2. Section 109B is in the following terms:

Simplified outline of this Division > > The following is a simplified outline of this Division: > > This Division treats 3 kinds of amounts as dividends paid by a private company:

• amounts paid by the company to a shareholder or shareholder's associate (see section 109C);
• amounts lent by the company to a shareholder or shareholder's associate (see sections 109D and 109E);
• amounts of debts owed by a shareholder or shareholder's associate to the company that the company forgives (see section 109F).

This treatment makes the amounts assessable income of the shareholder or associate (under section 44). > > However, some payments, loans and forgiven debts are not treated as dividends. (See Subdivisions C and D.) Also, this Division does not apply to demerger dividends. (See Subdivision DA.) > > An amount may be treated as a dividend even if it is paid or lent by the company to the shareholder or associate through one or more interposed entities. (See Subdivision E.) > > An amount may also be included in the assessable income of a shareholder or shareholder's associate if:

(a) a company has an unpaid present entitlement to income of a trust; and

(b) the trustee makes a payment or loan to, or forgives a debt of, the shareholder or associate.

(See Subdivisions EA and EB.)

If the total of the amounts is more than the company's distributable surplus, only the part of the total equal to the distributable surplus is treated as dividends. (See section 109Y.)

This Division applies to non-share equity interests and non-share dividends in the same way it applies to shares and dividends.

(1) A private company is taken to pay a dividend to an entity at the end of one of the private company's years of income (the current year) if:

(a) the private company makes a loan to the entity during the current year; and

(b) the loan is not fully repaid before the lodgement day for the current year; and

(c) Subdivision D does not prevent the private company from being taken to pay a dividend because of the loan at the end of the current year; and

(d) either:

(i) the entity is a shareholder in the private company, or an associate of such a shareholder, when the loan is made; or

(ii) a reasonable person would conclude (having regard to all the circumstances) that the loan is made because the entity has been such a shareholder or associate at some time.

1. Section 109D(3) defines a loan in the following terms:

(a) an advance of money; and

(b) a provision of credit or any other form of financial accommodation; and

(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

1. When it was an operative provision, section 109UB was in the following terms.

(a) a private company is, or has been, presently entitled to an amount from the net income of a trust estate; and

(b) the trustee has not paid the amount to the private company; and

(c) the trustee has made a loan to a shareholder of the private company, or an associate of such a shareholder after the time that the private company first became presently entitled to that amount. the private company is taken to have made a loan to the shareholder or associate, at the time that the trustee made the loan.

1. Relevantly, Subdivision EA is in the following terms:

109XA Payments, loans and debt forgiveness by a trustee in favour of a shareholder etc. of a private company with an unpaid present entitlement > > (2) Section 109XB applies if:

(a) a trustee makes a loan (including a loan through an interposed entity as described in section 109XG) to a shareholder or an associate of a shareholder of a private company (except a shareholder or associate that is a company) (the actual transaction); and

(b) either:

(i) the company is presently entitled to an amount from the net income of the trust estate at the time the actual transaction takes place, and the whole of that amount has not been paid to the company before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place; or

(ii) the company becomes presently entitled to an amount from the net income of the trust estate after the actual transaction takes place, but before the earlier of the due date for lodgment and the date of lodgment of the trustee's return of income for the trust for the year of income of the trust in which the actual transaction takes place, and the whole of the amount has not been paid to the company before the earlier of those dates.

109XB Amounts included in assessable income

(1) An amount is included, as if it were a dividend paid by the company at the end of the year of income of the company in which the actual transaction took place, in the assessable income of the shareholder or associate referred to in subsection 109XA(1), (2) or (3) if:

(a) had the actual transaction been done by a private company (the notional company); and

(b) had the shareholder or associate been a shareholder of the notional company at the time the actual transaction took place;

an amount (the Division 7A amount) would have been included in the shareholder's or associate's assessable income because of a provision of this Division outside this Subdivision.

(2) Subject to section 109Y, the amount that is included under subsection (1) is the Division 7A amount.

Sometimes more than one rule includes an amount in your assessable income:

• the same amount may be *ordinary income and may also be included in your assessable income by one or more provisions about assessable income; or
• the same amount may be included in your assessable income by more than one provision about assessable income.

However, the amount is included only once in your assessable income for an income year and is then not included in your assessable income for any other income year.

Commissioner may disregard operation of Division or allow dividend to be franked

(1) The Commissioner may make a decision under subsection (2) if:

(a) this Division (disregarding this section) operates with the result that:

(i) a private company is taken to pay a particular dividend to a particular entity (the recipient) under this Division; or

(ii) a particular amount is included, as if it were a dividend, in the assessable income of a particular entity (also the recipient) in relation to a private company under Subdivision EA; and

(b) the result mentioned in paragraph(a) arises because of an honest mistake or inadvertent omission by any of the following entities:

(i) the recipient;

(ii) the private company;

(iii) any other entity whose conduct contributed to that result.

(a) the result mentioned in paragraph (1)(a) should be disregarded (see subsection (4)); or

(b) the dividend mentioned in subparagraph (1)(a)(i) may be franked in accordance with Part 3-6 of the Income Tax Assessment Act 1997 (see subsection (6)).

(3) In making a decision under subsection (2) (or refusing to make such a decision), the Commissioner must have regard to the following:

(a) the circumstances that led to the mistake or omission mentioned in paragraph (1)(b);

(b) the extent to which any of the entities mentioned in paragraph (1)(b) have taken action to try to correct the mistake or omission and if so, how quickly that action was taken;

(c) whether this Division has operated previously in relation to any of the entities mentioned in paragraph (1)(b), and if so, the circumstances in which this occurred;

(d) any other matters that the Commissioner considers relevant.

(4) The Commissioner may make a decision under subsection (2) subject to any of the following kinds of condition:

(a) a condition that the recipient or another entity must make specified payments to the private company or another entity within a specified time;

(b) a condition that a specified requirement in this Division must be met within a specified time.

(5) This Division is taken not to operate with the result mentioned in paragraph (1)(a) if:

(a) the Commissioner makes a decision under paragraph (2)(a); and

(b) if the Commissioner makes the decision subject to a condition under subsection (4)--the condition is satisfied.

(6) If the Commissioner makes a decision under paragraph (2)(b), subparagraph 202-45(g)(i) of the Income Tax Assessment Act 1997 does not make the dividend mentioned in subparagraph (1)(a)(i) unfrankable.

(7) Despite subsection 33(3A) of the Acts Interpretation Act 1901, each decision made under subsection (2) must relate only to one amount that would(disregarding this section):

(a) be taken to be a dividend paid by the private company; or

(b) be included, as if it were a dividend, in the assessable income of an entity.

1. Sections 284-30, 284-75 and 298-20 of Schedule 1 to the Administration Act is in the following terms:

284-30 Application of Division to trusts > > If you are a trustee of a trust and:

(a) you make a statement to the Commissioner or to an officer who is exercising powers or performing functions under a * taxation law about the trust; and

(b) the statement:

(i) is false or misleading in a material particular, whether because of things in it or omitted from it; or

(ii) treated an * income tax law as applying to a matter or identical matters in a particular way that was not * reasonably arguable; or

(iii) treated a taxation law as applying in a particular way to a * scheme;

this Division applies to you as if any * shortfall amount or * scheme shortfall amount of a beneficiary of the trust as a result of the statement were your shortfall amount or scheme shortfall amount.

...

284-75 Liability to penalty

(1) You are liable to an administrative penalty if:

(a) you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a * taxation law (other than the * Excise Acts); and

(b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25.

...

(6) You are not liable to an administrative penalty under subsection (1) or (4) if:

(a) you engage a * registered tax agent or BAS agent; and

(b) you give the registered tax agent or BAS agent all relevant taxation information; and

(c) the registered tax agent or BAS agent makes the statement; and

(d) the false or misleading nature of the statement did not result from:

(i) intentional disregard by the registered tax agent or BAS agent of a * taxation law (other than the * Excise Acts); or

(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).

...

298-20 Remission of penalty

(1) The Commissioner may remit all or a part of the penalty.

(a) not to remit the penalty; or

(b) to remit only part of the penalty;

(i) the Commissioner must give written notice of the decision and the reasons for the decision to the entity.

Note: Section 25D of the Acts Interpretation Act 1901 sets out rules about the contents of a statement of reasons.

(a) the Commissioner refuses to any extent to remit an amount of penalty; and

(b) the amount of penalty payable after the refusal is more than 2 penalty units; and

Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

(c) the entity is dissatisfied with the decision;

the entity may object against the decision in the manner set out in Part IVC.

ISSUE 1 WERE THERE S 109D(3) LOANS MADE BY GLEEWIN INVESTMENTS TO GLEEWIN?

The Bendel group of entities and their inter relationships

1. The Bendel group consisted of trust entities which conducted a busy suburban accounting and registered tax agent practice controlled by Mr Bendel and/or participated in commercial property syndicates (unit trusts and one company) which Mr Bendel operated with his brother. The 2005 Trust, Gleewin, and Gleewin Investments were part of that group.
2. The 2005 Trust, Gleewin, and Gleewin Investments were all controlled by Mr Bendel. His knowledge of the affairs of each entity can be attributed to each entity, and each entity can be accepted as having knowledge of the affairs of the others of them, including knowledge of Mr Bendel's affairs and circumstances.

1. In the 2013 to 2017 Years, in varying proportions or amounts the Applicants were the only beneficiaries that became entitled to the Gleewin's income.
2. The entitlements to Gleewin's income created for the 2013 to 2016 Years for Gleewin Investments led to the emergence of the unpaid present entitlements to Gleewin's income for those years. Those UPEs are the source of the presently disputed Division 7A dividends. Table 1 sets out Gleewin Investments' entitlements to 2005 Trust income for the 2013 to 2016 years, the amounts of those entitlements the Commissioner says were unpaid at the relevant lodgment day for the year following the year for which the entitlement was created, and the amount of the Division 7A deemed dividends that he has assessed.

Gleewin Investments' entitlement to 2005 Trust income when created

Gleewin Investments' UPEs to 2005 Trust income at the lodgment day for the Year following the Year of the entitlement as calculated by the Commissioner

1. The compilation of the amounts the Commissioner says were unpaid at the relevant lodgment day for the year following the year for which the entitlement was created is set out in Annexure C. It seems that the Commissioner has:

(a) taken the relevant entitlement for each year and deemed it to be a loan on the trust lodgment date; > > (b) then applied payments made by Gleewin on behalf of Gleewin Investments between the trust lodgment date and the company lodgment date as repayments of the deemed loan; > > (c) recognised other receipts of money belonging to Gleewin Investments (tax refunds totalling $41,252 in the 2015 Year and $9,431 in the 2016 Year) and banked by Gleewin as further loans by Gleewin Investments to Gleewin; and > > (d) worked out a balance which is deemed to have been a dividend.

2. The method of application of amounts reducing the outstanding obligations appears not to adopt the FIFO principle applied in some settings to the effect that the earliest obligation ought be the first satisfied.[15] If the FIFO principle were to be observed in allocating credits to the earliest outstanding obligation, having regard to the balances owed by Gleewin to Gleewin Investments from earlier periods as shown in Table 5 below, none of Gleewin Investments 2013 to 2016 entitlements to Gleewin's income, would have been satisfied. If there were to be assessable dividends as a consequence of Gleewin Investments' UPEs, the Commissioner's recognition of the amounts that have been accepted to reduce particular obligations shown as outstanding, and the amounts of the loans that he has treated as a Division 7A dividend, is generous. Apart from the method of allocation of credits, the choice of dates used in the process is also confusing. The trust return lodgment date only finds expression in Subdivision EA. And the Commissioner contends that Subdivisions EA does not apply in the present circumstances.
3. Given the apparently generous nature of the Commissioner's approach to determining the amount he says the basis for the loan not repaid and therefore a Division 7A dividend, the Tribunal will not disturb it other than to separate and deal with loans that did not have their origins in entitlements to trust income.
4. The assumed repayments referred to at [‎29(b)] creating or contributing to the differences between the respective amounts in Table 1 is the result of the practice of Gleewin paying Gleewin Investments' expenses and liabilities from time to time, setting those payments off against the unpaid present entitlement, and the application of credits processes noted above.
5. The difference in the respective amounts in Table 1 for the 2014 Year entitlement is $14,729. The amount the Commissioner has said is an unpaid present entitlement based loan, and dividend pursuant to Division 7A, is the larger the amount, namely $164,242. That amount is $14,729 greater than the amount of Gleewin Investments' entitlement for the 2014 Year. For the 2015 Year, the $164,242 amount the Commissioner has assessed as an unpaid 2014 Year present entitlement sourced dividend cannot be correct. Without explaining the difference, the Applicants accept this difference to be the result of some further relatively small amounts that were loaned to Gleewin by Gleewin Investments during the 2015 Year. Having regard to the amounts disclosed in Annexure C for the 2014 Year entitlements, if the Commissioner's annual credit allocation process were to be observed to allocate particular periods' credits to the preceding Year's unpaid present entitlement, rather than the longer standing outstanding obligation generally, and applying those credits to the earliest arising obligation within that period first, the correct amount representing an unpaid present entitlement for 2014 was $122,990 and the balance of $41,252 represents outstanding other loans. Having been aware of the difference and attempting to explain it, erroneously as it is, and having had the Commissioner's calculations (reproduced in Annexure C) since at least 21 December 2018[16] the Applicants have not advanced any basis upon which outstanding other loans ought not be deemed to be dividends. Accordingly, for the 2014 unpaid present entitlement the Applicants have not established that a deemed dividend of $41,252 has not arisen for the 2015 Year.
6. Included in the calculation of the 2016 Year dividend of $807,417 is a similar further loan of $9,431 which did not have origins in UPEs and needs to be treated the same way as the $41,252. Accordingly, for the 2015 unpaid present entitlement the Applicants have not established that a deemed dividend of $9,431 has not arisen for the 2016 Year.
7. The balances of the UPEs were shown as a liability in Gleewin's financial statements until after the Commissioner commenced a review of the tax affairs of Mr Bendel and his related entities.
8. The entitlements to Gleewin's 'other income' (namely income not consisting of capital gains or franked dividends) created for the 2014 to 2017 Years inform the proportions in which the adjustments the Commissioner has made to Gleewin's s 95 net income are to be reflected in additional amounts included in the Applicants' assessable income for those years pursuant to s 97 of the 1936 Assessment Act. Table 2 sets out the relative proportionate entitlements to that Gleewin's other income for the 2014 to 2017 Years.

1. As noted above, Mr Bendel also became entitled to 2005 Trust income. Unlike Gleewin Investments, Mr Bendel was not a creditor of Gleewin. He owed Gleewin amounts it had loaned to him.[17] Table 3 sets out the amounts to which he became entitled and the balances as at 30 June of 2013 to 2017 that, after set-off of his entitlements to 2005 Trust income, he owed Gleewin. All of his entitlements were set off against amounts he owed to Gleewin from a time before the entitlement was created.

Mr Bendel's entitlement to 2005 Trust income for Year

Balance owed by Mr Bendel to Gleewin as at 30 June

1. Mr Bendel attempted to contend in evidence, a contention not replicated in any submissions on his behalf, that the balance he owed to Gleewin had been discharged in the 2017 Year when he sold his house and he started afresh. He said, '$1,866,000 was deposited into the bank account which effectively cleared out my drawings for that year. So I started afresh. It effectively cleared it out.' The reality is that his account records that before the $1,866,000 deposit was made, he had already drawn down approximately $2.46 million for the purchase of a new house one month earlier.[18] His attempt to demonstrate that the account was cleared cannot be accepted.

1. Gleewin held interests in other Bendel group entities, and derived income that had its origins in the profits of those entities' investments in commercial property syndicates (two unit trusts conducting the accounting and registered tax agent practice. Gleewin's financial statements reveal:

(a) the assets comprising the interests in other Bendel group entities were described as 'Investments' whose values were reported at their historical costs; > > (b) the trust's capital in all years was $30; > > (c) for each of the 2013 to 2017 Years, a non-Current liability 'Quarantined Pre 16.02.09 Unpaid Present Entitlements Gleewin Investments Pty Ltd' of $72,050 is reported;[19] > > (d) a current asset in the Bendel Current Account[20] was reported each year. As shown in Table 3 above, as at 30 June 2013 the amount was $1,400,000, as at 30 June 2014 the amount was $741,288 and thereafter year end balances owed increased to $2,164,381 as at 30 June 2017. Distributions of trust income made to Mr Bendel were credited to this account and reduced the balance owed at year end. Interest was not received or accrued on this account. > > (e) During the 2013 to 2016 Years Gleewin: > > > (i) did not make any new or additional material investments. > > > > (ii) derived gross income > > > > 1. interest of $6,396 > > 2. trust present entitlements of $2,192,177 > > 3. dividends (fully franked) of $814,932. > > > > (iii) recorded expenses totalling $451,815. In 2016 a loss on disposal of investments of $6,878 was recorded.[21] > > (f) As at 30 June 2016 the balance of the unpaid trust present entitlements in favour of Gleewin was $561,045 (out of entitlements totalling $2,192,177 over the period from 2013 to 2016).[22] Of the dividends of $814,932, $198,068 was recorded as still owing or lent back to the dividend paying company as at 30 June 2015 and 30 June 2016. What can be concluded from this is that Trust distributions of $1,631,132 ($2,192,177 less $561,045) and dividends of $616,864 ($814,932 less $198,068) were received.[23]

2. The accounting processes Gleewin adopted involved:

(a) recording journal entries from time to time; > > (b) preparing final accounts in the third quarter of the Year following the period to which they related; > > (c) disclosing UPEs in its favour as current assets in its financial statements; and > > (d) maintaining two beneficiaries' current accounts, the Gleewin Investments Current Account[24] and the Bendel Current Account. These accounts appeared as stand-alone accounts described as they are named and not specifically included in Current Liabilities, Non-Current Liabilities, Current Assets, Investments, or Intangible Assets. Where the balance of a beneficiaries' current account was in Gleewin's favour, as was the case for the Bendel Current Account, it was reported in the 'Assets' half of the balance sheet as a stand-alone account and its balance was included in Total Assets reported. Where the balance was in favour of a beneficiary, as was the case for the Gleewin Investments Current Account, it was reported in the 'Liabilities' side of the balance sheet as a stand-alone account and its balance was included in Total Liabilities reported.

3. Gleewin did not recognise any separation of any of its assets in its accounts, or anywhere else in the evidence, reflecting or commensurate with unsatisfied entitlements to income. Similarly, the wider Bendel group accounting records did not entail any financial statements for any separate trusts on account of unpaid present entitlements.
4. During and/or for each of the 2013 to 2017 Years (and in and for Years before and after):

(a) Mr Bendel caused Gleewin to advance money from its resources to him or for his benefit from time to time; > > (b) the advances to Mr Bendel were recorded with the description 'Drawings' by way of journals posted to the Bendel Current Account maintained by or on behalf of Gleewin; > > (c) distributions of (or creation of entitlements to) Gleewin's income or capital were made from time to time; > > (d) when the amounts of the distributions (entitlements) were ascertained, journals were posted to the Bendel Current Account maintained by or on behalf of Gleewin; and > > (e) for each Year Mr Bendel's entitlement to Gleewin's income was less than the then balance owed by him to Gleewin so that his entitlement to Gleewin's income was always fully discharged or paid.

5. The payments made by Gleewin from its resources on behalf of Mr Bendel were significant. 'Drawings' increased the balance owed to Gleewin by Mr Bendel (as shown in the Bendel Current Account) as set out in Table 4. The year-end balance was always recognised as an asset in Gleewin's Balance Sheet.

1. Gleewin Investments' financial affairs were similarly managed. During and/or for each of the 2013 to 2017 Years (and in and for Years before and after):

(a) Mr Bendel caused Gleewin to meet Gleewin Investments' tax liabilities and other expenses from time to time; > > (b) when Gleewin Investments' expenses were met by Gleewin, entries were made to both entities' accounts - in Gleewin's accounts, expenses were recorded in the Gleewin Investments Current Account, and in Gleewin Investments' accounts, the expenses were recorded in the account named 'Steven Bendel 2005 Discretionary Trust';[26] > > (c) from time to time amounts belonging to Gleewin Investments (PAYG tax refunds) were received by Gleewin and not passed on. These amounts also were posted to the same accounts by or on behalf of each of Gleewin and Gleewin Investments and reflected an increase in Gleewin's obligations to Gleewin Investments; and > > (d) for each Year Gleewin Investments' entitlement to Gleewin's income was also posted to the Gleewin Investments Current Account, and for each of the 2013 to 2017 Years that income entitlement was greater than the taxation and other expenses paid on Gleewin Investments' behalf by Gleewin from its resources so that its entitlement to Gleewin's income was always recorded as at least partly outstanding.

2. The balances owed by Mr Bendel to Gleewin and the balance of the Gleewin Investments Current Account in Gleewin Investments' favour as at 30 June of each of 2008 to 2012[27] are as set out in Table 5.

1. Mr Bendel's use of money provided by Gleewin while Gleewin Investments was not paid its entitlements by Gleewin has a history leading up to the Years of the disputed assessments.

(a) held assets comprising: > > > (i) cash on hand;[29] > > > > (ii) outstanding entitlements (income) from Gleewin; and > > > > (iii) prepayments of income tax; > > (b) did not operate a bank account; > > (c) derived income from trust distributions for which it was the beneficiary; > > (d) incurred taxation liabilities and other expenses that were paid from Gleewin's bank account and accounted for by journal entry posted to the Gleewin Investments Current Account.[30]

The 2005 Trust Deed terms and income distributions

1. Clauses 3(1)(a), 2(c) and (5), and Clause 6 of the 2005 Trust Deed provided:
   1. Payment or Application of Income - Trustee's Determination

(1) The Trustee may at any time before the expiration of any Accounting Period with respect to all or any part or parts of the net income of the Trust Fund for such Accounting Period determine:

(a) to pay apply or set aside the same to or for any one or more of the General Beneficiaries living or in existence at the time of the determination

...

(2) The following provisions shall apply to any determination made pursuant to sub-clause (I) of this Clause -

...

(c) a determination to pay apply or set aside any amount to or for the benefit of any beneficiary shall be irrevocable and may be effectually made and satisfied (inter alia) by a resolution of the Trustee that a sum out of or portion of the net income of the Trust Fund for the accounting period or a sum out of or portion of the net income of the trust estate as defined in Section 95 of the Income Tax Assessment Act of the Trust Fund for the accounting period be allocated to that beneficiary or otherwise dealt with for the benefit of that beneficiary or by placing such amount to the credit of such beneficiary in the books of account of the Trust Fund or by drawing any cheque in respect of such amount made payable to or for the credit or benefit of such beneficiary or by paying the same over to or for the benefit of such beneficiary in such manner and to such person on behalf of such beneficiary as the Trustee shall think fit;

(5) Any amount set aside for any beneficiary ...shall cease to form part of the Trust Fund and upon such setting aside ... shall thenceforth be held by the Trustee on a separate trust for such person absolutely with power to the Trustee pending payment over thereof to such person to invest or apply or deal with such Fund or any resulting income therefrom or any part thereof in the manner provided for in Clause 6 (5) hereof.

(5) where the Trustee holds any amount upon separate trust for any person pursuant to Clauses 3 (5) ... but the amount is left in the hands of the Trustee invest on behalf of such person that amount and the resulting income thereof in any of the investments hereby authorised ...at any time or times and from time to time in their absolute discretion resort to such amount and the income thereof and pay apply or deal with the same or any part thereof (but not so as to infringe the rule against perpetuities) in such manner as the Trustee in its absolute discretion thinks fit for the benefit of such person in the terms of the powers contained in sub-clauses (3) and (4) of this Clause.

1. In each year from 2013 to 2017 Gleewin distributed all of its income by creating entitlements to that income. The resolutions to effect these distributions were in the terms reproduced in Annexure B. In summary, the income was distributed as shown in Table 6.

1. For each Year, Gleewin reported Mr Bendel's entitlement as discharged or paid, and Gleewin Investments' entitlements were reported in the Gleewin Investments Current Account that showed a running balance of entitlements not satisfied.
2. Beyond passing its income distribution resolutions and recording them as outlined above, Gleewin did not report any asset held separately, did not purport to alienate or create any interest in any identified asset to meet or correspond with Gleewin Investments' unpaid present entitlements, and did not report or account for any separate trust. It is not possible to identify any Gleewin asset in respect of which any change in any form of ownership occurred. Gleewin Investments reported its entitlements each Year in a corresponding way.

The Commissioner's Audits, Assessments and Objection Decisions

1. The dispute is agitated as noted at [4] above. On 23 October 2017 the Commissioner started an audit of Mr Bendel's affairs. One consequence of that audit was that the Commissioner discovered that Gleewin Investments had unpaid present entitlements to Gleewin's distributable income.
2. On 4 September 2019 the Commissioner issued amended assessments to the Applicants contending that:

(a) Gleewin Investments' unpaid present entitlements to prior year trust income comprised loans within the meaning of s 109D(3) made by Gleewin Investments in the current year to the Gleewin; > > (b) those loans were taken to be dividends paid within the meaning of s 109D(1) of the 1936 Assessment Act; > > (c) those dividends were taken to be paid out of Gleewin Investments' profits by operation of s 109Z of the 1936 Assessment Act; > > (d) the dividends taken to be paid out of profits were assessable income by operation of s 44(1) of the 1936 Assessment Act and included in Gleewin's s 95 net income; and > > (e) the beneficiaries who were entitled to Gleewin's income were liable to be assessed under s 97 for a proportion of each such dividend determined by reference to their proportionate shares of Gleewin's income.

3. Objections to those assessments were lodged on 1 November 2019. On 23 March 2021 those objections were disallowed for the 2014 to 2016 Year assessments and allowed in part for the 2017 Year assessments.
4. Table 7 sets out the post objection decision Gleewin Investments unpaid present entitlements to trust income for the relevant prior years pursuant to Division 7A/s 44(1) that have been included in Gleewin's s 95 net income, and the amended s 97 amounts that have been included in the Applicants' taxable incomes.

Post objection decision Gleewin Investments' UPEs treated as an assessable dividends under Division 7A and included in Gleewin's s 95 net income

1. During the audit, objection and in post objection correspondence with the Commissioner, no reference was made to a separate trust in respect of any asset or unpaid present entitlement to 2005 Trust income.[31]
2. The Commissioner has also assessed the Applicants to administrative penalties and objections against those assessments were also disallowed. Those decisions are also the subject of the present review applications.

(a) the statutory context in which the s 109D(3) definition of loan operates includes Subdivision EA with the effect that s 109D(3) does not embrace unpaid present entitlements of corporate beneficiaries of trusts; and > > (b) somewhat overlapping with (a) above, the s 109D(3) definition of loan does not apply to amounts that are the subject matter of a separate trust.

Issue 1(a) - Applicants' statutory context contentions

(a) acknowledged, and accepted, that the ordinary meaning of the words used was clearly a relevant factor, but maintains that dictionary definitions at the expense of statutory context and legislative history is a foundation for error where the outcome is contrary to statutory context and legislative history; and > > (b) asserted that s 109D(3) does not embrace unpaid present entitlements of corporate beneficiaries of trusts because Subdivision EA, and before its enactment s 109UB, deals with the tax treatment of unpaid present entitlements.

2. The core of the submission was
   1. The statutory context and purpose of s 109D indicates that the definition of loan does not extend to amounts of trust income which are either set aside for a beneficiary on a separate trust or to which a beneficiary is presently entitled. Statutory context must be considered, particularly because that context might show that a word or words are used with some meaning other than their ordinary meaning. That is especially the case where the relevant words, here 'credit' and 'financial accommodation', do not have a fixed ordinary meaning but can have a wide range of meanings depending on context.

1. A construction of s 109D(3) that includes unpaid present entitlements to companies as loans would lead to absurd and unintended results from the dual operation of s 109D and Subdivision EA. Such a result is to be avoided if possible.

1. It is immediately apparent that those provisions would have little, if any, work to do if the unpaid present entitlement to the company gave rise to a loan, and therefore a deemed dividend under s 109D, as the Commissioner contends. Instead, the dual operation of s 109D and Subdivision EA would lead to the multiple taxation of the same event or amount. There is no indications [sic] from the extrinsic material that such an absurd and punitive outcome was intended.
2. Indeed, the expressed reason for including the predecessor to Subdivision EA, s 109UB, in the Act that originally introduced Division 7A was to deal with the situation in which a company's present entitlement to trust income is left unpaid, including where the income is held on a separate trust. Concerns had been raised that Division 7A did not otherwise deal with that situation.[32]
3. In their reply[33] the Applicants submitted that:

1. ... [they] did not contend that the legislative history and extrinsic materials surrounding Division 7A displaces the statutory text. The plain text of Subdivision EA (including, not least, its heading) shows that it contains the provisions intended to deal with situations involving unpaid present entitlements and that an unpaid present entitlement (whether put on separate trustor not) was not intended to be a loan as defined in s 109D(3).That approach 'best give[s] effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions'. The legislative history and extrinsic materials are relevant and support the statutory intention revealed by a proper consideration of the statute itself. That is an orthodox application of established principles for construing a statute.'

4. ... However, the legislature did not expand the definition of 'loan' to include an unpaid present entitlement. The extrinsic materials, including the media release confirm what is obvious from the statute itself. The legislature deliberately enacted separate section (s 109UB, which was later replaced by Subdivision EA) that expressly provided that the existence of an unpaid present entitlement is not, by itself enough. Rather, the legislature included additional requirements that must be satisfied before a loan or dividend is deemed.
5. The annexure to the Applicants' submissions that sets out the legislative history to s 109UB and its replacement Subdivision EA of Division 7A is reproduced as Annexure A to these Reasons.

Issue 1(b) - Applicants' separate trust contentions

1. The Applicants' separate trust contention is that a beneficiary does not make a loan to a trust where an amount of trust income is set aside and held on a separate trust for the beneficiary'.[34] The submission was that in the present case the entitlement to income was a function of a trust relationship and not a debtor and creditor relationship. The Applicants submitted:

1. First, the trustee had no obligation to pay money to Gleewin Investments in the relevant sense. Credit or financial accommodation requires allowing time to pay, or forbearing, a monetary obligation. The trustee's obligation, as trustee of each separate trust, was not to pay the relevant amounts to Gleewin Investments, but rather to hold them for Gleewin Investments absolutely. In contrast to having an obligation to pay those amounts to Gleewin Investments, the trustee was permitted to invest them on Gleewin Investments' behalf.[35]

2. Second, there is a fundamental distinction between a trust relationship and a debtor/creditor relationship as is implied by a loan or credit or other financial accommodation. Where the recipient of money is required to hold the money for the benefit of the other party (or a third party), there is a trust but not a debt. Where the recipient is only required to repay the same amount of money at a future time and is free to use the money as his or hers in the meantime, there is a debt but not a trust. This is, as is made explicit by the trust deed, a case of the former; the relevant amounts were required to be 'held by the Trustee on a separate trust for [Gleewin Investments] absolutely'.
3. It could never be suggested that a company that gives money to a trustee to be held on trust for the benefit of either the company or some third party or parties thereby makes a loan to the trustee, even under the extended definition in s 109D(3). Yet that is exactly equivalent to what has occurred here. Part of the 2005 Trust's income each year was set aside on a separate trust for the benefit of Gleewin Investments. The mere fact that Gleewin Investments could have called for payment of the amounts, but instead left them sitting on trust, as opposed to expressly giving the amounts to a trustee, could hardly turn the transaction into a loan as opposed to a simple trust relationship.
4. Indeed, the current facts are less like a loan, credit or financial accommodation than the example of a company giving money to a trustee because there was no consensual transaction. Gleewin Investments should no doubt be taken to have been aware that the separate trusts had invested the relevant amounts in the 2005 Trust given Mr Bendel was a common controller. However, awareness is not consent. The most that could be said is that Gleewin Investments acquiesced through its silence and decision not to call for payment. But acquiescence does not, without more, amount to financial accommodation.[36]

1. The Commissioner's contentions concerning Issue 1 have two limbs:

(a) that Gleewin Investments made a loan as defined to Gleewin; and > > (b) Subdivision EA neither informs the construction to be given to the s 109D(3) definition of a loan nor, in any event, has any operation on the present circumstances.

Issue 1.1 - Commissioner's loan as defined contentions

(a) Gleewin Investments made a loan to Gleewin because Gleewin Investments: > > > (i) provided a form of financial accommodation to Gleewin in that:

1. The phrase 'any other form of financial accommodation' covers a consensual arrangement where a beneficiary does not require the amount of a distribution to be paid, or does not exercise a power to bring a trust to an end, and in consequence a trustee retains the use of funds but remains obligated to pay the amount of the distribution in the future. ... [T]his conclusion accords with the phrase's ordinary meaning, context and purpose, as well as with the meaning given to similar statutory language by courts and tribunals in other statutory contexts.[37]

(ii) 'entered into a transaction which in substance effected a loan of money to [Gleewin]';[38]

(b) the 'Tribunal should not construe a provision in a way that departs from its natural and ordinary meaning unless it is plain that Parliament intended it to have some different meaning';[39]

(c) the term 'financial accommodation has a broad meaning which includes the provision of assistance that relates to money matters and thereby confers a pecuniary favour';[40]

(d) in '[t]he statutory context in which the term 'financial accommodation' falls to be interpreted here - Division 7A - indicates that a broad interpretation is appropriate, and the phrase 'any form of financial accommodation in subsection 109D(3) of the ITAA 1936 should be interpreted to cover an arrangement of the kind described in paragraph [57] above'.[41]

(e) the broad interpretation was supported by case law in other statutory contexts;[42]

(f) financial accommodation in the relevant sense should not be restricted to debtor/creditor relationships and that any analogy to shareholder, partner, settlor was misplaced;

(g) in the present circumstances:

1. the Relevant UPEs were recognised on the balance sheets of [Gleewin], where they were described as relating to the 'Beneficiaries' Current Account' in respect of Gleewin Investments which [Gleewin] recorded as a liability. The balance sheets made no reference to any sub-trust;[43] and
2. the funds representing the Relevant UPEs remained intermingled with funds of [Gleewin].[44]
3. The Commissioner's primary case concerning the s 109D(3) loan question did not substantively or expressly engage with the separate trust contention but in oral submission did so. There the Commissioner indicated:

... [he didn't] dispute the existence of the separate trusts. ...[T]he parties are in agreement that there were a number of potential rights and obligations ... which included a right on the part of Gleewin Investments to ... terminate the sub-trust: ... [a] Saunders v Vautier right. > > If it had exercised that right, the moneys would have come to it. Perhaps it's a little unclear as to the exact juridical basis on which one then traces that through. ... > > But ... if Gleewin Investments have exercised its rights, the amounts which remained intermingled in the 2005 Trust would have been paid to it. And that the financial accommodation is found in the decision not to exercise that right with a result that the amounts remained intermingled in the 2005 Trust. And that's how the 2005 Trust was financially accommodated. > > ... Nothing was ... set aside and then transferred to a separate bank account, for example. > > ... > > ... the Commissioner's case is that one finds the financial accommodation in this decision to refrain from calling for payment, which is the thing that allows the relevant funds to remain intermingled in the 2005 trust. One sees that accommodation reflected in the disclosures that are made in the financial statements for the 2005 trust and for Gleewin Investments. They recognise that - well, the 2005 trust recognises the liability in respect of Gleewin Investments, and Gleewin Investments recognised an asset in respect of the 2005 trust.'[45]

Issue 1.2 - Commissioner's statutory context contentions

1. The Commissioner's Subdivision EA and statutory context contentions were largely responsive. The Commissioner contends that the existence of Subdivision EA of Division 7A and the legislative history do not indicate that the definition of loan in s 109D(3) excludes a 'consensual arrangement where a beneficiary does not require the amount of a distribution to be paid, or does not exercise a power to bring a trust to an end, and as a consequence a trustee retains the use of funds but remains obligated to pay the amount of the distributional in the future.'[46] His submissions were to the effect:

(a) first that 'subsection 109D(3) does not expressly prevent a trust entitlement from giving rise to a "loan". It is very difficult to see what construction could be placed on the words of subsection 109D(3) to have such an effect - and the Applicants propose none';[47] > > (b) second that 'construction of subsection 109D(3) under which a private company's failure to demand payment of a present entitlement is capable of giving rise to a "loan" does not result in Subdivision EA lacking meaning or proving "superfluous, void or insignificant" (c.f. AS[51] and [53]). If the private company does not have knowledge of the entitlement, then there will be no consensual arrangement of the requisite kind and consequently no financial accommodation, and Subdivision EA may operate. Accordingly, Subdivision EA is not otiose';[48] > > (c) third, 'the legislative history and extrinsic materials 'cannot displace the meaning of the statutory text. Nor is their examination an end in itself'.[49] Nevertheless the Commissioner calls in aid extrinsic materials in the following terms:

1. '[i]n any event, the 27 March 1998 media release (from which the Applicants quote in Appendix I at [4]) indicates that an unpaid present entitlement was intended to be capable of giving rise to a 'loan' (within the meaning of subsection 109D(3)), with section 109UB being inserted into the ITAA 1936 to put it beyond doubt that Division 7A applied'.[50] 2. In addition, the explanatory memorandum which accompanied the Taxation Laws Amendment Bill (No. 3) 1998 (Cth) indicates that the draftsman of section 109UB assumed that, wherever a private company beneficiary has an unpaid present entitlement, the amount which is the subject of the entitlement would be held on a separate trust for the benefit of the company (and, seemingly, no other person). At [9.82], it states:

New section 109UB will apply if a private company, as a beneficiary of a trust estate, is or has been presently entitled to some or all of the net trust income which has not actually been paid. In such a situation the amount to which the company is presently entitled is held on secondary trust for the benefit of the company. The provision applies to any subsequent loan by the trustee to a shareholder (or associate) of the company. (Emphasis added.)

2. Against that background, it would be understandable if the draftsman also assumed that, if the company did not call for the payment of amounts to which it was entitled, it would not provide financial accommodation to any other person - so that it was only through a further transaction, such as a loan made by the trustee, that a shareholder of the private company (or an associate of the shareholder) could benefit from the company's distributed profits.
3. Fourth, there is no 'dual operation' of section 109D and Subdivision EA of the ITAA 1936 leading to the 'multiple taxation of the same event or amount' (cf AS[53]). In order for section 109XA to be enlivened, it must be the case that the company in question (here, Gleewin Investments) is or becomes presently entitled to an amount from the net income of the trust estate (here, the 2005 Trust) which is not paid to it. That condition is not satisfied here. That is because cl 3(5) of the Trust Deed provided for any amount set aside for Gleewin Investments to cease to form part of the 'Trust Fund' and to commence to be held on a separate trust. Accordingly, only section 109D applies. The Applicants have been assessed on that basis.

1. Resolving Issue 1 calls for findings of fact, and then a statutory interpretation task. In support of at least some of their competing contentions, both parties contend that a separate trust was either created or arose upon vesting entitlements to income, or distributing Gleewin's income each Year. The Applicants say so with the effect that creating a trust and thereafter not ending it does not involve any form of loan. The Commissioner says not ending the trust constitutes a loan and that Subdivision EA does not apply because the creation of the separate trust meant the entitlements to Gleewin's income had been paid. While the terms of clause 3(5) of the 2005 Trust Deed reproduced at [‎48‎] above state that '[a]ny amount set aside for any beneficiary... shall cease to form part of the Trust Fund and upon such setting aside... shall thenceforth be held by the Trustee on a separate trust for such person absolutely...', and clause 3(2) provides that determinations to pay, apply or set aside amounts for beneficiaries can be effectually made by passing a resolution or by placing such amounts to the credit of beneficiaries in the trust's books of account, and Gleewin on paper appears to have done both of these things, the Tribunal has some difficulty in accepting that a separate trust as conventionally understood arose in the present circumstances merely upon creation of a right to income. In conventional terms for a trust to exist there needs to be sufficient identity of the subject matter of the trust. In the present circumstances, notwithstanding these clauses, it is not clear that any separate trust in this sense could have arisen.
2. When needed to resolve issues concerning disputed responsibility for including shares of shares of s 95 net income in assessable income, Courts have frequently been called upon to determine whether a beneficiary is presently entitled to a share of the income of the trust estate. Carter's case is an example.[51] It is said that the s 97 condition is satisfied

if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment.[52]

3. These expressions and formulations focus upon the question as to whether a beneficiary is sufficiently entitled to meet the s 97 threshold. At times these expressions and formulations are accompanied by remarks that give an appearance of describing the nature of the rights created when a beneficiary is said to be presently entitled to a share of the income of a trust estate. In Carter for example the joint reasons said:

Specifically, is a beneficiary's present entitlement under s 97(1) - the present legal right to demand and receive payment of a share of the income of a trust estate - to be determined immediately prior to the end of a year of income by reference to the legal relationships then in existence, or can events after the end of the year of income, which may affect or alter those legal relationships, be considered?[53]

4. These comments were the part of a formulation of a question as to when the s 97 threshold condition is to be tested, and whether events post that time could change taxable facts or assessment outcomes. These comments were not an analysis of the nature of rights created when trust income is distributed.
5. Accordingly, these and similar expressions of the threshold needed to meet s 97 are not necessarily an expression of the nature of the interest that is created in a beneficiary upon either an action being taken to vest income entitlements (e.g., a distribution resolution of the trustee) or a default styled vesting in the absence of any action. Viewed this way, it might be dangerous to assume that description of the s 97 threshold condition is necessarily the same as the nature and character of an entitlement to trust income.
6. Gageler J's analysis in Fischer v Nemeske [54] is more to the point. His honour was addressing the nature of entitlements created when discretionary vesting powers were exercised. There he said:

1. Once it is accepted - as it was in In re Baron Vestey's Settlement (121) and in Commissioner of Inland Revenue (NZ) v Ward (122) - that a trustee can 'apply' trust property to the advancement of a specified beneficiary by resolving to allocate trust property unconditionally and irrevocably to the benefit of that beneficiary, it is difficult to see any reason in principle why such an unconditional and irrevocable allocation of trust property must take the form of an alteration of the beneficial ownership of one or more specific trust assets. The allocations in each of those cases were of specified proportions of a single monetary amount which stood to the credit of a bank account which the trustee held as trust property at the time of the resolution. The allocations were held to be sufficient to result in the specified beneficiaries to whom the allocations were made each obtaining an immediate absolute beneficial entitlement to the sums so allocated. It appears that the sums in question in the first case were soon afterwards paid into separate bank accounts, but that fact does not appear to have been treated as relevant to the holding. The sums in question in the second case were not paid into separate accounts for many years. 2. In neither of those cases was there any suggestion that the trustee's exercise of the power to apply trust property involved a resettlement of trust property so as to result in the creation of a new trust. The exercise of the power by way of unconditional and irrevocable allocation of trust property was seen rather to result in the crystallisation of an immediate absolute beneficial entitlement in respect of property which, before and after the resolution of the trustee, remained property which the trustee held on trust under the terms of the existing settlement (123). 3. The trustee's power to apply trust property having been held in each of those cases to be available to be exercised by means of an unconditional and irrevocable allocation of trust property, the consequence that the exercise of that power effected an alteration of beneficial entitlements in property which the trustee continued to hold on trust under the terms of the existing settlement was orthodox as a matter of principle. It was also unremarkable as a matter of practice. The power to apply trust property, as interpreted in the cases, was but an example of a power conferred on a trustee by the terms of settlement to bring about an alteration of beneficial entitlements: the power was of such a nature that the exercise of the power was 'so to speak, to be read into' the existing settlement with the result that the beneficial entitlements as altered by the exercise of the power were to be recognised and administered by the trustee after the exercise of the power 'as if the settlement had actually provided' for them (124). 4. An absolute beneficial entitlement to some part of a fund of property that is held on trust need not be reflected in an absolute beneficial entitlement to the whole or some part of any specific asset within that fund (125). That must be so whether the absolute beneficial entitlement to some part of a fund of property that is held on trust is defined by the terms of the trust settlement itself, or whether such absolute beneficial entitlement to some part of a fund of property that is held on trust is defined by an exercise of a power conferred on a trustee under the terms of a trust settlement. Whether or not a particular beneficial entitlement to some portion of a trust fund is reflected in a beneficial entitlement to the whole or some part of a specific asset within that fund depends on the terms of the trust settlement. 5. Furthermore, an absolute beneficial entitlement to some part of a fund of property may be defined as an entitlement to be paid a sum of money out of the fund of property that is held on trust, irrespective of whether or not the assets within the fund are currently held in monetary form (126). Again, it depends on the terms of the trust settlement....

7. ... On and from the making of the resolution, the Trustee continued to hold such trust assets as might from time to time comprise the Trust Funds subject to an immediate unconditional obligation on the part of the Trustee to account to Mr and Mrs Nemes in the sum of $3,904,300 out of the Trust Funds. That obligation arose not outside the Deed but under the Deed. It was immediately enforceable in equity by Mr and Mrs Nemes against the Trustee in the same way as if an unconditional obligation to account to Mr and Mrs Nemes in that sum had been expressed as a term of the Deed. In order to perform that equitable obligation, the Trustee had at its disposal the powers conferred by cl 4(e), cl 4(f) and cl 8 of the Deed.
8. Rights can be created in beneficiaries to monetary sums to be met, or satisfied, from the assets of a trust by exercising powers to pay, apply, or set aside income (or capital) of a trust without changing beneficial ownership of any asset of the trust by way of, for example, re-settlement.
9. In circumstances where an 'entitlement to some part of a fund of property that is held on trust [is] not ... reflected in an absolute beneficial entitlement to the whole or some part of any specific asset within that fund', as is the case presently, the beneficiary's interest in the income of the trust is thus 'an equitable obligation' on and of the trustee. That equitable obligation reflecting the beneficiary's interest in the income of the trust is not property the trustee owns or controls. Income is not property. At times income is a character given to a receipt, entitlement, or profit. And, at other times it is a measure of performance, of a fund divisible among a class, or of an entitlement. Cash or money, receivables, trading stock or some other blend of assets that represents the income are property. If any property is created by the resolution to distribute or vest entitlements to income, it is the property of the beneficiary, namely the right to be paid. Such a resolution does not create property held by the trustee. The trustee has an obligation, with corresponding rights of indemnity or exoneration.[55]
10. In 'The Law of Trusts' the author's state.

'where the subject matter of a trust is a defined part of fungible property to which the settlor holds title, an issue may arise as to whether that subject matter is sufficiently certain to constitute trust property... > > The required certainty will not be present where the words alleged to create a trust do not refer to any objective criterion by which to ascertain the part that is subject to the trust.'[56]

11. The present circumstances are that Gleewin did not make any appropriation of any asset, nor any investment decision regarding the Trust Funds referrable to any income entitlements and has not identified any asset or property held on account of entitlements to income. At the end of each Year and thereafter there was on the facts of this case, no identifiable property that was held for Gleewin Investments absolutely.[57]
12. The power contained in clause 6(5) does not assist to deem any investment in 'intermingled assets' to be held as corpus of any separate trust in the conventional sense for Gleewin Investments.
13. In the present circumstances, where it is not possible to identify any asset or property held on any separate trust as conventionally understood, notwithstanding the acceptance of the parties that a separate trust was created, what was created upon passing resolutions to distribute Gleewin's income was a right or entitlement for the beneficiary coupled with the corresponding obligation of the trustee of a nature contemplated by what Gageler J said in Fischer v Nemeske.
14. Accordingly, the Tribunal does not accept contentions that a separate trust in fact arose in any conventional sense that had the effect of discharging or replacing the obligation to pay entitlements to income. Those entitlements to be paid shares of Gleewin's income continued to exist.
15. Each party's contentions that were based on the concept of a separate trust having the effect that the entitlements to income were discharged or paid are not accepted.

1. The definition of a loan in s 109(3) of the 1936 Assessment Act uses very wide language. Similar language has been used in other statutory settings, and the authorities concerning those settings give a generous and wide construction to the term.[58] Without more, a similar approach and construction could be expected in relation to s 109(3).
2. The statutory settings where a similar definition of loan has been given a wide or ambulatory construction do not have an equivalent to the former s 109UB and the current Subdivision EA. And those settings do not have a focus to tax the recipient of in-substance distributions of company profits in the hands of the recipient of those in-substance distributions.
3. At the outset, the Tribunal does not accept a number of the Commissioner's contentions.

(a) First, and for two reasons, the Tribunal cannot accept the contention that Subdivision EA does not apply in the present circumstances because the relevant unpaid present entitlements were held on a separate trust, with the entitlement to Gleewin's income being satisfied or paid. > > > (i) As noted above, the Tribunal is not satisfied that there was any separate trust in the conventional sense. > > > > (ii) Secondary trust circumstances are specifically contemplated as within the Subdivision EA ambit: they referred to in the EM.[59] Even in a secondary trust circumstance, the party intended to be taxed is the party in receipt of the in-substance loan funds, here Mr Bendel, through the Subdivision EA mechanism because, in substance, corporate profits are being provided by way of loan to a shareholder via the trust. > > (b) Second, the press release of 27 March 1998 does not indicate that an unpaid present entitlement of a corporate beneficiary is intended to be a loan by the corporate beneficiary to the trustee of the relevant trust. It is a misleading half-truth to contended[60] that this it does. What is revealed by the media release is a focus on a combined circumstance of an unpaid present entitlement and a contemporaneous loan by the trustee to the shareholder (or associate of the shareholder) in the corporate beneficiary. The release acknowledges that these circumstances are in substance a loan, but not a loan to the trust. Rather, the in-substance loan is from the private company to the shareholder (or associate) effected via the trust. The proposed manner by which that situation was intended to be dealt was by s 109UB (and now Subdivision EA), not s 109D. The loan from the trust is taxed in these circumstances on the same basis as would a loan from its corporate beneficiary directly to the shareholder. > > (c) Third, the proposition Subdivision EA not being otiose because some unpaid present entitlements might not be a loan because there is no consensual arrangement that leaves the entitlement unpaid, e.g., because the corporate beneficiary is unaware of the entitlement, is not to the point. The relevant contextual point, and question, is the role and operation of Subdivision EA when there is a consensual arrangement that leaves the entitlement unpaid, which the Commissioner contends makes the unpaid entitlement a loan, and there is a separate loan by the trustee to a shareholder (or associate of a shareholder) of the corporate beneficiary. Demonstrating that Subdivision EA and s 109D can have independent operation does not exclude the proposition that they can have simultaneous operation. Just because there may be circumstances where, on the Commissioner's construction of s 109D(3), Subdivision EA applies when s 109D does not, does not exclude circumstances, more likely to occur in closely held arrangements (as here) with all relevant entities controlled by the same individual/s, where on that same construction both s 109D and Subdivision EA would operate in relation to the same UPE. > > (d) Fourth, and similar to, or overlapping with, the third, that on the Commissioner's contended for correct construction of s 109D(3), there is no overlap between s 109D and Subdivision EA.

4. The task of the Tribunal in construing s 109D(3) requires it to:

(a) consider, if not begin with, the context in which s 109D(3) appears;[61] and > > (b) construe potentially competing provisions in a manner which 'give[s] effect to harmonious goals''.[62]

5. The evident purpose of Division 7A is to ensure that shareholders of private companies are not able to enjoy effective distributions of company profits in a tax-free form. That purpose is set out in s 109B of the 1936 Assessment Act. That purpose is also amply demonstrated by the range of operative provisions which identify various means by which corporate resources can be passed to, or enjoyed by, shareholders and associates of shareholders, and then quantify taxable amounts by reference to the benefit enjoyed and the relevant distributable surplus, which is a surrogate a company's realised and unrealised profits. This purpose is also buttressed by the range of supplementary provisions which seek to ensure that the primary rules are not avoided, e.g., through back-to-back or tripartite arrangements etc.
6. Beyond the text of Division 7A, if there is any further need to demonstrate its purpose, that purpose was explained in the EM[63] as ' ...to ensure that private companies will no longer be able to make tax-free distributions of profits to shareholders (and their associates) in the form of payments or loans'.[64] Former s 108 was perceived to have had problems because it ' ... operate[d] only when the Commissioner form[ed] the opinion that the amount loaned, paid or otherwise credited, represent[ed] a distribution of profits [which required him to] ... consider many factors and analyse much information, which usually [was] not ... available unless the Commissioner conduct[ed] an audit ... [leaving] ... many loans which should be taxable as dividends [not taxed].'[65] The new set of rules would operate ' ... automatically to deem advances, loans and amounts otherwise credited by private companies to shareholders (and their associates) to be assessable dividends to the extent that there are realised or unrealised profits in the company.'[66] The policy is also manifested in the Assistant Treasurer's press releases of 9 and 27 March 1998[67] explaining the need for introduction of integrity measures so as to ensure that the proposed rules could not be avoided in ways that facilitated distribution of corporate profits without bearing taxation liability.
7. Section 109UB was explained by Senator Kemp in the following terms:[68]

Media release, 27 March 1998: > > Taxation of Distributions Disguised as Loans from Private Companies > > I am announcing today additional amendments to proposed Division 7A of the Income Tax Assessment Act 1936 which was introduced into the House of Representatives in Taxation Laws Amendment Bill (No.7) 1997 on 4 December 1997. > > The new Division 7A is intended to ensure that payments, loans, or debts forgiven by private companies to shareholders (and associates of shareholders) are treated as assessable dividends to the extent that there are realised or unrealised profits in the company (unless they come within specified exclusions). > > On 9 March 1998 I announced the Government's intention to amend the Bill to ensure that the proposed legislation will not apply to payments by private companies to, or on behalf of, shareholders in their capacity as employees. I also announced that the Government was considering representations received on other aspects of the proposed legislation. In response to those representations the Government will make further amendments to the proposed legislation to ensure that the provisions operate as intended. > > Accordingly, the following amendments (which are attached to this press release) will be moved when the Bill is debated in the House of Representatives. > > ... > > Trust distributions to corporate beneficiaries: It has been argued that the proposed legislation does not apply to arrangements where a corporate beneficiary has become presently entitled to net income of a trust and the amount is not paid by the trustee to the corporate beneficiary, but continues to be held by the trustee who then provides a loan to a shareholder (or their associate) of the corporate beneficiary. These sorts of arrangements should be caught by Division 7A because, in substance, a loan of money from the private company to the shareholder (or their associate) has been effected via the trust. The proposed legislation will be amended to deal with this situation.

8. Subdivision EA replaced s 109UB. The background to the replacement Subdivision EA can be traced to the Board of Taxation's Taxation of Discretionary Trusts Report[69] which included 'addressing any tax abuse in the trust area.'[70]
9. The Taxation of Discretionary Trusts Report noted 'The ambit of the deemed dividend rules is extended to trusts by section 109UB ... which applies... to a private company that is a beneficiary of a trust estate.'[71] The Report then described concerns with the sections 'effectiveness'[72] and its 'unfairness'.[73]
10. On the same day of the Taxation of Discretionary Trusts Report was released (12 December 2002) the Treasurer announced that the government intended to legislate new provisions in replace of section 109UB in accordance with the Boards recommendations.[74]
11. The 2004 EM[75] referenced the above media release and the Board of Taxations recommendations and stated that the new Subdivision was 'designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to a private company without paying it and then distributing the underlying cash to a shareholder of the company.'[76]
12. Under a heading 'Application to loans' the 2004 EM provided,

Application to loans > > 8.18 New subsection 109XA(2) applies where:

• a trustee makes a loan to a shareholder (or their associate) of a private company (other than to a shareholder or associate that is a company); and
• the private company is, or becomes, presently entitled to an amount from the net income of the trust; and
• all or part of that present entitlement remains unpaid before the earlier of the due date for lodgement and the date of lodgement of the trust's return for the income year in which the loan takes place.

[Schedule 8, item 3, subsection 109XA(2); item 5, paragraph 109XA(2)(b)]

Example 8.4 > > A private company has a present entitlement to $5,000 of accounting income of a trust estate that remains unpaid. > > The trustee makes a non-commercial loan to a shareholder of the private company of $20,000. The loan is not repaid by the earlier of the due date for lodgement and the actual date of lodgement of the trustee's return of income for the trust in the year in which the loan was made. > > The loan will attract the operation of the new rules and, subject to the operation of the remainder of the rules contained in new Subdivision EA and Division 7A, a deemed dividend of $5,000 will arise in the hands of the shareholder.

1. Former s 109UB and Subdivision EA particularly focus on a situation with two features: an entitlement to trust income vested in a corporate beneficiary and a contemporaneous loan to a shareholder (or an associate of a shareholder) of the corporate beneficiary made by the trustee bearing the outstanding obligation to the corporate beneficiary. These provisions address a situation of the corporate beneficiary being regarded as in substance lending corporate funds to a shareholder (or associate) of the company.
2. The existence of this statutory setting cannot be ignored and needs to be accommodated in affording a construction to the term loan in s 109D(3). As noted, a construction that gives effect to harmonious goals is to be preferred.
3. Further, the uncertainty associated with the relationship created by a vesting of an entitlement to income without paying any or all of that vested entitlement to the beneficiary and without separating out any assets of the trust so as to satisfy that entitlement is consistent with a Parliamentary intention to deal with unpaid present entitlements owed to corporate beneficiaries of discretionary trusts in a particular way. Consistent with Division 7A's policy of taxing shareholders (or associates) of companies who enjoy the benefit of company profits in informal ways, that intention is only raise a tax liability on an amount taken to be a dividend in circumstances where there is both an unpaid present entitlement to a corporate beneficiary and a loan made by the Trustee to a shareholder or an associate of a shareholder of the relevant company.
4. The Commissioner contends that Subdivision EA is a belts and braces provision 'to put it beyond doubt that Division 7A applied'. The proposition that Division 7A was intended to apply to some unpaid present entitlements of corporate beneficiaries of trusts can be accepted. Section 109UB and its successor Subdivision EA were enacted to effect that purpose.
5. To accept the Commissioner's proposition that there is a loan to the Trustee meeting the terms of s 109(3) feeding into an assessable dividend through the combined operation of Division 7A and s 44 and Division 6 of the 1936 Assessment Act, raises the spectre of taxing two people in respect of precisely the same underlying circumstance, namely the same UPE. Two people would be taxed, one through Division 6 and the other through Division 7A, where a trustee has an unpaid present entitlement to a corporate beneficiary of the trust and within the prescribed time frames the trustee has lent money to a shareholder of that corporate beneficiary (or to an associate of such a shareholder). If that same shareholder or shareholder's associate were the relevant beneficiary of the trust, and properly taxed under Division 6, that person would have two amounts included in assessable income, and, for the reasons set out in relation to Issue 2 below, would not be saved by s 6-25. There are known problematic or inappropriate outcomes with the Division 6 system of taxing trust income.[77] Those outcomes have been accepted as problematic, but a matter for the Government to fix. However, the Tribunal is not aware of any similar acceptance of problematic or inappropriate outcomes extending to permit the system to tax two people as a consequence of events starting in the same circumstance and allowing the Commissioner to choose which taxpayer is assessed, or to assess and collect from both.[78] Nowhere is there any evidence of any relevant intention that there be two assessable dividends in respect of the same unpaid present entitlement. There are two relevant absences from Division 7A, at least one of which would be needed to accept the Commissioner's contentions. First, Division 7A does not have any tie breaker provision that produces a single outcome among two otherwise operative provisions that might arise from precisely the same unpaid present entitlement relationship.[79] The s 109RD relieving discretion is not such a provision. That relieving discretion has a precise gateway threshold, an honest mistake, or an inadvertent omission. Section 109RD is not directed to fairness considerations outside those gateways. For example, s 109RD is not directed to relieving a person from tax liability when they did not receive any benefit of the sum taxed. Second, Division 7A does not have any express rule allowing multiple deemed dividends arising out of the same UPE circumstance between trustee and corporate beneficiary.
6. The Subdivision EA pathway to a Division 7A assessable dividend was not intended to create a second taxable dividend in addition to a s 109D dividend arising out of the same unpaid present entitlement. Nor is Subdivision EA expressed or intended to operate in a limited way, only taxing those circumstances that fall within its terms which do not otherwise fall within s 109D, for example because the corporate beneficiary is unaware of the UPE and therefore cannot be said to have taken any step that might be said to be a loan attracting s 109D. Section 109B is not a limiting section that prevents Subdivision EA from operating in circumstances where its clear terms are met. Section 109B simply reveals that Subdivision EA is an additional pathway to cause an amount to be taken to be a dividend, an additional pathway to supplement other pathways that on their own do not deliver the intended outcome. Further, that pathway required particular additional circumstances to be present before taxable dividends arose such that not all unpaid present entitlements are to be taken to be dividends.
7. Testing the Commissioner's construction of the definition of loan in s 109D calls for a search for a discernible criterion that would identify any circumstance where Subdivision EA does not apply when an unpaid present entitlement of a corporate beneficiary exists concurrently with a loan by the trustee to a shareholder (or shareholder's associate) of that corporate beneficiary. The existence a separate trust reflecting the UPE cannot be that criterion. The extrinsic materials describe this circumstance as one where Division 7A, through Subdivision EA, is to apply when the trustee has made or makes a loan to the corporate beneficiary's shareholders or their associates. A corporate beneficiary's knowledge, or lack thereof, of the UPE is not a criterion that could make a difference given it is not expressed to be a limiting factor in Subdivision EA, or anywhere else. There isn't a discernible criterion in Division 7A to prevent Subdivision EA from operating in accordance with its terms. Because Subdivision EA is specific to a circumstance, when that circumstance is present, Subdivision EA is the lead provision.
8. Having regard to:

(a) the policy of Division 7A to tax those who in substance enjoy the benefit of corporate profits without bearing taxation that would arise had the company paid dividends in the usual way; > > (b) statutory construction principles that call for > > > (i) regard to statutory context and legislative history; and > > > > (ii) potentially competing provisions to be construed in a manner which 'gives effect to harmonious goals'; > > (c) there being no tiebreaker provision which mandates which of two competing assessing provisions would apply if an unpaid present entitlement constituted a loan within the meaning of s 109D(3); > > (d) the s 109RB discretion not being designed to allow relieving discretions to be exercise outside the s 109RD(1)(b) gateways of honest mistakes and inadvertent omissions and thus not a discretion that would relieve inappropriate double taxing; > > (e) Subdivision EA being a specific, and therefore lead, provision containing an express set of rules that can be regarded as a particular path has been chosen to deal with the taxation effect of unpaid present entitlements in favour of corporate beneficiaries in prescribed circumstances; > > (f) the lack of clarity as to the nature of an unpaid present entitlement and the separate trust concept often broached in conjunction with the unpaid present entitlement topic; > > (g) the expressed explanation accompanying s 109UB, the predecessor of Subdivision EA, to the effect: > > > (iii) that an unpaid present entitlement in favour of a corporate beneficiary and a contemporaneous loan by the trustee to a shareholder in the corporate beneficiary (or associate) is in substance a loan by the company to the shareholder; and > > > > (iv) that an amount to which a company is entitled 'held on a secondary trust for the benefit of the company' is regarded as unpaid and within the ambit of s 109UB; > > (h) the operation of Subdivision EA which taxes the shareholder in the foregoing circumstances as if the company had lent money directly to that shareholder which falls squarely within the Division 7A policy framework; > > (i) there being no provision in either of the Assessment Acts that anyone points to that expressly allows assessment of two people arising out of the same circumstance with one of those people potentially not enjoying any benefit of the corporate profits that are the underlying cause of the assessment,

the necessary conclusion is that a loan within the meaning of s 109D(3) does not reach so far as to embrace the rights in equity created when entitlements to trust income (or capital) are created but not satisfied and remain unpaid. The balance of an outstanding or unpaid entitlement of a corporate beneficiary of a trust, whether held on a separate trust or otherwise, is not a loan to the trustee of that trust.

1. For the foregoing reasons the answer to the question in Issue 1 is no.

ISSUE 2 IF GLEEWIN INVESTMENTS DID MAKE LOANS (ISSUE 1) DOES S 6-25 APPLY

1. It is strictly unnecessary to address this issue. Being fully argued and not involving any discretions, it is appropriate in the circumstances to do so.
2. The Applicant's submission focuses on the use of the term's 'amount' and 'same amount'. The submission used as an example the Commissioners 2015 adjustments.

'Under the Commissioner's approach, Gleewin Investments was taken to have made a loan to the 2005 Trust of $840,529 but some of that amount was paid to Gleewin Investments which the Commissioner treats as repayments of the 'loan'. He therefore says a deemed dividend of $807,417 arose during the 2016 income year. > > The result of that deemed dividend is that $807,417 is included in the assessable income of the 2005 Trust for the 2016 income year. But that $807,417 is part of the $840,529 that was the 2005 Trust's trust income for 2015, all of which was included in assessable income for that year. In other words, the $807,417 would be included in the 2005 Trust's assessable income twice, once in 2015 and once in 2016. That is contrary to s 6-25, which provides that the amount should be included in assessable income only in the first year (2015) and not in any other income year. > > That the $807,417 included in 2016 is the 'same amount', or part of the 'same amount', as that included in 2015 can be seen by considering what has happened to the $807,417. It was derived as income by the 2005 Trust in 2015 and, appropriately, included in assessable income in that year. It was then set aside for the benefit of Gleewin Investments and held on separate trust. It is purely because it was set aside, and not paid to Gleewin Investments, that the Commissioner says that a 'loan' and therefore a deemed dividend arose. Nothing happened to the $807,417, other than it being set aside, to change its character or to turn it into a different amount. It remained the same amount as was initially included in the 2005 Trust's assessable income.'

3. When it was introduced s 6-25 was explained in the following way:

Relationships among provisions about assessable income [Clause 6-25]

An amount of income may be included in assessable income by more than one provision of the law.

Under the existing Act, there are no express rules about what happens in such cases, although there is a presumption against double taxation.

The new law will specifically state the rules for when this happens.

If an amount falls within 2 or more provisions, it can only be assessable once. In such a case, the amount would be assessable under the most appropriate provision. You would determine the most appropriate provision taking into account, where relevant, the rule about the effect of specific assessable income provisions on ordinary income (see discussion about subclause 6-25(2) below).

If an amount is both ordinary income, and included in your assessable income by a specific provision, the specific provision will apply rather than the court-developed rules about ordinary income. However, this will not be the case if a contrary intention is apparent [subclause 6-25(2)].

An example of a contrary intention is in the calculation of a capital gain, in a case where the disposal of an asset would also produce ordinary income assessable under clause 6-5. In that case, section 160ZA of the Income Tax Assessment Act 1936 provides that the rules about ordinary income prevail, so that a capital gain is reduced by the amount that is assessable under the ordinary rules. Thus, the capital gains provisions only have a residual operation.[80]

1. Section 6-25 uses the compound term 'same amount'. That compound term requires the relevant amount to be the same in its identity, for example a dividend of a particular amount paid by a particular company on a particular date to a particular shareholder in respect of a particular shareholding that might be assessable as a consequence of both s 6-5 of the 1997 Assessment Act and s 44 of the 1936 Assessment Act. The compound term 'same amount' does not embrace amounts of a different identity that may have a historical connection. A dividend paid by a company from a profit derived by a company is not the same amount as the profit notwithstanding the closeness of the historical connection and values of the amounts.
2. In the present circumstances there are two amounts, not the same amount.

(a) First there was an amount that has been assessed as a share of s 95 net income having its origins in entitlements to distributable income of a trust estate. > > (b) Second, there was a different, and presently disputed amount assessable because, by reference to further events, the 1936 Assessment Act required a further calculation of a separately identified amount to be included in assessable income.

3. The amount taken to be a dividend paid by Gleewin Investments to Gleewin was not the same as the amount determined to be assessable income by operation of ss 95 and 97 for Gleewin Investments. The threshold condition for s 6-25 to apply does not arise in the present circumstances.

ISSUE 3 - IF THE ANSWERS TO ISSUES 1 AND 2 ARE YES AND NO, RESPECTIVELY, WILL THE TRIBUNAL EXERCISE THE S 109RB DISCRETION?

1. For Gleewin Investments, the outcome concerning Issue 1 makes it necessary to consider Issue 3 only to the extent of the effect of the $42,252 and $9,431 loans from Gleewin Investments to Gleewin. It is clear that Gleewin retained amounts belonging to Gleewin Investments outside the UPE context. No basis has been advanced for exercise of the discretion in relation to these non UPE amounts.
2. For Mr Bendel, these matters ought be held pending the Commissioner's reconsideration.

1. For Gleewin Investments, the outcome concerning Issue 1 again makes it necessary to consider Issue 4 only to the extent of the effect of the $42,252 and $9,431 loans from Gleewin Investments to Gleewin. It is clear that Gleewin retained amounts belonging to Gleewin Investments outside the UPE context. No basis has been advanced concerning penalty or remission discretions in relation to these non UPE amounts. Mr Bendel is a registered tax agent to whom the outcome of retaining amounts belonging to a company should have been obvious. Any tax shortfall as a consequence of these loans should attract penalty at the same rate and not be remitted.
2. For Mr Bendel, again, these matters ought be held pending the Commissioner's reconsideration.

(a) Gleewin Investments' income tax objections are remitted to the Commissioner for reconsideration by the Commissioner having regard to loans of $42,252 and $9,431 which do not have their origins in unpaid present entitlements to income of the 2005 Trust.

(b) Gleewin Investments' objections to its penalty assessments be recalculated at the same rate without remission based on any reduced tax shortfalls with respect to loans of $42,252 and $9,431.

(c) Mr Bendel's objections be remitted to the Commissioner for reconsideration by the Commissioner having regard to the findings of fact and reasons herein, including the loans of $42,252 and $9,431 which do not have their origins in unpaid present entitlements to income of the 2005 Trust, with such consideration to include whether Mr Bendel has established that the amended assessments that were the subject of the objections were excessive having regard to the provisions of Subdivision EA of Division 7A of the 1936 Assessment Act, and the principles articulated in Australian and New Zealand Savings Bank Ltd v Federal Commissioner of Taxation [1993] FCA 282; (1993) 42 FCR 535; Federal Commissioner of Taxation v Wade [1951] HCA 66; (1951) 84 CLR 105 and Federal Commissioner of Taxation v Reynolds (1981) 34 ALR 463.

I certify that the preceding 113 (one hundred and thirteen) paragraphs are a true copy of the reasons for the decision herein of

Deputy President F D O'Loughlin KC and Senior Member K James

...[sgd]...................................................................

ANNEXURE A - LEGISLATIVE HISTORY OF SECTION 109UB AND SUBDIVISION EA[81]

I.1 Enactment of Division 7A (and inclusion of section 109UB) in 1998

1. On 13 May 1997, the Treasurer announced the Government's intention to amend the 1936 Act to strengthen the existing s 108 "to ensure that tax is payable on distributions from private companies which take the form of loans to shareholders which are not on commercial terms".[82]
2. On 4 December 1997, the Government introduced the Taxation Laws Amendment Bill (No. 7) 1997 (which later became the Taxation Laws Amendment Bill (No. 3) 1998) (1998 Bill) into the House of Representatives.[83] Schedule 9 to the bill (ultimately, Schedule 8 once passed) proposed to insert the new Division 7A into the 1936 Act.
3. On 9 March 1998, the Assistant Treasurer published a media release regarding the 1998 Bill.[84] The release stated that "[d]uring the course of reviewing submissions from taxpayers and professional bodies on the proposed legislation it has become apparent that the proposed legislation may have some unintended consequences", and that the Government was considering representations regarding the legislation.
4. On 27 March 1998, the Assistant Treasurer published a further media release regarding the 1998 Bill.[85] The alert stated that, in response to representations made in respect of the bill, the Government proposed to make amendments to the bill "to ensure that the provisions operate as intended". Relevantly, the release foreshadowed the following amendment:

Trust distributions to corporate beneficiaries: It has been argued that the proposed legislation does not apply to arrangements where a corporate beneficiary has become presently entitled to net income of a trust and the amount is not paid by the trustee to the corporate beneficiary, but continues to be held by the trustee who then provides a loan to a shareholder (or their associate) of the corporate beneficiary. These sorts of arrangements should be caught by Division 7A because, in substance, a loan of money from the private company to the shareholder (or their associate) has been effected via the trust. The proposed legislation will be amended to deal with this situation.

5. An annexure to the media release particularised 49 amendments to the 1998 Bill proposed by the Government.[86] None of the proposed amendments touched the s 109D(3) definition of "loan". Importantly, however, one of the proposed amendments sought the insertion of a new s 109UB, which provided as follows:

109UB Certain trust amounts treated as loans > > (1) If: > > (a) a private company is, or has been, presently entitled to an amount from the net income of a trust estate; and > > (b) the trustee has not paid the amount to the private company; and > > (c) the trustee has made a loan to a shareholder of the private company, or an associate of such a shareholder after the time that the private company first became presently entitled to that amount; > > the private company is taken to have made a loan to the shareholder or associate, at the time that the trustee made the loan. > > (2) The amount of the loan is the lesser of the amount of the loan made by the trustee and the amount worked out using the formula: > > Unpaid present entitlement - Previous notional loans > > where: > > unpaid present entitlement means the total amount to which the private company is, or has been, presently entitled that the trustee has not paid. > > previous notional loans means the sum of amounts previously treated as a loan under this section as a result of its operation in relation to the unpaid present entitlement. > > Some provisions preventing loan giving rise to dividend do not apply to notional loan > > (3) Sections 109M and 109N do not apply to a loan that is taken to have been made under this section (so it must generally be taken into account for the purposes of working out whether the private company is taken under section 109D to have paid a dividend).

6. On 2 April 1998, the Government circulated 83 proposed amendments to the 1998 Bill.[87] The proposed amendments included the inclusion of the new s 109UB in the form extracted above. However, again, none of the proposed amendments touched the s 109D(3) definition of a "loan".
7. The explanatory memorandum to the 1998 Bill explained the operation of the new s 109UB as follows:

Certain trust amounts treated as loans > > 9.82 New section 109UB will apply if a private company, as a beneficiary of a trust estate, is or has been presently entitled to some or all of the net trust income which has not actually been paid. In such a situation the amount to which the company is presently entitled is held on a secondary trust for the benefit of the company. The provision applies to any subsequent loan by the trustee to a shareholder (or associate) of the company. > > 9.83 The loan from the trustee is treated as a loan by the private company to the shareholder (or associate) of an amount not exceeding the amount of income held on trust for the company, reduced by any amounts previously treated as a loan by new section 109UB in relation to the trust amount. [New subsection 109UB(2)]

Conversely, there were no references by the explanatory memorandum to trusts, beneficiaries, unpaid present entitlements, or related concepts in the context of the new Subdivision B of the 1998 Bill (including s 109D).

1. Between 2 April 1998 and 8 April 1998, the House debated the 1998 Bill,[88] including in relation to the proposed Division 7A,[89] although there was only incidental reference to the proposed amendments circulated by the Government.[90]
2. On 8 April 1998, the 1998 Bill, as amended by the Government, was passed by the House.[91] The Government member moving the amendments did not mention the proposed s 109UB, but did refer to the fact that, "[s]ince the [1998 Bill] was introduced, a number of submissions have been received expressing concern that in some situations the new provisions [in Division 7A] may have unintended consequences. In response to these concerns, the government has decided to amend the provisions to clarify their operations".[92]
3. On 13 May 1998, the Senate received the 1998 Bill,[93] and debated the bill between 14-27 May,[94] after which the Senate passed the bill with additional amendments (irrelevant for present purposes).[95] The debate included references to Division 7A,[96] although there was no specific reference to the new s 109UB.
4. On 4 June 1998, the House of Representatives agreed to the Senate's amendments.[97]
5. On 23 June 1998, the 1998 Bill received Royal Assent and came into law as the Taxation Laws Amendment Bill (No. 3) 1998 (Cth).

I.2 Replacement of s 109UB with Subdivision EA in 2004

I.2.1 Board of Taxation's report into discretionary trusts in 2002

1. The catalyst for the replacement of s 109UB with a new Subdivision EA in 2004 was an earlier report from the Board of Taxation to the Government.[98]
2. On 27 February 2001, the Treasurer published a media release announcing that the Government had adopted the Board of Taxation's recommendation not to proceed with certain reforms to tax trusts like companies.[99] Instead, the Government would begin a new round of consultations to address tax abuse by the use of trusts, and that the Board of Taxation would be part of the consultation.
3. On 12 December 2002, the Board of Taxation released its report to the Treasurer and Minister for Revenue and Assistant Treasurer on the Taxation of Discretionary Trusts.[100] The report considered distributions by discretionary trusts to corporate beneficiaries.[101] In the course of summarising the ambit of Division 7A, the report described the purpose of s 109UB as follows:[102]

The ambit of the deemed dividend rules is extended to trusts by section 109UB of the ITAA 1936, which applies to a private company that is a beneficiary of a trust estate. A trustee can make a company presently entitled to trust income without distributing cash to the company. This allows a trust to effectively accumulate income that has been taxed only at the company tax rate. Section 109UB deals with the case in which a trustee:

• makes a company presently entitled to trust income (so as to access the company tax rate), and
• then distributes the underlying cash to individual beneficiaries through loans (so that the beneficiaries avoid paying any 'top-up' tax that would be imposed on a distribution if the beneficiaries have a higher marginal tax rate).

1. The report then described concerns with the effectiveness and unfairness of s 109UB, including that it did not cover a case where a trustee distributed underlying cash to a beneficiary, but not as a loan (such as where there was a revaluation of assets, and then a tax-free distribution of the corpus of the trust to the beneficiary).[103]
2. The report presented two options. The first option was for the Government to amend s 109UB to address these concerns.[104] The second option was to repeal and replace s 109UB.[105]
3. On the same day as the release of the Board of Taxation's report, the Treasurer announced that the Government intended to legislate new provisions in place of s 109UB in accordance with the Board's recommendations.[106]
4. On 25 June 2003, the Treasurer published a media release announcing proposed rules to replace s 109UB.[107] The alert described that "[i]n a situation where ... a private company is presently entitled to trust income of a trust estate but that income has not been paid to the company; and the trustee distributes the underlying cash to a shareholder (or their associate) of the company in the form of a loan, payment, or forgiven debt; ... the loan, payment, or forgiven debt will be subject to the deemed dividend rules contained in [Division 7A]".

1. On 19 February 2004, the Government introduced the Tax Laws Amendment (2004 Measures No. 1) Bill 2004 (2004 Bill) into the House of Representatives.[108] The bill included various measures, with schedule 8 of the bill relevantly proposing the insertion of a new Subdivision EA (comprising ss 109XA-109XC) into Division 7A.
2. The explanatory memorandum to the 2004 Bill, presented on the same day, explained that the new Subdivision EA was "designed to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to a private company without paying it and then distributing the underlying cash to a shareholder of the company".[109] This design would be achieved by Subdivision EA deeming a dividend "where a private company is presently entitled to income of the trust but that income has not been paid and the trustee shifts value from the trust to a shareholder of a private company in the form of a payment, loan or forgiven debt".[110]
3. Relevantly, the explanatory memorandum provided the following example of the operation of the proposed new subsection 109XA(2) (dealing with loans by a trustee in favour of a shareholder of a private company (or that shareholder's associate) with an unpaid present entitlement):[111]

Example 8.4 > > A private company has a present entitlement to $5,000 of accounting income of a trust estate that remains unpaid. > > The trustee makes a non-commercial loan to a shareholder of the private company of $20,000. The loan is not repaid by the earlier of the due date for lodgement and the actual date of lodgement of the trustee's return of income for the trust in the year in which the loan was made. > > The loan will attract the operation of the new rules and, subject to the operation of the remainder of the rules contained in new Subdivision EA and Division 7A, a deemed dividend of $5,000 will arise in the hands of the shareholder.

4. With one minor (and irrelevant) exception,[112] the explanatory memorandum and the parliamentary debate made no reference to the other mechanisms within Subdivision B of Division 7A (including s109D) that could give rise to a deemed dividend.
5. On 4 March 2004, the House debated the bill,[113] including briefly in relation to the proposed changes to Division 7A:

(a) The Government described the purpose of schedule 8 to the 2004 Bill as follows:[114]

Schedule 8 inserts certain integrity rules dealing with payments, loans and forgiven debts made by a trustee to a private company shareholder or shareholder's associate. These amendments address issues concerning the effectiveness and fairness of certain anti avoidance provisions contained in the current law. Broadly speaking, the amendments will more effectively ensure that a trustee cannot shelter trust income at the prevailing company tax rate and then distribute the underlying cash to a beneficiary of the trust through the use of a private company beneficiary. In addition, the amendments have been designed with targeted safeguards to ensure ordinary commercial transactions are not inadvertently caught by the rules.

(b) Likewise, the Opposition (not opposing the 2004 Bill) described the purpose of schedule 8 as follows:[115]

Schedule 8 of the bill deals with distributions to certain entities. When the Board of Taxation conveniently recommended that the government not proceed with its promise to tax trusts like companies, it also recommended amendments to section 109UB of the Income Tax Assessment Act 1936. These amendments are an integrity measure which aims to ensure that a trustee cannot shelter income in a discretionary trust at the company tax rate through creating a present entitlement to a private company without paying hat entitlement and then distributing the underlying cash to a beneficiary, usually through a loan payment or forgiven debt. This practice means that the income is only ever taxed at the company tax rate and not the beneficiary's marginal tax rate. The current law deems that loans in these circumstances are treated as dividends. This means that they are taxed in the hands of the beneficiary at their marginal tax rate. The proposed changes would include a payment from the trust or forgiven debt in the same way as loans are currently treated. While the amendment will tighten up integrity rules with regard to trusts, it will also ensure that when companies are not up to mischief, such as where the loan is on a commercial basis or repaid, that the deemed dividend rules do not apply.

(c) After debate, the bill was passed by the House.[116]

1. On 15 June 2004, the Senate debated the bill,[117] including briefly in relation to the proposed changes to Division 7A:

(a) The Government described the purpose of schedule 8 to the 2004 Bill as follows:[118]

On trusts and improving the operation of integrity rules, the bill inserts certain rules dealing with payments, loans and forgiven debts made by a trustee to a private company shareholder or a shareholder's associate. These amendments address issues concerning the effectiveness and fairness of certain anti avoidance provisions contained in the current law. Broadly speaking, the amendments will more effectively ensure that a trustee cannot shelter trust income at the prevailing company tax rate and then distribute the underlying cash to a beneficiary. In addition, the amendments have been designed with targeted safeguards to ensure that ordinary commercial transactions are not inadvertently caught by the rules.

I should mention, in relation to comments that were made concerning the government's response to the Board of Taxation report on the taxation of discretionary trusts, that in fact the board did and does support the government's decision not to tax discretionary trusts as it does companies. In fact, the government has introduced a number of trust integrity measures over recent years to address loopholes. Consistent with the board's findings, the government has now introduced rules that replace section 109UB, as earlier speakers have noted, and extend the scope of the former provision by catching a broader range of transactions but at the same time providing some flexibility by preventing legitimate commercial transactions from being penalised. In addition, I should say in the government's defence that other loopholes and areas addressed include the use of non-resident trusts to transfer funds offshore, the inappropriate utilisation of losses, tracing distributions through to the ultimate beneficiaries, personal services income rules and, of course, revised social security means test treatment of private trusts and private companies. So I do not think that it can be said that the government has simply put trusts on the backburner when quite clearly the government has moved to address the issues identified in the Board of Taxation report and indeed beyond it.

(b) The Opposition (not opposing the 2004 Bill) described the purpose of schedule 8 as follows:[119]

Schedule 8 of the bill deals with distributions to certain entities. When the Board of Taxation conveniently recommended that the government not proceed with its promise to tax trusts like companies, it also recommended amendments to section 109UB of the Income Tax Assessment Act 1936. These amendments aim to ensure that a trustee cannot shelter income in a discretionary trust at the company tax rate through creating a present entitlement to a private company without paying that entitlement and then distributing the underlying cash to a beneficiary, usually through a loan payment or forgiven debt. This practice means that the income is only ever taxed at the company tax rate and not the beneficiary's marginal tax rate, creating an obvious tax advantage. The current law deems that loans in these circumstances are treated as dividends and therefore taxed at the beneficiary's marginal tax rate. The amendments in this bill would include a payment from the trust or forgiven debt in the same way as loans are currently treated.

(c) The Australian Democrats (not opposing Schedule 8 to the 2004 Bill) described the schedule's purpose as follows:[120]

Schedule 8 will amend the Income Tax Assessment Act 1936 to ensure that a trustee cannot shelter trust income at the prevailing company tax rate by creating a present entitlement to a private company without paying it and then distributing the underlying cash to a shareholder of the company. The rules replace the former section 109UB of the Income Tax Assessment Act that had a similar but more limited application.

(d) After debate, and amendments by the Government to other schedules, Schedule 8 passed the Senate.[121]

1. On 17 June 2004, the House agreed to the Senate's amendments (to other schedules).[122]
2. On 29 June 2004, the 2004 Bill received Royal Assent and came into law as the Tax Laws Amendment (2004 Measures No. 1) Act 2004 (Cth).

ANNEXURE B - RESOLUTIONS OF DIRECTORS OF GLEEWIN PTY LTD (ACN 075 582 535) AS TRUSTEE FOR MR BENDEL 2005 DISCRETIONARY TRUST

AS TRUSTEE FOR MR BENDEL 2005 DISCRETIONARY TRUST

Determination of Income: RESOLVED THAT in exercise of the powers of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the income of the Trust for the year ending 30 June 2014 comprises:

a) all those amounts being income for the purposes of the accounting records of the Trust ("Accounting Records"), less the expenses and outgoings of the Trust for the year ending 30 June 2014 attributed to those amounts for the purpose of the Accounting Records, in each case whether recorded in the Accounting Records by or after 30 June 2014, other than amounts included under paragraph (b) below; and

b) the amount remaining of each capital gain (as defined under subsection 995-1(1) of the Income Tax Assessment Act 1997) made in the year ended 30 June 2014 remaining after the recoupment for the purposes of the Accounting records of any unrecouped current-year or prior-year capital losses.

Character of Income: It is noted that, for the purposes of and in accordance with the Trust Deed, the company as Trustee has kept appropriate records and accounts to be able to identify different classes and types of income and capital.

Distribution of Income: RESOLVED THAT, in exercise of the power of the Trust Deed and every other power enabling in that behalf, the following classes or categories of income of the Trust for the year ending 30 June 2014 are hereby set aside for the benefit of the following beneficiaries, and in the following amounts and/or proportions, as set out in the table below:

The total amount of capital gains remaining after the recoupment of any unrecouped current-year or prior-year capital losses

The total amount of franked dividends remaining after subtracting any expenses directly relevant to those franked dividends

Also RESOLVED THAT for the avoidance of doubt, regardless of any adjustment to the income of the Trust, the income of the Trust shall be distributed as specified above.

Prior payments: RESOLVED THAT, for the avoidance of doubt, in respect of any amount of income that have actually been paid by the Trustee to or for the benefit of any Beneficiaries specified above or any other Beneficiary of the Trust during the year ending 30 June 2014, the making of the payment did not constitute the making of a Distribution by the Trustee unless the payment was expressly recorded by a resolution of the Trustee as constituting a Distribution, and does not vary the terms of any Distributions made under these resolutions.

Declaration We, the undersigned, hereby declare that we are in favour of the resolutions set out above.

AS TRUSTEE FOR MR BENDEL 2005 DISCRETIONARY TRUST

Determination of Income: RESOLVED THAT in exercise of the powers of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the income of the Trust for the year ending 30 June 2015 comprises:

a) all those amounts being income for the purposes of the accounting records of the Trust ("Accounting Records"), less the expenses and outgoings of the Trust for the year ending 30 June 2015 attributed to those amounts for the purpose of the Accounting Records, in each case whether recorded in the Accounting Records by or after 30 June 2015, other than amounts included under paragraph (b) below; and

b) the amount remaining of each capital gain (as defined under subsection 995-1(1) of the Income Tax Assessment Act 1997) made in the year ended 30 June 2015 remaining after the recoupment for the purposes of the Accounting records of any unrecouped current-year or prior-year capital losses.

Character of Income: It is noted that, for the purposes of and in accordance with the Trust Deed, the company as Trustee has kept appropriate records and accounts to be able to identify different classes and types of income and capital.

Distribution of Income: RESOLVED THAT, in exercise of the power of the Trust Deed and every other power enabling in that behalf, the following classes or categories of income of the Trust for the year ending 30 June 2015 are hereby set aside for the benefit of the following beneficiaries, and in the following amounts and/or proportions, as set out in the table below:

The total amount of capital gains remaining after the recoupment of any unrecouped current-year or prior-year capital losses

The total amount of franked dividends remaining after subtracting any expenses directly relevant to those franked dividends

Also RESOLVED THAT for the avoidance of doubt, regardless of any adjustment to the income of the Trust, the income of the Trust shall be distributed as specified above.

Prior payments: RESOLVED THAT, for the avoidance of doubt, in respect of any amount of income that have actually been paid by the Trustee to or for the benefit of any Beneficiaries specified above or any other Beneficiary of the Trust during the year ending 30 June 2015, the making of the payment did not constitute the making of a Distribution by the Trustee unless the payment was expressly recorded by a resolution of the Trustee as constituting a Distribution, and does not vary the terms of any Distributions made under these resolutions.

Declaration We, the undersigned, hereby declare that we are in favour of the resolutions set out above.

AS TRUSTEE FOR MR BENDEL 2005 DISCRETIONARY TRUST

Determination of Income: RESOLVED THAT in exercise of the powers of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the income of the Trust for the year ending 30 June 2016 comprises:

a) all those amounts being income for the purposes of the accounting records of the Trust ("Accounting Records"), less the expenses and outgoings of the Trust for the year ending 30 June 2016 attributed to those amounts for the purpose of the Accounting Records, in each case whether recorded in the Accounting Records by or after 30 June 2016, other than amounts included under paragraph (b) below; and

b) the amount remaining of each capital gain (as defined under subsection 995-1(1) of the Income Tax Assessment Act 1997) made in the year ended 30 June 2016 remaining after the recoupment for the purposes of the Accounting records of any unrecouped current-year or prior-year capital losses.

Character of Income: It is noted that, for the purposes of and in accordance with the Trust Deed, the company as Trustee has kept appropriate records and accounts to be able to identify different classes and types of income and capital.

Distribution of Income: RESOLVED THAT, in exercise of the power of the Trust Deed and every other power enabling in that behalf, the following classes or categories of income of the Trust for the year ending 30 June 2016 are hereby set aside for the benefit of the following beneficiaries, and in the following amounts and/or proportions, as set out in the table below:

The total amount of capital gains remaining after the recoupment of any unrecouped current-year or prior-year capital losses

The total amount of franked dividends remaining after subtracting any expenses directly relevant to those franked dividends

Also RESOLVED THAT for the avoidance of doubt, regardless of any adjustment to the income of the Trust, the income of the Trust shall be distributed as specified above.

Prior payments: RESOLVED THAT, for the avoidance of doubt, in respect of any amount of income that have actually been paid by the Trustee to or for the benefit of any Beneficiaries specified above or any other Beneficiary of the Trust during the year ending 30 June 2016, the making of the payment did not constitute the making of a Distribution by the Trustee unless the payment was expressly recorded by a resolution of the Trustee as constituting a Distribution, and does not vary the terms of any Distributions made under these resolutions.

Declaration We, the undersigned, hereby declare that we are in favour of the resolutions set out above.

AS TRUSTEE FOR MR BENDEL 2005 DISCRETIONARY TRUST

Determination of Income: RESOLVED THAT in exercise of the powers of the Trust Deed and every other power enabling it in that behalf, the Trustee determines that the income of the Trust for the year ending 30 June 2017 comprises:

a) all those amounts being income for the purposes of the accounting records of the Trust ("Accounting Records"), less the expenses and outgoings of the Trust for the year ending 30 June 2017 attributed to those amounts for the purpose of the Accounting Records, in each case whether recorded in the Accounting Records by or after 30 June 2017, other than amounts included under paragraph (b) below; and

b) the amount remaining of each capital gain (as defined under subsection 995-1(1) of the Income Tax Assessment Act 1997) made in the year ended 30 June 2017 remaining after the recoupment for the purposes of the Accounting records of any unrecouped current-year or prior-year capital losses.

Character of Income: It is noted that, for the purposes of and in accordance with the Trust Deed, the company as Trustee has kept appropriate records and accounts to be able to identify different classes and types of income and capital.

Distribution of Income: RESOLVED THAT, in exercise of the power of the Trust Deed and every other power enabling in that behalf, the following classes or categories of income of the Trust for the year ending 30 June 2017 are hereby set aside for the benefit of the following beneficiaries, and in the following amounts and/or proportions, as set out in the table below:

The total amount of capital gains remaining after the recoupment of any unrecouped current-year or prior-year capital losses

The total amount of franked dividends remaining after subtracting any expenses directly relevant to those franked dividends

Also RESOLVED THAT for the avoidance of doubt, regardless of any adjustment to the income of the Trust, the income of the Trust shall be distributed as specified above.

Prior payments: RESOLVED THAT, for the avoidance of doubt, in respect of any amount of income that have actually been paid by the Trustee to or for the benefit of any Beneficiaries specified above or any other Beneficiary of the Trust during the year ending 30 June 2017, the making of the payment did not constitute the making of a Distribution by the Trustee unless the payment was expressly recorded by a resolution of the Trustee as constituting a Distribution, and does not vary the terms of any Distributions made under these resolutions.

Declaration We, the undersigned, hereby declare that we are in favour of the resolutions set out above.

2013 Year entitlements assessed as a deemed dividend in the 2014 Year

2014 Year entitlements assessed as a deemed dividend in the 2015 Year

2015 Year entitlements assessed as a deemed dividend in the 2016 Year

2016 Year entitlements assessed as a deemed dividend in the 2017 Year

[1] Income tax Assessment Act 1936 (Cth).

[2] Lodgment day within the meaning of 1936 Assessment Act, s 109D(6).

[3] The Steven Bendel 2005 Discretionary Trust, created by deed of settlement of 24 June 2005 ("2005 Trust Deed") between Benjamin Nathan Orbach as settlor and Gleewin Pty Ltd (ACN 075 582 535) as trustee.

[4] Gleewin Pty Ltd. Unless the context suggests the contrary, all references to Gleewin are a reference to Gleewin in its capacity as trustee of the 2005 Trust, and references to Gleewin's assets, liabilities, expenses, income, financial statements, obligations, entitlements, and activities etc., are references to the assets, liabilities, expenses, income, financial statements, obligations, entitlements, and activities etc., of Gleewin in that capacity.

[6] A Year being a year of income, normally (as is applicable in the present circumstances) a 12-month period that ends on 30 June in a calendar year.

[7] Mr Bendel was also described as the public officer in Gleewin Investments' tax returns.

[8] Distributed in the sense that the Trustee has exercised a discretionary power to pay, apply or set aside amounts to and/or for Gleewin Investments.

[9] Applicants' Statement of Facts, Issues and Contentions dated 6 June 2022 ("ASFIC") [28(a)]. The Applicants' submissions dated 26 August 2022 ("AS") at [22(a)] express the issue in a slightly different way without any substantive change in meaning.

[10] Respondent's Statement of Facts, Issues and Contentions dated 24 December 2021 ("RSFIC") [5(a)].

[11] Respondent's submissions dated 26 September 2022 ("RS") [2].

[13] Income tax Assessment Act 1997 (Cth).

[14] T_axation Administration Act 1953_ (Cth).

1. [15] See Devaynes v Noble (Clayton's case) [1815] EngR 77; (1816) 35 ER 781.

[16] Gleewin Investments T Documents GI-T48 Audit Position Paper dated 21 December 2018.

[17] The 2005 Trusts Financial Statements included an asset 'Beneficiaries Current Account Steven Bendel' at GI-T17.

[19] It was accepted by the parties that the date was a typographical error and should read 16 December 2009.

[20] An account maintained in Gleewin's financial records called 'Beneficiaries Current Account Steven Bendel'.

[21] Offword Bunby 2007 Unit Trust was wound up.

[22] Distributions were also made from the Port Sorell Shopping Centre Unit Trust and the Bendel 1992 Trust which had previously borrowed from the 2005 Trust. The closing current asset from these trusts was after adding the distributions less than the borrowed amounts. A running balance account was kept in 2016. Although the accounting for the UPEs is unclear, payments were made in excess of the distributions.

[23] GI-T17, see 30 June 2016 Balance Sheet showing current assets of Bendel 1992 Trust, Bendel 2009 HJ Trust, Bendel Partners Unit Trust.

[24] An account maintained in Gleewin's financial records called 'Beneficiaries Current Account Gleewin Investments Pty Ltd'.