Nemesis Australia Pty Ltd v Commissioner of Taxation

Federal Court of Australia|2005-09-14|Before: Tamberlin J

REASONS FOR JUDGMENT 1 These tax appeals concern the years ending 30 June 1995, 1997, 1998 and 1999 for which the respondent, the Commissioner of Taxation ("the Commissioner"), assessed the applicant, Nemesis Australia Pty Ltd ("Nemesis"), as trustee of the Steve Hart Family Trust ("the SHFT"), under s 99A of the Income Tax Assessment Act 1936 (Cth) ("the Tax Act") on the income which it appointed to trustee beneficiaries in the aforementioned years. 2 The appointments of income pursuant to the SHFT Deed were made by the SHFT to the following trustees of three trusts, namely, Steve Hart Family Holdings No 2 Pty Ltd ("SHFH No 2") as trustee for the Hart Family Trust No 2 ("HFT No 2"), Steve Hart Family Holdings No 3 Pty Ltd ("SHFH No 3") as trustee for the Hart Family Trust No 3 ("HFT No 3"), Unlimited Aerobatics Pty Ltd ("UA") as trustee for the Unlimited Aerobatics Discretionary Trust ("UADT"), all of which will be referred to as the "Trustee Beneficiaries". The three trusts will be referred to as "the Other Trusts". 3 The issues in this appeal are formulated by the applicant in the following terms: "(a) The first issue is whether the Applicant, as trustee of the SHFT, is liable to tax under s.99A of the Income Tax Assessment Act 1936 ("the ITAA36") on all or any part of the following amounts of income which it appointed to certain trustee beneficiaries in the following years of income: (i) 30 June 1995 - $483,474.00; (ii) 30 June 1997 - $527,700.00; (iii) 30 June 1998 - $173,255.00; and (iv) 30 June 1999 - $214,000.00; (b) If the Applicant is liable to tax in relation to all or any part of the income referred to in paragraph (a) hereof the second issue is whether or not the Applicant is liable to pay additional tax and penalties under section 226H in Part VII of the ITAA36; (c) The third issue is whether or not the Commissioner erred in law in refusing to remit the penalty purportedly imposed under s.226H." 4 The sole ground relied on by the Commissioner for disallowing the appointments of income made during the relevant years of income is that the distributions were too remote under the rule against perpetuities as applicable pursuant to s 209 of the Property Law Act 1974 (Qld) ("the Property Act"). 5 It is submitted by the Commissioner that the maximum stated perpetuity period allowed at law pursuant to s 209 of the Property Act is 80 years from the date of settlement of a discretionary trust. The rule against perpetuities applies because the vesting period for the SHFT was 80 years from the date of its settlement. The perpetuity periods for the Trustee Beneficiaries under the deeds of the Other Trusts expired after the perpetuity date of the SHFT. As the power of appointment in the SHFT Deed of Settlement ("the SHFT Deed") is a special power, both as a matter of law and by reason of s 208 of the Property Act, the exercise of that power is read back into the instrument creating the power. The income of the SHFT was appointed to the Trustee Beneficiaries as trustees of the Other Trusts, and therefore the terms of the deeds of the Other Trusts are to be read back into the settlement of the SHFT Deed for the purposes of the s 209 rule. The consequence is that the rule is infringed because a discretionary trust cannot be created so as to vest outside a period of more than 80 years from the date of the SHFT and, in this case, the Trustee Beneficiaries have the power to confer vested interests on objects of the power up to the vesting days for their respective trusts and each of those vesting dates is beyond the permissible 80 year period applicable to the SHFT.

BACKGROUND FACTS 6 The relevant facts are not in dispute. They are set out below. 7 Steve Hart Family Holdings Pty Ltd ("SHFH") was formerly known as Caperhill Holdings Pty Ltd. 8 At all material times: (a) SHFH was the trustee of the SHFT, a discretionary trust established by deed of settlement dated 1 June 1981; (b) the directors of SHFT were Steven Hart, Laura Hart (nee Perry) Shirley Petersen and Ian Stevens; (c) the shareholders of SHFH were Steven Hart, Laura Hart (nee Perry) and Shirley Petersen; (d) the specified beneficiaries, as defined in cl 5 of the Schedule to the SHFT Deed, were Steven Irvine Hart, Troy Benjamin Hart, Philip Anthony Hart and Tammy Anne Petersen; (e) additional members of the class of general beneficiaries, as defined in cl 6 of the Schedule to the SHFT Deed, were Laura Elizabeth Perry and Shirley Anne Petersen. 9 Clause 1(b) of the SHFT Deed provides that the expression "General Beneficiary" means the Specified Beneficiary and Specified Beneficiaries, plus relatives. Clause 1(b)(iii) of the SHFT Deed refers to "any of the following entities whether formed in Australia or elsewhere which the Trustees may from time to time in writing nominate as a General Beneficiary …". For a nomination of a General Beneficiary to be valid, that nomination must be in writing, and the entity must satisfy the criteria set out in paras A, B or C of cl 1(b)(iii). Paragraph C refers to: "any other legal entity at least one share or other interest (whether present or contingent) in [sic] which is owned or held under any General Beneficiary hereinbefore referred to or by the Trustees of an eligible Trust or by an eligible corporation." 10 Clause 1(g) defines "the Vesting Day" and provides: "The 'Vesting Day' means - i. the first to occur of the following dates, namely - A. The day specified in the Schedule as 'the Vesting Day'; B. Such date being earlier than the day so specified as the Trustees may in their absolute discretion (subject to Clause 10 hereof) with the consent of the Guardian, if there is a Guardian on the date of appointment, and if there is no Guardian, without any consent, appoint; or ii. such date being later than the date specified in the Schedule as the 'Vesting Day' as the Trustees may in their absolute discretion (subject to Clause 10 hereof) with the consent of the Guardian, if there is a Guardian on the date of appointment, appoint, provided that where a guardian is named in the Schedule and there ceases to be a Guardian is named in the Schedule and there ceases to be a Guardian and the requirement of consent has not been dispensed with pursuant to Clause 10(c) hereof the Trustees shall be entitled to make an appointment pursuant to this paragraph (ii); PROVIDED ALWAYS that where the date of expiration of the perpetuity period hereinafter defined is earlier than the Vesting Day arising under the foregoing provisions of this sub clause (g) that date shall be the Vesting Date and provided further that notwithstanding any thing herein contained all powers and dispositions made by or pursuant to tor [sic] contained in this Deed which but for this provision would or might vest, take effect or be exercisable after the expiration of the perpetuity period shall vest and take effect on and be exercisable only after the last day of the perpetuity period." (Emphasis added) 11 Clause 1(j) defines the Perpetuity Period in the following terms: "'the Perpetuity Period' applicable to the dispositions affected by this Deed of Settlement under the rule against perpetuities shall be eighty years from the date hereof." 12 Clause 1 of the Schedule to the SHFT Deed states that the Deed was made on 1 June 1981. In cl 9 of the Schedule, the vesting day of the SHFT is expressed to be 31 May 2060. 13 The power under the SHFT Deed to appoint income was a special power granted under cl 3(b), which relevantly provides as follows: "The Trustees may at any time prior to the expiration of each Accounting Period until the Vesting Day determine with respect to all or any part or parts of the net income of the Trust Fund for such Accounting Period to do all or any of the following:- i. to pay apply or set aside the same for any one or more of the General Beneficiaries living or in existence at the time of determination; ii. to accumulate the same; iii. to pay apply or set aside for such charitable purposes as the Trustees may think fit." 14 SHFH No 2 was formerly known as Traywinds Pty Ltd. 15 At all material times: (a) SHFH No 2 was the trustee of the HFT No 2, a discretionary trust established by deed of settlement dated 2 March 1993 ("the HFT No 2 Deed"); (b) the directors of SHFH No 2 were Laura Hart (nee Perry), Shirley Peterson and Ian Stevens; (c) the specified beneficiaries, as defined in Clause 5 of the Schedule to the HFT No 2 Deed, were Steven Irvine Hart, Tamara Ann Hart, Philip Anthony Hart and Troy Benjamin Hart; (d) the additional members of the class of general beneficiaries, as defined in cl 6 of the Schedule to the HFT No 2 Deed, were Shirley Ann Petersen and Laura Elizabeth Perry; (e) the vesting day of the HFT No. 2 was expressed in cl 9 of the Schedule to the HFT No 2 Deed to be 1 March 2072. 16 By amendment to the SHFT Deed, made on 11 July 1985, SHFH No 2, was included as a general beneficiary to the SHFT. 17 SHFH No 3 was formerly known as Wildpark Pty Ltd. 18 At all material times: (a) SHFH No 3 was the trustee of the HFT No 3, a discretionary trust established by deed of settlement dated 28 August 1993 ("the HFT No 3 Deed"); (b) the specified beneficiaries, as defined in cl 5 of the Schedule of the HFT No 3 Deed, were Shirley Ann Petersen, Tamara Ann Hart, Philip Anthony Hart and Troy Benjamien Hart; (c) the vesting day of the HFT No 3 was expressed to be 27 August 2072. 19 At all material times: (a) UA was the trustee of the UADT, a discretionary trust established by deed of settlement dated 17 February 1995 ("the UADT Deed"); (b) the specified beneficiaries, as defined in cl 5 of the Schedule of the UADT Deed, were Steven Irvine Hart, Laura Elizabeth Perry, Tamara Ann Hart, Philip Anthony Hart and Troy Benjamin Hart; (c) the vesting day of the UADT was expressed to be 16 February 2074. 20 It can be seen from the foregoing that the vesting date of the SHFT is 31 May 2060. Under the deeds of the Other Trusts, the vesting dates ranged from 1 March 2072 to 16 February 2074. These vesting dates all fall outside the 80 year perpetuity period prescribed by the SHFT Deed and s 209.

legislation 21 The assessments under challenge were made under s 99A of the Tax Act which relevantly provides as follows: "99A Certain trust income to be taxed at special rate … (4) Where there is no part of the net income of a resident trust estate: (a) that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97; (b) in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98; or (c) that represents income to which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia; the trustee shall be assessed and is liable to pay tax on the net income of the trust estate at the rate declared by the Parliament for the purposes of this section." 22 The Federal Court's jurisdiction on this appeal arises under s 14ZZ of the Taxation Administration Act 1953 (Cth) ("the Administration Act"), which relevantly provides as follows: "s 14ZZ Person may seek review of, or appeal against, Commissioner's decision If the person is dissatisfied with the Commissioner's objection decision, the person may: (a) if the decision is both a reviewable objection decision and an appealable objection decision - either: … (ii) appeal to the Federal Court against the decision; or … s 14ZZO Grounds of objection and burden of proof In proceedings on an appeal under section 14ZZ to the Federal Court against an appealable objection decision: (a) the appellant is, unless the Court orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and (b) the appellant has the burden of proving that: (i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or (ii) if the taxation decision concerned is a franking assessment - the assessment is incorrect; or (iii) in any other case - the taxation decision should not have been made or should have been made differently." 23 The Property Act relevantly provides as follows: "208 Powers of appointment (1) For the purposes of the rule against perpetuities a power of appointment shall be treated as a special power unless - (a) in the instrument creating the power it is expressed to be exercisable by 1 person only; and (b) it could at all times during its currency when that person is of full age and capacity be exercised by the person so as immediately to transfer to or otherwise vest in the person the whole of the interest governed by the power without the consent of any other person or compliance with any other condition, not being a formal condition relating only to the mode of exercise of the power. … 209 Power to specify perpetuity period (1) Except as otherwise provided in this part where the instrument by which any disposition is made so provides the perpetuity period applicable to the disposition under the rule against perpetuities instead of being of any other duration shall be such number of years not exceeding 80 as is specified in the instrument as the perpetuity period applicable to the disposition. (2) Subsection (1) shall not have effect where the disposition is made in exercise of a special power of appointment but where a period is specified under that subsection in the instrument creating such a power the period shall apply in relation to any disposition under the power as it applies in relation to the power itself. (3) If no period of years is specified in an instrument by which a disposition is made as the perpetuity period applicable to the disposition but a date certain is specified in the instrument as the date on which the disposition shall vest the instrument shall, for the purposes of this section, be deemed to specify as the perpetuity period applicable to the disposition a number of years equal to the number of years from the date of the taking effect of the instrument to the specified vesting date. 210 "Wait and see" rule (1) Where apart from the provisions of this section and of section 213 a disposition would be void on the ground that the interest disposed of might not become vested until too remote a time the disposition shall be treated until such time (if any) as it becomes established that the vesting must occur, if at all, after the end of the perpetuity period as if the disposition were not subject to the rule against perpetuities, and its becoming so established shall not affect the validity of anything previously done in relation to the interest disposed of by way of advancement, application of intermediate income or otherwise. …" (Emphasis added)

rule against PERPETUITIES 24 As pointed out by the Queensland Law Reform Commission in its 1971 report entitled "On the Law Relating to Perpetuities and Accumulations", the rule against perpetuities performs a useful social function in limiting the power of members of generations past from tying up property in such a form as to prevent its being freely disposed of in the present or the future. 25 The common law rule and its operation were summarised by the Privy Council in Air Jamaica Limited v Charlton [1999] 1 WLR 1399 at 1408-1409: "… no interest is valid unless it must vest, if it vest at all, within a period of a life in being, the date of the gift plus 21 years. The rule is applied remorselessly. A gift is defeated if, by any possibility, however remote, it may vest outside the perpetuity period. It is not saved by the fact that, in the event, it vests inside the period. … The rule against perpetuities also applies to the administrative trusts and powers of the trustee. Such powers must not be capable of being exercised outside the perpetuity period, and they may be void even if all trusts to which they are attached are valid. Where, therefore, there is a trust for A for life with remainder to his widow for life, then the trustees are given a power to sell or lease land comprised in the settlement, the power is void ab initio because it is capable of being exercised at any time during the widow's life, and she may survive A by more than 21 years" (Emphasis added) Accordingly, a disposition to vest within the life of A plus 22 years would be void under the above rule. 26 It is well settled that the rule against perpetuities is not a rule of construction but a peremptory command of law: see J C Gray, The Rule against Perpetuities (4th ed, 1942) ats 629. In the present case, the applicable rule is set out in s 209(1), quoted above at [23], and provides that the perpetuity period applicable to a disposition under the rule against perpetuities shall be such number of years, not exceeding 80, as is specified as the perpetuity period in the instrument. As noted, the relevant date specified in the SHFT Deed is 80 years and it terminates on 31 May 2061. The Other Trusts for the Trustee Beneficiaries have vesting dates ranging from 1 March 2072 to 16 February 2074, which are all outside the 80 year period specified in the SHFT Deed. 27 The rule against perpetuities does not apply to general powers of appointment. This is because a person who is entitled to exercise a general power of appointment is treated in law as the owner of property since he or she can, with the "stroke of a pen", become the owner. In these circumstances, the power to appoint includes a power to appoint oneself, which is equivalent to beneficial ownership. On the other hand, a special power of appointment is not equivalent to beneficial ownership. In R P Meagher QC and W M C Gummow, Jacob's Law of Trusts in Australia (5th ed, 1986)at 38, the distinction is stated in these terms: "A person may … by a settlement inter vivos have vested in him a power to appoint property of the … settlor to third parties. This is a special power of appointment and is to be distinguished from a general power of appointment under which the donee of the power may appoint the property to any person absolutely, including himself. In the case of general powers no question of trusts arises. This is because there are no particular parties in whose interests equity might intervene, the object of the power being the whole of mankind." (Emphasis added) 28 In Re Gulbenkian's Settlements [1970] AC 508 at 518, Lord Reid pointed out that: "When a power is given to trustees as such, it appears to me the situation must be different. A settlor …who entrusts a power to his trustees must be relying on them in their fiduciary capacity so they cannot simply push aside the power and refuse to consider whether it ought in their judgment to be exercised. And they cannot give money to a person who is not within the classes of persons designated by the settlor …". (Emphasis added)

Special or general power 29 The principles concerning the classification of a power as either a general or a special power require a liberal and practical approach to be taken. 30 In the present case, the power under the SHFT Deed is for the benefit of a limited class of beneficiaries. It is true that the class of beneficiaries is very wide. However, this is not determinative. In this case, the power to designate beneficiaries expressly excludes certain persons, including the trustee, and therefore is not a general power. 31 The applicant contends that the power of appointment in the SHFT Deed is general because it is a hybrid power and s 208 does not apply because the trustee of the SHFT can vary the deed to allow itself to be added as a beneficiary. The applicant's argument is that, by taking these steps, the trustee could vary the trust to invest in itself the whole of the interest without the consent of any other person. 32 For a number of reasons, s 208 does apply in the present case. First, the variation steps have not been taken and no variation has been made by the trustee. Therefore, at the relevant time, the trustee was obliged to appoint income among a specified class. Secondly, the variation clause in the SHFT Deed does not allow the trustee to end the trust by obtaining the trust property for itself. Thirdly, any power must be exercised for the benefit of the beneficiaries and an appointment by the trustee to itself by effecting a variation could not be seen to be for the benefit of the beneficiaries. Finally, even if such steps were available to the trustee, the power must be such that the trustee can immediately, without the consent of any other person or compliance with any other condition, appoint to itself. In the present case, this cannot be done. Steps must be taken by the trustee and consents are required. Accordingly, the power in the present case, in its nature and by reason of its exclusions and provisions, is properly characterised as a special power of appointment. If, contrary to my conclusion, the view were taken that the power of appointment in the SHFT Deed was a general power, s 208 of the Property Act operates, in my opinion, to deem it to be a special power.

reading back 33 The Commissioner submits that in the present case the deeds of the Other Trusts must be read in conjunction with, and as part of, the principal deed, namely, the SHFT Deed. Under the SHFT Deed, the nominated Trustee Beneficiaries are appointed in their capacity as trustees. There is no appointment to them as specified persons. The appointment is to each trustee as trustee of a particular trust. Therefore, any income distributed to the trustee in that capacity is controlled by the vesting date specified in the deed of settlement of that trust. This means that, for example, if a trust fund is appointed in 2060, several weeks before the vesting date specified in the SHFT Deed, that fund becomes subject to the provisions of the later trust deed and the vesting date under the SHFT Deed will extend to the date specified as the vesting date under the later trust deed and therefore breach the 80 year requirement. Accordingly, reading the deeds of the Other Trusts together with the SHFT Deed, there is a breach of the perpetuity period from the moment when the deeds of the Other Trusts, which provide for vesting outside the perpetuity period specified under the SHFT Deed, are executed. 34 This submission is supported by the decision in Re Pilkington's Will Trusts [1964] AC 612. In this case, the trustees purported to exercise a special power for the benefit of an infant beneficiary by resettling the trust property upon themselves on terms of new trusts for her benefit. The House of Lords held that the new trusts must be read as if they had been created by the settlor of the existing settlement, at the time of the existing settlement, and, when tested against the rule against perpetuities in that situation, they failed. The principle is stated at 641by Viscount Radcliffe (with whom Lords Hodson, Jenkins and Devlin agreed) in the following terms: "It is not in dispute that, if the limitations of the proposed settlement are to be treated as if they had been made by the testator's will and as coming into operation at the date of his death, there are trusts in it which would be void ab initio as violating the perpetuity rule. They postpone final vesting by too a long a date." 35 The substitution of a new trust does not alter this position. At 642, Viscount Radcliffe continued: "I think that the important point for the purpose of the rule against perpetuities is that the new settlement is only effected by the operation of a fiduciary power which itself 'belongs' to the old settlement." 36 From its inception, the SHFT had as its beneficiaries the trustees of the Other Trusts. Accordingly, it is appropriate to read back into the SHFT Deed the vesting dates provided for in the deeds of the Other Trusts, with the consequence that there is a breach of the 80 year period in the use of each of the Other Trusts. In this case, the effect of the specification in the Other Trusts of the vesting date outside the 80 year period is that the rule against perpetuities is infringed and the appointments are void under s 209. 37 The dates of the deeds are as follows. Under the SHFT Deed, the date of the making of the deed is 1 June 1981 and the vesting date is 31 May 2060. Under the HFT No 2 Deed, the date of the making of the deed is 2 March 1993 and the vesting date is 1 March 2072. Under the HFT No 3 Deed, the date of the making of the deed is 28 August 1993 and the vesting date is 27 August 2072. 38 J H C Morris and W Barton Leach, in The Rule Against Perpetuities (1st ed, 1956), at 140, express the principle as follows: "A special power of appointment is not equivalent to beneficial ownership. Therefore the appointees must be capable of taking under the instrument creating the power; and the perpetuity period starts from the date when the power is created, not from the date when it is exercised. Otherwise, property could be appointed from settlement to settlement in perpetuity without ever coming under the control of an absolute owner. The appointment is 'read back' into the instrument creating the power, as if the donee were filling in blanks in the donor's instrument." (Emphasis added)

Wait and see rule 39 Section 210(1) of the Property Act provides that where a disposition would be void on the ground that the interest disposed of might not become vested until too remote a time, the disposition shall be treated until such time as it becomes established that the vesting must occur, if at all, after the end of the perpetuity period as if the disposition were not subject to the rule against perpetuities. 40 Nemesis says that, even if s 209 of the Property Act applies in the present case, there is no breach of the rule against perpetuities because of the "wait and see" rule in s 210. 41 At common law and under s 210, the "wait and see" rule is designed to enable the Court to look at what actually occurs before the expiry of the perpetuity period and the circumstances as they have unfolded in order to determine whether there has been a vesting within the perpetuity period. If, in fact, the interest is vested prior to the expiry of the perpetuity period, notwithstanding that a longer period is provided for in the trust deed, the trust may be valid. The trust would then not infringe the rule against perpetuities. Accordingly Section 210 was introduced to remedy what was seen as a deficiency in the common law rule, namely, that the common law was concerned with possible or hypothetical, and not actual, events. Under the common law rule, the disposition of an interest is void if, at the date of creation, it could by any possibility vest outside the perpetuity period. This rule was criticised by the Queensland Law Reform Commission because it may in fact happen that, at the time at which the question of validity is contested, the contingencies have already been satisfied within the perpetuity period. 42 The Commissioner submits that s 210 has no operation to save the appointment in the present case because there is no relevant element of contingency. Counsel submits that this is not a case of a disposition that "might not become vested until too remote a time" because it is certain from the date the Deed is executed that the settlor had made a positive determination that the income must vest if at all within a period which was longer than the relevant perpetuity period. This is not a case, for example, where one looks at the actual circumstances at the end of a life in being at the age of the beneficiaries to see whether they will take within 21 years from the death of the life in being. The breach of the perpetuity period in the present case arises by reason of the reading back of the vesting dates in the deeds of the Other Trusts to the original SHFT Deed, because it can be seen that, immediately upon the deeds of the Other Trusts coming into effect, the period provided for in those deeds must exceed the 80 year period so that there is an infringement of s 209. There was no uncertain contingency about which to wait and see, such as a life in being which could be within a wide spectrum of possible duration. By way of contrast, in Re Thomas Meadows & Co Ltd and Subsidiary Companies (1960) Staff Pension Scheme Rules [1971] 1 Ch 278 at 285, where the wait and see rule was applied, there was no specification that the vesting date was outside the perpetuity period. 43 Under the "wait and see" rule, one waits to see whether the event happens within the perpetuity period. If it does, it is a valid exercise and, if it does not, it is invalid. The Commissioner submits that if the "wait and see" rule applied in the present circumstances, the perpetuity period of 80 years would be meaningless because, on this approach, every discretionary trust, even one expressed to be for 100 years, would be valid for at least 80 of those years. Accordingly, since a new trust could be set up before the end of the 80 year period providing for a distribution within a further 80 years, the trust property could be rolled over indefinitely. 44 In the present case, it is, in my view, possible that the trustee of each trust might not exercise the discretion conferred by the other trust deeds to advance the vesting date to a date within the perpetuity period as set out in the SHFT Deed. It can therefore be said that the interest disposed of might not become vested until too remote a time. However, s 210 also provides that where a disposition might be void on the basis that it might not become vested until too remote a time, the disposition must be treated as valid until such time as it is established that the vesting must occur after the end of the perpetuity period, as if the disposition were not subject to the restriction. Therefore, in my view, s 210 operates to validate a disposition and anything done in relation to the interest disposed of by way of the application of intermediate income. 45 The intention of the wait and see rule is to avoid the draconian consequences which otherwise flow from the rigid application of the rule against perpetuities. It applies in the present case because under each of the relevant trust deeds the trustees possess a discretionary power to advance the vesting date. The definition of "vesting date" in each of the deeds includes a provision that the expression "vesting date" shall mean the specified date or an earlier date nominated by the trustees in their sole and unfettered discretion. Such power includes the nomination of an earlier date within the 80 year period under the SHFT Deed. 46 Until the expiration of the 80 year period provided for in the SHFT Deed, it is not possible to say that the vesting must occur after the end of the original 80 year period. Accordingly, everything done within that period is valid. 47 Consequently, in the present case, any possible breach of the rule against perpetuities within the perpetuity period specified in the SHFT deed must be treated as a valid disposition. For this reason, the submission advanced for the Commissioner must fail. In my view, the integers of s 210 are made out in the present case, namely:

The interest disposed of under the SHFT might not become vested until too remote a time; and
That disposition must be treated until such time as it becomes established that the vesting must occur outside the perpetuity period as if the disposition were not subject to the rule. 48 Both these integers having been satisfied in this case, the rule against perpetuities has no application and the dispositions are not nullities. Accordingly, the Commissioner's basis of claim must fail.

CONSEQUENCE OF INVALIDITY 49 In view of my conclusion in relation to s 210 and the operation of the "wait and see" rule, none of the income dispositions are invalid for breach of the 80 year rule and it is necessary to wait and see what in fact happens within the 80 year period before it can be established that the fund must vest outside the period. 50 I will nevertheless briefly express my conclusions in relation to the consequences of invalidity on the basis that the appointments of income are to be treated as invalid. If the rule applies to invalidate dispositions under the SHFT Deed, then the income for the relevant years in relation to those default beneficiaries who renounced their entitlement would come within s 99A. I accept the submission for the Commissioner on this point that, as between the trustee and the beneficiaries who have disclaimed, the disclaimers made by them operate retrospectively so that they must be treated as never entitled to the income for the purposes of s 97 of the Tax Act in respect of the relevant income years: see Ramsden v Federal Commissioner of Taxation (2004) ATC 4659. 51 Apart from Steve Hart, the beneficiaries have disclaimed their interests. Steve Hart has not disclaimed and it is argued for the trustee that, by reason of the disclaimers, Steve Hart, as the remaining default beneficiary, has a claim to entitlement because he is the sole default beneficiary. However, the entitlement of Steve Hart arises only as from the time that the disclaimers are made and these were made outside the 30 June period of the relevant years. Accordingly, it cannot be said that Steve Hart was ever entitled to the appointed income. Moreover, having regard to the conflicting contentions by the beneficiaries, I am not persuaded that the onus imposed by s 14ZZC of the Administration Act has been discharged. 52 In relation to the question of penalty, I am not persuaded that penalties should be imposed at the rate of 50%, as I am not satisfied that there was recklessness. I consider that the appropriate rate of penalty is 25%, on the basis that there was carelessness by Nemesis. 53 For the above reasons, the appeal is allowed. The respondent is to pay the costs of the applicant. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Counsel for the Applicant: F L Harrison QC and P Bickford

Solicitor for the Applicant: James Conomos Lawyers

Counsel for the Respondent: D Boddice SC and M Robertson

Solicitor for the Respondent: Australian Government Solicitor

Date of Hearing: 20 September 2004 and 8 July 2005

Property Law Act 1974(Qld)ss 208,209,210

Taxation Administration Act 1953(Cth)ss 14ZZ, 14ZZC, 14ZZO

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