BRK (Bris) Pty Ltd v Commissioner of Taxation

Judgment (4 paragraphs)

[1]

REASONS FOR JUDGMENT 1 The applicant, at all material times, was the trustee of the Wagner Family Trust ("the Trust"). On 4 August 1998 the respondent, by notices of assessment of that date, assessed the applicant to income tax and imposed penalty tax for the financial years 1993, 1994 and 1995. The respondent assessed the applicant as trustee pursuant to s 99A of the Income Tax Assessment Act 1936 (Cth) ("the Act"). 2 The applicant lodged notices of objection to the assessments contending that Westside Commerce Centre Pty Ltd, as trustee of the Hendon Unit Trust ("WCC") was beneficially entitled to all of the income in each of the relevant income years. Alternatively, it contended that the other beneficiaries upon default were presently entitled to the income. 3 The respondent disallowed the objections in full and the applicant appeals to this Court to set aside the decision to disallow the objections. 4 The Trust was settled by Deed of Settlement dated 12 June 1980 ("the Deed"). So far as is presently relevant, the Deed provided : "NOW THIS DEED WITNESSES as follows :

In this Deed the following words and expressions shall have the meanings assigned to them respectively unless the context otherwise ... [illegible] ... 'the settlor' the said Cornelius Wagner [illegible] 'the trustee' the said Wilhelm Johannes Wagner and Jessica Olive Wagner and any other [illegible] 'this Deed' includes any other instrument in substitution herefor or modification hereof or supplementary hereto. 'the Trust' the settlement constituted by this Deed to be known as 'THE WAGNER FAMILY TRUST' and any other instrument in modification hereof or substitution herefor. 'the Fund' (i) the original sum of Ten dollars ($10.00) hereinbefore mentioned. (ii) all other moneys and property which any natural or legal person may donate transfer or assign to or vest in the Trustee to be held upon the trusts and with and subject to the powers and provisions of this Deed; (iii) all other property and moneys acquired by the Trustee for the purposes of this Deed; (iv) the property and investments for the time being and from time to time representing the property and moneys referred to in sub-clauses (i), (ii) and (iii) hereof and into which the same or any part thereof may be converted from time to time. (v) any income which is accumulated and added to capital in accordance with this Deed. 'Beneficiary' The Beneficiaries named in the Schedule hereto. 'the perpetuity date' The eightieth (80th) anniversary of the date of this Deed or such earlier date as the Trustee may nominate to be the perpetuity date. 'property' real personal moveable or immovable property of every kind and nature and wheresoever situate and whether forming all or part of the Fund or income including (without limiting the generality thereof) policies of assurance cash choses in action and the undertaking and goodwill of any business. 'child', or any derivative thereof includes a child legally or informally adopted whether before on or after the date of execution of this Deed. AND the plural shall include the singular and vice versa and words and expressions importing any gender shall include the same words and expressions of any other gender. 2. This Settlement is irrevocable. 3. The settlor hereby directs and declares and it is hereby agreed that the Trustee shall stand possessed of the Fund and the income therefrom upon the trusts and with and subject to the powers set forth in this Deed. 4. The Trustee may in its absolute and uncontrolled discretion accumulate any of the income of the Fund and hold the same as an accretion to and part of the capital of the Fund. 5. Until the perpetuity date the Trustee shall hold the Trust Fund upon trust to pay divide or apply the whole or any part of the income of the Trust Fund to or between or for the maintenance education support or benefit of all or any one or more of the beneficiaries in such proportions and in such manner as the Trustee shall in his uncontrolled discretion think fit PROVIDED ALWAYS that the Trustee may at his own discretion at any time or times after the date hereof and before the expiration of the perpetuity date if in his uncontrolled discretion thinks fit pay or apply the whole or any part or parts of the capital of the Fund to or for the benefit of any one or more of the beneficiaries or in writing appoint that the whole or any part or parts of such capital shall be held upon such trusts either revocable or irrevocable for the benefit of the beneficiaries or any of them subject to such powers and discretions exerciseable by any person or persons other than the Settlor and generally in such manner as the Trustee shall think fit but so that all interests so created shall vest on or prior to the perpetuity date PROVIDED FURTHER that if the Trustee shall not exercise any discretion as aforesaid then the Fund in relation to any income year shall be distributed equally between the beneficiaries as tenants in common. 6. Any beneficiary from whom income is held on trust pursuant to any irrevocable direction under this Deed shall be deemed to have an immediate and indefeasible vested interest in such income it being the express intention of the Settlor (as the Trustee hereby acknowledges) that such beneficiary shall be presently entitled thereto. 7. In default of, and subject to any exercise of any discretion payment application transfer accumulation or determination pursuant to any other provision of this Deed the Trustee shall at all times divide the Fund equally among the beneficiaries named in the Schedule hereto. ..... 14. (i) The Trustee hereby reserves to itself the power to declare from time to time such further or other trusts and powers of and under this Deed as it may from time to time deem desirable so to do but not so as - (a) to acquire for itself any beneficial interest in the Fund or any part thereof nor in the income or any part of the income arising therefrom, or (b) to create any greater interest or benefit whatsoever in the Fund or income of any class of beneficiaries than hereinbefore specified. ..... THE SCHEDULE HEREINBEFORE REFERRED TO (a) McEWAN REVIE WAGNER a minor born the 14th November 1966 BONNIE JEAN WAGNER a minor born the 14th January 1969 DIRK JAMES WAGNER a minor born the 28th December 1969 STEWART WILLIAM WAGNER a minor born the 14th July 1975 HEATHER MORAG WAGNER a minor born the 18th August 1977 WILHELM JOHANNES WAGNER JESICA OLIVE WAGNER (b) The spouse of a person referred to in sub-clause (a) hereof. (c) The child or children of a person referred to in sub-clauses (a) or (b) hereof. (d) A company in which at least one share is beneficially owned by a person or persons referred to in sub-clauses (a), (b) or (c) hereof. (e) A trust in which a person or persons referred to in sub-clauses (a), (b), (c) or (d) hereof is a beneficiary or are beneficiaries. (f) Any person or persons related by blood or marriage to a person or persons referred to in sub-clauses (a), (b), (c), (d) or (e) hereof." 5 On 28 June 1993 the applicant, then known as Burradale Pty Ltd, held a meeting, the business of which is recorded in minutes of the same date. The minutes record : "MINUTES OF A MEETING OF DIRECTORS OF BURRADALE PTY LTD HELD AT: ON: The 28th day of June 1993 at am/pm PRESENT: Bill Wagner Chairman Jessica Wagner TRUSTEE STATUS: It was noted the Company acts as trustee of the ................................. Discretionary Trust ('the Trust") and that under the provisions of the relevant Trust Deed the Company in its trustee capacity in the circumstances set out in clause 1(b)(1)(iii) has power to nominate further General Beneficiaries for the purposes of the Deed. THE WESTSIDE DISCRETIONARY TRUST: The Chairman advised that Astion Pty Ltd ACN 060 572 581 had provided advice in writing to the company confirming that the Specified Beneficiaries under the Trust were included within the classes of beneficiaries under the Westside Discretionary Trust. In the circumstances it was noted that Astion Pty Ltd as trustee of the Westside Discretionary Trust qualified for nomination as a General Beneficiary under the Trust. NOMINATION OF GENERAL BENEFICIARY: The Chairman tabled a nomination form and IT WAS RESOLVED to nominate Astion Pty Ltd as trustee of the Westside Discretionary Trust as a General Beneficiary of the Trust and IT WAS FURTHER RESOLVED to affix the Common Seal of the Company to the nomination form. The meeting closed at o'clock. SIGNED as correct. [Signature] Chairman" 6 At that date the Westside Discretionary Trust did not exist and there is a real question as to whether or not it was ever settled. Similarly, as at that date there was no advice in writing from Astion Pty Ltd confirming that the Specified Beneficiaries under the Trust were included within the classes of beneficiaries under the Westside Discretionary Trust. There is a real question whether or not any such advice ever was given; an issue I will return to later. 7 On 28 June 1993 the applicant caused its common seal to be applied to a document entitled "NOMINATION OF GENERAL BENEFICIARY". The document provided : "WHEREAS: A. The Deed described in Part 1 of the Schedule ('the Deed') constituted the trust described therein ('the Trust'). B. The party described in part 2 of the Schedule is the trustee of the Trust ('the Trustee'). C. Clause 1(b)(iii)A of the Deed makes provision for the nomination in writing by the Trustee as a General Beneficiary of the Trust, the trustees (in their capacity as such) of any trust or settlement under which any General Beneficiary is a beneficiary whether present or contingent. D. It is noted that: (1) Astion Pty Ltd ACN 060 572 581 as Trustee of the Westside Discretionary Trust is a General Beneficiary of the Trust. (2) Astion Pty Ltd in its trustee capacity is the holder of one or more units in the Hendon Unit Trust created by Deed of Trust dated the 25th day of March 1988 ('the Unit Trust'). (3) Westside Commerce Centre Pty Ltd ACN 008 149 764 ('WCC') is the Trustee for the time being of the Unit Trust. E. It is further noted that by virtue of the circumstances outlined in D above WCC in its capacity as Trustee of the Unit Trust qualifies for nomination as a General Beneficiary of the Trust. THEREFORE:

PRESENT: WILHELM JOHANNES WAGNER JESSICA OLAF [sic] WAGNER APPROPRIATION OF TRUST INCOME: Resolved that the Income of the Trust for the Year Ended 30th of June, 1995 be appropriated, set aside and applied to the beneficiaries: HENDON UNIT TRUST FIRST $220,000 NORTHBOURNE TRUST NEXT $100,000 WILHELM J WAGNER REMAINDER OF JESSICA O WAGNER BALANCE EQUALLY VARIATION OF INCOME Resolved that should the Commissioner of Taxation disallow any amount as a deduction or include any amount in the assessable income of the Trust, such amount or amounts are to be deemed to be distributed on 30th of June, 1995 in the same proportions as listed above to the beneficiaries listed above. RATIFICATION OF TRUSTEES ACTION: Resolved that actions of the Trustee during the year relating to the investment of trust moneys and application of income be ratified and confirmed. CLOSURE: There being no further business, the Chairperson closed the meeting. Confirmed as a correct record. [Signature] Chairperson" 13 There is no evidence as to the circumstances by which it is alleged that the Northbourne Trust became a beneficiary of the Trust and became entitled to income of the Trust in the financial year ended 30 June 1995. However, the respondent has not assessed the applicant to tax on any distribution to the Northbourne Trust and no issue arises in the present proceedings as to that distribution. 14 A comparison of the terms of the resolutions passed by the applicant on 28 June 1993, and the nomination of appointments which preceded them, indicates that they were not prepared by reference to the Deed which contains the trusts and powers of the Trust. The applicant, as trustee under the Trust, had no power to appoint WCC and Astion Pty Ltd as beneficiaries entitled to benefit from the trusts provided for in the Deed. The applicant had no power to appoint any income in any income year to WCC as it was outside the class eligible to be the object of an appointment of income under the terms of the Trust: In re Gulbenkian's Settlements [1970] AC 508 at 518; In re Hays Settlement Trusts [1982] 1 WLR 202 at 210. 15 The purported resolutions were nullities and liable to be set aside ab initio by a Court: Re Cavill Hotels Pty Ltd (1998) 1 Qd R 396 at 402; Turner v Turner [1984] Ch 100 at 111. WCC was at no relevant time a beneficiary under the Trust or entitled to have income in any income year appropriated, set aside or applied to it. In consequence, WCC was never presently entitled to any of the income of the Trust in the financial years 1993, 1994 and 1995. 16 Ultimately and correctly, I find, the case was litigated on the basis that the attempt by the applicant to appropriate, set aside or apply the income of the Trust in each income year to WCC failed. The issue litigated was what consequences flowed from such a failure? 17 The applicant submits that, as a matter of construction of the Deed, the failure of the applicant as trustee to pay, divide or apply the income which it attempted to appropriate, set aside or apply to WCC in each income year, had the consequence that the income for that year was distributed equally between the beneficiaries under the Trust as tenants in common. Such an outcome followed, the applicant submits, from a consideration of the terms of clauses 5 and 7 of the Deed. The applicant submits that as the default beneficiaries were presently entitled in respect of each year, the applicant was not assessable under s 99A of the Act in respect of any income and that, in consequence, the assessments were excessive and no income tax, penalty tax or interest was payable by the applicant. In those circumstances it submits the objections ought to have been allowed and the decisions disallowing the objections should be set aside. 18 Senior Counsel for the applicant submitted that although the Deed was inelegantly drawn, its purpose was clear; that was, to ensure that no income remained in any income year so as to be assessable in the hands of the applicant as trustee. 19 The respondent submits that : (a) The trusts or trust powers contained in clause 5 were subject to the trustee's absolute and uncontrolled discretion under clause 4 to accumulate any of the income of the Fund (as defined) and to hold the same as an accretion to and part of the capital of the Fund. (b) Clause 5 as a matter of construction did not require that the discretion to pay or apply the income in any financial year had to be exercised by the end of that financial year and that, subject to the power to accumulate income which could be exercised at any time within a reasonable period after the end of the income year, the trustee could at any time pay, divide or apply the income referrable to any particular year to or for the benefit of one or more of the beneficiaries in such proportions and manner as the trustee thought fit. (c) If there has been a default by the applicant to appoint the income, no beneficiary became presently entitled because the default provisions in clauses 5 and 7 were void. 20 The structure of the Deed, in my view, reveals the intention of the settlor as to the treatment of capital and income and the proper construction to be given to the trusts provided for in the Deed. 21 Clause 3 of the Deed established a trust as to the capital and income of the Fund, as defined. The Trust was to be known as "The Wagner Family Trust". 22 Clause 4 gives the trustee an absolute and uncontrolled discretion to accumulate any income of the Fund and to hold it as an accretion to the capital of the Fund. 23 Clause 5 deals with the income of the "Trust Fund"; although not defined, and at first glance different from the Fund as defined, it is clear enough that it is concerned with income of the Fund, as defined, of the Trust, as defined ie the income of "The Wagner Family Trust". 24 Clause 5 also only deals with income which has not been accumulated by the trustee exercising the power contained in clause 4. 25 The Trust upon which income is held is a discretionary trust empowering the trustee from time to time during the perpetuity period :

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Judgment (4 paragraphs)

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