Leighton v Commissioner of Taxation

REASONS FOR JUDGMENT 1 The issue in this appeal is whether, as the learned trial judge concluded, the appellant, Mr Norman Leighton, was, in each of the income years ended 30 June 2002, 2003 and 2004, liable to be assessed by the respondent Commissioner of Taxation under (the now former) s 98(3) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) in relation to securities trading activities conducted through stockbrokers in Australia? For the reasons which follow we have concluded that Mr Leighton was not so liable and that his appeal must be allowed. 2 What the Taxation Administration Act 1953 (Cth) terms an "appeal" against an objection decision is, in point of law, a proceeding in this Court's original jurisdiction. In this case, the trial of that "appeal" in the original jurisdiction was conducted on the basis of facts agreed between the parties for the purposes of that proceeding and by reference to related documents the tender of which was uncontroversial. Upon their tender, those agreed facts were attended with all of the consequences for which s 191 of the Evidence Act 1995 (Cth) provides, which include an inability, without leave, for either party to adduce evidence, which includes the drawing of inferences from the agreed facts (ACCC v Visy Industries Holdings Pty Ltd (No 3) (2007) 244 ALR 673 at [1]), to contradict or qualify an agreed fact. No such leave was sought or granted whether at trial or on the hearing of the appeal. 3 The agreed facts were materially recited by her Honour in her judgment under the heading "Agreed Facts" (Leighton v Commissioner of Taxation [2010] FCA 1086 at [3] to [18]). It is convenient first to reproduce that recitation before turning to the merits of the appeal: 3 … Mr Leighton is a non-resident of Australia for income tax purposes. He has not lodged income tax returns in Australia. He lives in, and conducts business from, Monaco. In the 2002, 2003 and 2004 income tax years (the relevant income years), Mr Leighton and his wife were authorised by the Monaco Government to operate an international corporate and trust administration business under the name of "Leighton & Leighton". Leighton & Leighton is an SNC (societe en nom collectif) corporate partnership organised under the law of Monaco. Leighton & Leighton was authorised, pursuant to Monegasque law, to provide services concerning the creation, management, administration or the running, control and monitoring of foreign companies or other similar foreign structures having a legal existence as well as trusts. Pursuant to this authorisation, the objects of Leighton & Leighton relevantly included: Mr Norman Leighton and Mrs Hazel Leighton, to work together within the collective framework of the Company called "Leighton & Leighton" the following activity in Monaco and abroad, the provision of services concerning assistance in setting-up, management, administration, control and surveillance of foreign [non-Monaco] companies or other similarly validly existing non-Monaco legal entities as well as trusts, with the exclusion of specifically regulated activities; such activities to be undertaken in accordance with recommendations and laws applicable to the Principality of Monaco to foreign entities management services 4 During the relevant income years, Mr Leighton was also a director and the beneficial owner of the shares in CLC Corporation (CLC), which was incorporated as an international business company in the Bahamas on 30 July 1990. Some time after 30 June 2004, CLC was dissolved. 5 Each of Salina Investments Limited (Salina) and Kolton Holdings Limited (Kolton) is a non-resident of Australia for income tax purposes. Salina is a company incorporated in the British Virgin Islands and Kolton is an international business company incorporated in the Commonwealth of the Bahamas on 18 February 1993. Both were liquidated in 2006. During the relevant income years, Mr Leighton was a director of Salina and of Kolton but he was not a beneficial owner of any share in either Salina or Kolton. The beneficial owners of Salina and of Kolton were unidentified third parties who were Mr Leighton's clients. 6 During the relevant income years, each of CLC, Salina and Kolton's registered address for service was: 1. from 29 March 2002, Leighton & Leighton, 4 rue des Orchidees, MC 98000, Monaco; and 2. from 9 January 2000 to 23 March 2002, Leighton & Leighton, c/- Gaskell 7 Boulevard des Moulins, MC 98000 Monaco. (This was also the address for Leighton & Leighton). 7 On 15 September 1993, Mr Leighton wrote to Westpac Custodian Nominees Limited (Westpac Custodian) in relation to "the required information to establish a Westpac Bank account on my behalf ...". On 15 September 1993, Mr Leighton provided Westpac Custodian with details of an account name, his address, residency status and facsimile contact details for the purpose of establishing a bank account. Mr Leighton established a Securities Custodian account with Westpac Custodian and also a Westpac Custodian Bank account 034-954-104471 in his name (the Westpac Bank Account). 8 On 24 December 1993, Mr Leighton entered into a Custodian Agreement with Westpac Custodian by which Westpac Custodian agreed to hold and administer securities on the terms set out below. Mr Leighton signed the Custodian Agreement in his own name. There were clauses of the Custodian Agreement as follows: 2. Subject to the instructions of Mr Leighton, Nominees [i.e. Westpac Custodian] shall perform, each of the acts stipulated hereunder: (a) To credit and / or debit a designated Cash Account of Mr Leighton, with funds received or paid in connection with Mr Leighton securities transactions; and (b) To deposit and / or withdraw securities and hold the balance of the Securities in the Custodian Accounts of Mr Leighton. 3. Nominees shall perform, unless and until otherwise specifically instructed by Mr Leighton each of the acts specified hereunder: (a) To collect or receive the principal and interest in connection with the bonds and debentures held in the Securities Custodian Accounts, cash dividends on stocks so held, and other monies accruing therefrom, and credit the designated cash account of Mr Leighton with such funds; and (b) To collect or receive stock dividends on securities held in the Securities Custodian Accounts and other securities accruing therefrom, and deposit them with the Securities Custodian Accounts of Mr Leighton. 4. (a) Nominees shall handle, unless and until otherwise specifically instructed by Mr Leighton, registration procedures for transfer of the received securities to the name of Nominees in case such registration is required. (b) Those securities held by Nominees in the Securities Custodian Account which are ordinarily held or deposited with or maintained in any Securities System may be so held, deposited or maintained. 5. Nominees shall subscribe for new shares in accordance with the instruction of Mr Leighton. ... 8. Nominees shall exercise, subject to instructions of Mr Leighton, voting rights of securities held in safekeeping pursuant to this Agreement in its name. … 13. (a) Nominees shall not part with possession of any documents of title or certificates held on behalf of Mr Leighton otherwise than to Mr Leighton or on Mr Leighton's instructions; and (b) In the case of a transaction eligible for settlement through a Securities System, upon receipt of the instructions referred to in clause 13(a), Nominees is authorised to complete settlement of the transaction in accordance with the rules governing that Securities System; and (c) those documents of title or certificates referred to in paragraph 13(a) above shall be held in such manner that it is readily apparent that the custodian or an associate of the custodian is not the beneficial owner of the investments to which they relate. … 20. This Agreement may be terminated by either party by giving to the other party a notice in writing not less than sixty (60) days prior to the termination. In such event all assets held by Nominees on behalf of Mr Leighton shall be delivered to Mr Leighton or the successor custodian which Mr Leighton will designate provided, however that Nominees will not be required to make any such delivery until full payment shall have been made to Nominees of all Nominees fees, costs and expenses arising out of, or in connection with this Agreement. In the event Nominees terminates this Agreement, Nominees shall continue to hold under this Agreement all assets then held by Nominees until Mr Leighton has sufficient time to make other arrangements for the custody and servicing of such assets. 9 On 10 October 1997, Mr Leighton entered into a Directors and Management Services Agreement with Salina which included terms that: 1.2 Leighton will provide the following basic services or any part thereof (together with any ancillary, additional or other services provided by Leighton on behalf of SALINA, "the Services") to SALINA as and when SALINA may reasonably require: 1.2.1 management services, including the opening of bank accounts, and the purchase, sale, settlement and safekeeping of securities and other assets and property; 1.2.2 accounting services; 1.2.3 corporate services; 1.2.4 provision of director(s) and secretary (as applicable); 1.2.5 provision of office facilities; and 1.2.6 provision of Board Room facilities upon notice … … 3.1 Salina shall pay to Leighton fees based on the standard rates charged by Leighton from time to time for the provision of the Services, as adjusted from time to time. In addition SALINA will also reimburse any expenses necessarily incurred by Leighton in providing the Services. 3.2 Leighton shall be entitled to deduct from any accounts it is managing on behalf of Salina for the Services rendered or to be rendered from time to time. 3.3 Salina undertakes to ensure that there are sufficient funds in accounts managed by Leighton to enable the payments referred to in Clause 3.2 to be made when due and Salina authorizes (sic) Leighton to sell any of the securities referred to in Clause 1.2.1 to enable it to make such payments. … 7.1 Leighton shall at all times perform the services referred to in Clause 1.2 from Monaco and shall maintain and retain all documents concerning the same in Monaco. 7.2 Leighton will hereafter act as an independent contractor of Salina and nothing in this Agreement may be interpreted or construed to create any employment, partnership, agency, joint venture or other relationship between Leighton and Salina. 10 On 10 November 1997, Mr Leighton as Administrator entered into a Guarantee with a person whose identity is undisclosed (the Guarantor),by which the Guarantor guaranteed to Mr Leighton the due and punctual payment of all moneys owing to the Administrator by Salina and any other companies formed, administered or operated on the Guarantor's behalf or on behalf of the Guarantor's family. 11 On 20 December 2001, Mr Leighton entered into a Directors and Management Services Agreement with Kolton. It contained similar terms to the Salina Agreement. 12 During the relevant income years, Mr Leighton provided administrative and management services for, inter alia, Kolton and Salina. Leighton & Leighton charged fees to Salina and Kolton respectively based on a percentage of sales proceeds (from the sale of shares) received by Salina and Kolton. 13 During the relevant income years, Salina had accounts with the following brokers: 1. Southern Cross Equities, 88 Phillip Street, Sydney, account number 151051877; 2. Bell Potter Securities Limited, 225 George Street, Sydney, account number 6462981; 3. Credit Suisse First Boston, 1 Macquarie Place, Sydney, account number 462981; and 4. Challenger First Pacific, 88 Philip Street, Sydney, account number 462981. 14 During the relevant income years, Kolton had accounts with the following brokers: 1. Southern Cross Equities, 88 Phillip Street, Sydney, account number 151022577; 2. Bell Potter Securities Limited, 225 George Street, Sydney, account number 6642036; 3. E.L. & C. Baillieu, 360 Collins Street, Melbourne, account number 188928; and 4. Saloman Smith Barney/Citigroup, 2 Park Street, Sydney, account number 10079. 15 During the relevant income years, there were approximately 676 share buy and sell transactions in Australian shares that are the subject of dispute in these proceedings. In respect of these share transactions, it is common ground that: 1. Mr Leighton had authority to provide instructions on behalf of Salina and Kolton to the relevant stockbrokers. 2. Mr Leighton was one of the individuals who gave buy and sell instructions to the stockbrokers listed above, signed by Mr Leighton as a director of Kolton or Salina respectively. 3. Funds for share purchases were provided by or on behalf of Salina and by or on behalf of Kolton. Usually, Salina and / or Kolton transferred funds to CLC's HSBC Monaco bank account number 677800, and CLC then deposited those moneys into the Westpac Bank Account for settling share purchases. CLC was used as a custodian in Monaco of funds flowing to and from Salina and Kolton in relation to transactions for the purchase and sale of shares. The Westpac Bank Account was used for settlement of share sales and purchases with stockbrokers. 4. Occasionally, moneys were transferred directly by Salina or Kolton respectively into the Westpac Bank Account or to the relevant stockbroker. Also occasionally, money remained in the Westpac Bank Account (or the CLC bank account) if Mr Leighton or Salina or Kolton knew or anticipated that a stock was expected to be purchased soon, and, where necessary, Salina or Kolton (as the case might be) would send money over to "top up" the difference between the money in the Westpac Bank Account and the purchase price payable for the relevant securities. 5. Shares purchased with Salina and Kolton's funds were registered in the name of Westpac Custodian. 6. When instructed by Mr Leighton to do so, Westpac Custodian released the shares to the stockbrokers to enable sales to be settled. 7. Instructions were provided to Westpac Custodian, on CLC letterhead signed by Mr Leighton as director of CLC, as to delivery of stock and remittances of share sale proceeds from the Westpac Bank Account. 8. The proceeds of the share sales were deposited into the Westpac Bank Account. The proceeds were then in general remitted from the Westpac Bank Account by Westpac Nominees to CLC's Monaco bank account no 677800 with HSBC Bank, Monaco. On some occasions, however, proceeds of the share sales were retained in the Westpac Bank Account (or the CLC bank account) to fund future share purchases. 9. Where the proceeds of the share sales were remitted to CLC's bank account, CLC remitted those proceeds to Salina or Kolton respectively. 10. HSBC Republic Bank (Monaco) S.A. subsequently became HSBC Private Bank (Monaco) S.A. 16 Upon closure of the Westpac Custodian business in 2007, Mr Leighton instructed Westpac to "transfer all assets held in the above [custody] account back to my own name direct." 17 Article 308 of the Monaco Criminal Code prohibits any person divulging secret information received by virtue of its capacity or profession, unless required or authorised by law to divulge such information. While company service providers have a "semi-regulated" status in Monaco, there is no exclusion for such category of professionals in respect of information received in their professional capacity. Therefore, Mr Leighton, considered as a "Corporate Service Provider", or CSP, would risk prosecution under Article 308 if he released information obtained under the Salina and Kolton Directors and Management Service Agreements. 18 As at 27 August 2010, the taxable income in dispute was: Year Taxable Income 2002 $2,849,734 2003 $2,424,308 2004 $7,646,906

4 In the relevant income years, s 98(3) of the ITAA 1936 provided: Where a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate: (a) is a company and is not, in respect of that share of the income of the trust estate, a beneficiary in the capacity of a trustee of another trust estate; (b) is a non-resident at the end of the year of income; and (c) is not: (i) a beneficiary to whom subsection 97A(1A) applies in relation to the year of income; or (ii) a body, association, fund or organization referred to subparagraph 97(3)(c)(i) or (ii); the trustee of the trust estate shall be assessed and is liable to pay tax in respect of: (d) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and (e) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia; at the rate declared by the Parliament for the purposes of this subsection. 5 Subsection 95(1) of the ITAA 1936 defined "net income" as follows: net income, in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions, except deductions under Division 16C or Schedule 2G and except also, in respect of any beneficiary who has no beneficial interest in the corpus of the trust estate, or in respect of any life tenant, the deductions allowable under Division 36 of the Income Tax Assessment Act 1997 in respect of such of the tax losses of previous years as are required to be met out of corpus. 6 Also relevant is the definition of "trustee" in s 6(1) of the ITAA 1936, which provided, materially: trustee in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes: (a) an executor or administrator, guardian, committee, receiver, or liquidator; and (b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability. Paragraph (b) of this definition assumed an importance in the disposition of the dismissal of Mr Leighton's "appeal" by the learned trial judge and in the submissions before us. 7 Some general observations may be made about these provisions. 8 Though s 95(1) of the ITAA 1936 defines "net income" in relation to a trust estate, the expression "income of the trust estate" is not itself defined. In Howey v Federal Commissioner of Taxation (1930) 44 CLR 289 at 293 (Howey), Rich and Dixon JJ remarked of that expression as it appeared in the materially indistinguishable s 31(2) of the Income Tax Assessment Act 1922 (Cth) and of the likewise materially indistinguishable definition of "trustee" in s 4 of that earlier Act: It appears to relate to income derived by a trustee from property under his control. The income derived by the appellant is not that of a trust estate of which he is a trustee. To meet this difficulty it is said that the wide definition of "trustee" in sec. 4 covers his case. But the word is to have its defined meaning only unless the contrary appears, and it is therefore difficult to apply the definition in order to overcome the effect of the references in sec. 31 to "income of the trust estate." These references suggest that the person who answers the description "trustee" must stand in some relation to the proprietary right in virtue of which the income arises, even although he need not be a trustee in the proper sense. In this case, however, the appellant is constituted as an intermediary between the trustee of the estate and the beneficiaries contingently entitled, and he is empowered to deal only with the income paid to him by the trustee of the trust estate. 9 In Deputy Federal Commissioner of Taxation v Trustees of the Wheat Pool of Western Australia (1932) 48 CLR 5 at 24, in a passage the correctness of which is not affected by their dissent as to the outcome of the case, Dixon J (with whom McTiernan J agreed), referred to Howey and observed of the phrase "income of the trust estate" that, "The income must arise or be derived by the trustee in virtue of some property or right in the nature of property which is vested in him or is under his control or of which he is a fiduciary". More recent in time but to like effect is the following observation by the High Court in Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 at 503, [28] in respect of the definition of "trustee" in s 6 of the ITAA 1936: In considering this definition it is important to note that it is said in s 6(1) to apply "unless the contrary intention appears". Thus, it is not to be assumed that every person or entity which answers the statutory definition will be a trustee for the purposes of Div 6 of Pt III. The opening words of the definition speak of a trustee in the ordinary sense of a person who holds property on trust while paras (a) and (b) include persons in whom trust property is not vested. Thus, to be liable as a "trustee", Mr Leighton must stand in some relation to a proprietary right by virtue of which net income of the trust estate arises. 10 The requirement that the relationship be with the net income of the trust estate and not, for example, with what is correctly to be characterised as the corpus of the trust estate is no less important than that the taxpayer be a "trustee". In the example just given, only the net income produced by that corpus could constitute the net income of the trust estate. This point is highlighted by the following passage from the judgment of the majority in Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 452: The appellant's contention is that the income payable to the respondent's wife was not, as the majority in the Federal Court held, "the net income of a trust estate" within the meaning of s. 95 of the Act. The argument is based very largely on the proposition, founded on the judgment of Kitto J. in Stewart Dawson Holdings Pty. Ltd. v. Federal Commissioner of Taxation, that income derived by a trustee from his own property or by means of his personal exertion, "income with respect to which a trust arises at the moment of derivation", does not answer the statutory description. Kitto J. was making the point that when a person establishes a trust of his future income simpliciter, the income when it is derived is the subject matter or corpus of the trust, not the fruit of it. To use the terminology of s. 95, it is because the income is the "trust estate" that it cannot be "the net income of" that trust estate. His Honour's remarks do not touch the case where an immediate trust is established of a proprietary right which yields or earns future income. Then the income is accurately described as income of a trust estate. For reasons which we have already given, this is the situation which obtains here. [Footnote reference omitted] 11 The learned trial judge concluded that Mr Leighton was a "trustee" within the meaning of that term in s 6 of the ITAA 1936. Her Honour reasoned (at [50]), in respect of the sale of shares by Salina or, as the case may be, Kolton and the Directors and Management Services Agreement, referred to in the Agreed Facts: If the income was earned on a sale when a recoverable debt came into existence, then the capacity and manner in which Mr Leighton administered or controlled that income was under the Directors and Management Services Agreement which included his capacity as a director of Salina or Kolton and the management services of opening bank accounts etc under cl 1.2.1. If, however, the timing of the earning of income by Salina or Kolton was not until settlement through Westpac, then the capacity and manner in which Mr Leighton administered or controlled that income again was under the Directors and Management Services Agreement and included his capacity as a director of Salina or Kolton and the management services of opening bank accounts etc under cl 1.2.1. On one or the other of these bases, so her Honour concluded (at [51]), "Mr Leighton stood in some relation to the proprietary right by virtue of which the income exists … and he owed a fiduciary obligation towards them which included a liability to account to them" (citation of authority omitted). Hence, he was a "trustee" as defined. 12 Her Honour's further conclusion (at [52]) was that, on either view of Mr Leighton's role: [T]he "trust estate" included the shares held and the income earned from the share trading. The corpus of the trust estate changed over time consistent with the share trading. And for the reasons earlier identified, the "income" of that "trust estate" was "affected by an … express or implied trust" in favour of Salina and Kolton. Mr Leighton was not administering or controlling the shares and the income derived from the share trading for his own benefit. He was doing it for Salina and Kolton under the terms of their respective Director and Management Services Agreement. A little later (ibid), her Honour put this same conclusion another way as follows: … the "trust estate" was synonymous with the trust property - the shares and the income which was under his direct administration and control … . It was that trust property which gave rise to the income derived by the trustee, the trustee having satisfied all of the tests in s 98(3) of the 1936 Act. 13 The learned trial judge regarded a submission made on behalf of Mr Leighton that it was Salina or, as the case may be, Kolton which derived any income as proceeding on a false assumption that it was not possible, if one taxpayer derived the income, for the Commissioner only to assess that taxpayer in respect of that income (at [56]). Referring to Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 at 207 (Richardson v Federal Commissioner of Taxation) and to Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 201-202 (Deputy Commissioner of Taxation v Richard Walter Pty Ltd), her Honour stated that the "fact that a tax liability remains outstanding against two taxpayers is no bar to the Commissioner exercising the power to assess both to tax in respect of the same income so long as there is no double taxation" (ibid). Her Honour further observed (ibid) that s 98A of the ITAA 1936 was expressly directed to the avoidance of double taxation where both the trustee of a trust estate and a beneficiary were assessed. 14 In his submissions on the appeal, the Commissioner of Taxation supported the correctness of these conclusions and the reasons for them. He also, by notice of contention sought to uphold the result below on the basis that the trust estate to which her Honour referred at [52] of her reasons for judgment (relevantly extracted above) was not limited to the shares held and income from the trust estate but also included the following: (a) the moneys (including the proceeds of share sales) standing to Mr Leighton's credit in the Westpac Bank Account in his name; (b) the rights held by Mr Leighton against Westpac Custodian and Westpac Bank in relation to the moneys standing to his credit in the Westpac Custodian Bank Account; (c) the shares held by Westpac Custodian as custodian for Mr Leighton, in which shares Mr Leighton held an equitable interest; and (d) the rights held by Mr Leighton against Westpac Custodian in relation to the securities registered in the name of Westpac Custodian. 15 With all due respect, the reasoning which led to the conclusion below that Mr Leighton was liable to tax and the Commissioner's derivative submissions which seek to uphold that conclusion, including those made in addition by notice of contention, are erroneous. Our reasons for this conclusion substantially reflect the submissions made to us on behalf of Mr Leighton. For that reason we do not separately reproduce those submissions. 16 In each income year, Salina and Kolton were each carrying on a business of trading in shares. The shares concerned were the trading stock of those businesses. So much was common ground between the parties. 17 The effect of this was that: (a) the gross proceeds of the sale of shares constituted the assessable income of Salina or, as the case may be, Kolton (ss 6-5 and 70-5 Income Tax Assessment Act 1997 (Cth) - ITAA 1997); (b) those companies derived that income on an accruals, rather than a cash basis, ie because the shares were trading stock, the assessable income was derived when a recoverable debt arose rather than when payment was received: J Rowe & Son Pty Ltd v Federal Commissioner of Taxation (1970) 124 CLR 421 at 450; (c) such derivation occurred either when the share sale contracts were entered into or, at the latest, when they were settled; and (d) the gross purchase outgoings constituted allowable deductions (ss 8-1 and 70-5 ITAA 1997). 18 It was Salina and Kolton which were respectively the parties to the share sale and purchase contracts. It was they who derived the income from the sale of the trading stock represented by shares. They did so without the intervention of any person as trustee, only a broker as agent. Further, the basis of their derivation being accruals, they derived that income irrespective of whether they or a third party such as Mr Leighton received payment on their behalf. 19 In these circumstances, a number of basal propositions, well recognised in influential taxation texts in earlier generations, arise. Once Salina and Kolton derived their income from share trading, the subsequent payment of the proceeds of sale was no more than the "realisation of income already derived": Hannan JP, A Treatise on the Principles of Income Taxation (Law Book Company 1946), p 185 (emphasis in original; see also p 187). Further, the payment of the share sale proceeds, whether to Salina or Kolton or to a third party such as Mr Leighton did not give rise to a further derivation any more than, "where a taxpayer is on a cash basis in relation to the item and receives cash there is a derivation, and there is no further derivation when he converts the cash into some other kind of property": Parsons RW, Income Taxation in Australia: Income Deductibility Tax Accounting (Law Book Company 1985), p 29 at [2.17]. For example and pertinently, if, by virtue of share trading, income accrues to a taxpayer on the sale of shares and, after that derivation, the payment for those share sales is made, by direction of the taxpayer, to a trustee on terms that require the investment of that payment, that payment does not constitute trust income but any product of its investment will. 20 Another basal proposition also arises on this analysis of the facts. If, as we conclude, Salina and Kolton derived on an accruals basis and as ordinary income the gross proceeds of the sale of shares in the course of conducting their respective share trading businesses, there could not be a further derivation by them of the same income as beneficiaries presently entitled to the income of a trust estate or a share of that income under Div 6 of Pt III of the ITAA 1936. Nor could Mr Leighton derive that income as a "trustee", for it would not be the net income of a trust estate. It follows from this that s 98A, which falls within Div 6 of Pt III, is irrelevant and reference to Richardson v Federal Commissioner of Taxation and Deputy Commissioner of Taxation v Richard Walter Pty Ltd is unnecessary. There is no net income of a trust estate in respect of which any question of double taxation could arise. 21 We offer the following amplification of our reasons with particular reference to the additional contentions made by the Commissioner. 22 The share sale proceeds deposited by the brokers into the Westpac Bank account in Mr Leighton's name (Agreed Facts, para 15, item 8) did not represent the income of either Salina or Kolton but rather represented the realisation of the income (the receivables) already derived by these companies. Upon being deposited, the proceeds were impressed with a trust in favour of Salina and Kolton, but they did not comprise the income of a trust estate. Rather, those deposited proceeds constituted or augmented a trust estate of which Mr Leighton was trustee. The income of that trust estate was such income, if any, as was later derived from the investment of that trust estate, eg any bank interest on the deposited proceeds. 23 The statement of the learned trial judge (at [52]), quoted above, as to what constituted the trust estate and the statement in the Commissioner's notice of contention as to what that trust estate additionally included are each, with respect, more noteworthy for what is not stated than what is. 24 It may be accepted that moneys (including the proceeds of share sales) standing to Mr Leighton's credit in the Westpac bank account represented moneys held by him on trust for Salina and Kolton or, more accurately, having regard to Harmer v Federal Commissioner of Taxation (1989) 91 ALR 550 at 560, that Mr Leighton's rights as a customer against Westpac as banker in respect of those moneys were held by him on trust for Salina and Kolton and to that extent constituted a trust estate of which he was trustee. Even so, neither those monies nor those rights with respect to them constituted income of a trust estate. 25 It may also be accepted that such rights as Mr Leighton was able to exercise against Westpac Custodian in relation to moneys standing to his credit in the Westpac bank account were held by him as trustee for Salina and Kolton and, to that extent, constituted a trust estate of which he was trustee. Once again, those rights with respect to those moneys did not constitute the income of a trust estate. 26 Even if it were accepted that Mr Leighton had an equitable interest in the shares registered in the name of Westpac Custodian and that he held that equitable interest in trust for Salina and Kolton and that interest constituted a trust estate of which Mr Leighton was trustee, that equitable interest would not constitute the income of a trust estate. The same conclusion would apply in respect of any rights held by Mr Leighton against Westpac Custodian in relation to the securities registered in his name. 27 A necessary consequence of our conclusion that the assessment of Mr Leighton pursuant to s 98(3) of the ITAA 1936 was erroneous is that there was no basis for the imposition of any penalties upon him. 28 The appeal should be allowed, with costs. The orders made below should be set aside and, in lieu thereof, it should be ordered that Mr Leighton's appeal against the objection decision should be allowed, with costs. The matter should be remitted to the Commissioner to take such further administrative action as is necessary to give effect to these orders. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds, Gilmour and Logan.