Hyder v Commissioner of Taxation

1. The respondent pay the applicant's costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THAWLEY J: 1 The general background relevant to these proceedings may be found in part in the reasons given in Hyder v Commissioner of Taxation [2024] FCA 464. For convenience, parts are repeated here and expanded upon. 2 In early 2015, Mr Elton Matthew Hyder IV took steps to establish the Screaming Eagle Partnership (SEP). The SEP was a form of general law partnership, sometimes referred to as a "controlled partnership". The partners were Screaming Eagle Pty Ltd (SEPL) and Mr Hyder. SEPL was entitled to 99% of the profits and Mr Hyder was entitled to 1% of the profits. 3 The SEP was established on the advice of Mr Stuart Dreves, an accountant, and Mr Lister Harrison QC, a barrister. In their advice, the advisers noted that a partnership needed to operate a business. They recommended Mr Hyder commence an equipment hire business in which SEP could lease equipment "in-house", namely to an associated business. 4 The SEP, and associated structure, was conceived at a time when Mr Hyder was expecting substantial profits to arise in his property development businesses and when Mrs Amy Hyder (Mr Hyder's wife) had exchanged a contract to purchase a house in Bellevue Hill in Sydney for $9.4 million. Mr Hyder wanted to fund the purchase of the family home by using the profits expected to arise in his property development business. 5 The anticipated profits were generated by unit trusts which carried out Mr Hyder's (and others') property development activities and substantial profits were paid to EMH IV Pty Ltd as trustee for the EMH IV Trust. 6 The EMH IV Trust appointed the bulk of its income for the 2015 income year ($18,040,507) to the SEP. In the 2015 income year, an amount of $13,304,054.61 was paid to the SEP by the EMH IV Trust, leaving the SEP with an unpaid present entitlement (UPE) of $4,701,501. In the 2016 year, an amount of $1,357,000 was paid to the SEP by the EMH IV Trust. Mr Hyder's evidence was that this was paid by mistake. 7 Mr Hyder withdrew a total of $13,250,000 from the SEP's bank account in the 2015 income year. The first withdrawal was of an amount of $9,700,000 on 20 February 2014 which was used by Mr Hyder to fund Mrs Hyder's purchase of the family home. 8 Mr Hyder signed SEPL's tax return for the 2015 income year on 19 May 2016, recording that it was liable to $5,354,424.21 in tax, being 30% of SEPL's 99% share of the distribution which had been made to the SEP by the EMH IV Trust. 9 On 27 May 2016, Mr Hyder and Mr Dreves executed a "Purchase of Business Agreement" for the sale of all the issued shares in Screaming Eagle Co Pty Ltd (SEC) to Mr Dreves for $1.00, payable "in one lump sum". Mr Hyder resigned as secretary and director of SEPL and SEC, and Mr Dreves was appointed in his place. 10 On 6 June 2016, SEPL was notified of an overdue tax liability of $5,376,187.55, including GIC. Mr Dreves placed SEPL into liquidation on 28 October 2016. 11 On 8 May 2017, the Commissioner commenced a risk review of Mr Hyder's taxation affairs. This was escalated into an audit on 24 April 2018. 12 On 24 June 2018, SEPL was deregistered by ASIC. SEPL was reinstated on 21 October 2019. 13 On 7 November 2019, SEPL paid its income tax liability for the 2015 income year. It also paid GIC of $222,803.87 accrued until 28 October 2016. 14 After the audit was completed, the Commissioner issued: