REASONS FOR JUDGMENT
1 These are three appeals to the Court against an appealable objection decision under s 14ZZ Pt IVC of the Taxation Administration Act 1953 (Cth) ("the Administration Act").
2 Each applicant seeks by his/her notice of appeal to have the Notice of Decision on Objection varied by excising from each of the applicants' taxable income for the income year ended 30 June 1996 the sum of $107,250.00, and by reducing or omitting all penalties and interest imposed by the Commissioner.
3 In each matter the applicant had claimed, in a Notice of Objection Against Amended Assessment that:
'A1. The Commissioner should not have included the amount of $107,250.00 in or to the assessable income or taxable income of the taxpayer.
A2. The Commissioner should not have included or added the amount of $107,250.00 described in the adjustment sheet accompanying the amended assessment as "adjustments to income trust distribution - adjusted as the result of audit or investigation" (or otherwise described) in or to the assessable income or taxable income of the taxpayer.
A3. The Commissioner should not have included or added the amount of $107,250.00 described in the adjustment sheet accompanying the amended assessment as "Adjustments to Income Trust Distribution - Adjusted as the result of audit or investigation" or otherwise described in or to the assessable or the taxable income of Steve Hart Family Holdings Pty Ltd ("Hart Family Holdings") as Trustee of the Steve Hart Family Trust ("the Hart Family Trust") for the year ended 30 June 1996.'
4 In the year ended 30 June 1996, Steve Hart Family Holdings Pty Ltd ("Hart Family Holdings") as Trustee of the Steve Hart Family Trust ("the Hart Family Trust") purported to distribute an amount of $429,000.00 to the Adcock Practice Trust ("the Adcock Trust"). The minutes of a meeting of directors of Hart Family Holdings on the 30th day of June 1996 record, in relation to appropriation of trust income:
[3]
'APPROPRIATION OF TRUST INCOME: Resolved that the Income of the Trust for the Year Ended 30th June, 1996 be appropriated, set aside and applied to the beneficiaries:
STEVE HART FAMILY HLDGS NO. 2 $17,295
STEVE HART FAMILY HLDGS NO. 3 $6,639
UNLIMITED AEROBATIC DISC
TRUST $34,810
THE ADCOCK PRACTICE TRUST $429,000
TROY B HART $4,750
STEVEN I HART THE BALANCE
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 June, 1996 in the same proportions as listed above to the beneficiaries listed above.'
[4]
5 It is agreed between the parties that the directors of Hart Family Holdings at all material times were Steven Irvine Hart, Laura Hart (nee Perry), Shirley Petersen and Ian Stevens; the shareholders of Hart Family Holdings were at all material times Steven Irvine Hart, Laura Hart (nee Perry) and Shirley Petersen; the specified beneficiaries of the Hart Family Trust were Steven Irvine Hart, Troy Hart, Philip Hart and Tamara Ramsden (nee Petersen), and that Steven Irvine Hart was employed by Hart Family Holdings as Trustee of the Hart Family Trust to provide consultancy services.
6 The parties are also in agreement that the Adcock Trust was a discretionary trust established by Deed of Settlement dated 29 September 1981, and the Trustee of the Adcock Trust was Tinkadale Pty Ltd ("Tinkadale").
7 The parties also agree that the beneficiaries of the Hart Family Trust are defined in the Hart Family Trust Deed ("the Trust Deed") in terms of "Specified Beneficiaries" and "General Beneficiaries". The "Specified Beneficiaries" are defined and described in cl 5 of the Schedule as Steven Irvine Hart, Troy Benjamin Hart, Phillip (sic) Anthony Hart and Tammy Anne Petersen. The last person is the same as the applicant Tamara Ramsden, in proceedings A32 of 2001.
8 Clause 1(b) of the Trust Deed relevantly provided that "General Beneficiaries" means:
'…
(iii) 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 (subject to Clause 10 hereof) namely:-
A. the Trustees (in their capacity as such) of any Trust or settlement (called an eligible Trust) under which any General Beneficiary hereinbefore refereed [sic] to is a beneficiary whether present or contingent;
B. any corporation (called and [sic] eligible corporation) at least one share in which is owned by any General Beneficiary hereinbefore referred to or by the Trustees of an eligible Trust;
C. any other legal entity at least one share or other interest (whether present or contingent) in which is owned or held by any General Beneficiary hereinbefore referred to or by the Trustees of an eligible Trust or by an eligible corporation;
…'
9 Clause 3(b) of the Trust Deed provided:
'(b) 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.'
10 Clause 13 of the Adcock Trust Trust Deed specifically excluded Tinkadale (as the Trustee of the Adcock Trust) from having any interest in the Adcock Trust. The Adcock Trust was not nominated as a General Beneficiary by the Trustees of the Hart Family Trust and Mr Lister Harrison QC, senior counsel for the applicants, conceded in the course of submissions that the Adcock Trust was not a beneficiary. Because none of the applicants is able to establish that Mr Steven Hart held a share in Tinkadale at 30 June 1996, the applicants were not able to argue that the Adcock Trust was qualified to be appointed as a beneficiary and further, that notwithstanding that the Adcock Trust had not previously been appointed a beneficiary the distribution resolution operated to make it a beneficiary.
11 Clause 3(e) of the Trust Deed provided:
'(e) Subject to the provisions of Clause 29 hereof the Trustees shall hold so much of the net income of the Trust Fund for each Accounting Period as shall not be the subject of a determination effectively made at or prior to the end of such Accounting Period pursuant to paragraph (b) of this Clause in Trust successively for the persons described in paragraphs (a), (b) and (c) of Clause 4 hereof as though the last day of such Accounting Period were the Vesting Day.'
12 Pursuant to cl 4(a) of the Trust Deed and cl 5 of the Schedule of the Hart Family Trust Trust Deed, the "failsafe beneficiaries" were Steven Hart, Troy Hart, Philip Hart, and Tamara Petersen.
13 Each of the applicants submitted an income tax return for the year ended 30 June 1996 on the basis that no distribution was received from the Hart Family Trust, except the return for Troy Hart which included the sum of $4,750 referred to in the resolution appropriating trust income.
14 On 19 July 2000 the Commissioner issued an Amended Assessment, which assessment included an amount of $107,250.00 in each applicant's taxable income, being a one-quarter share of the purported appointment by the Hart Family Trust of $429,000 to the Adcock Trust pursuant to s 97 of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act"). Each applicant lodged a Notice of Objection to that Amended Assessment. Penalty tax had been imposed in the Amended Assessment but was remitted to nil following the objection.
15 The Commissioner asserts that the issues that fall for determination on the appeal are:
Whether the Adcock Trust was a beneficiary of the Hart Family Trust during the year ended 30 June 1996.
If the Adcock Trust was not a beneficiary of the Hart Family Trust during the year ended 30 June 1996, whether Philip Hart, Steve Hart, Troy Hart and Tamara Petersen were presently entitled to a share of the income (amounting to $429,000) of the Hart Family Trust Trust Deed as defined in s 97 of the Assessment Actduring the year ended 30 June 1996.
If the Adcock Trust was a beneficiary, whether the appointments of income to it were valid having regard to the rule against perpetuities.
Whether the respondent's adjustment of the net income of the applicants by including an amount of $107,250, being a one-quarter share of the purported appointment by the Hart Family Trust of $429,000 to the Adcock Trust, was correct.
16 The contention by the Commissioner was that each applicant's entitled-to income was governed by the terms of the Trust Deed by cl 3(e) as read with cl 4. The four named Specified Beneficiaries (including each applicant) were entitled, as tenants in common in equal shares absolutely, to so much of the income for the accounting period (that is, the 1996 year) 'as shall not be the subject of a determination effectively made at or prior to the end of such accounting period' pursuant to cl 3(b) of the Trust Deed. The Commissioner contends that cl 3(b) gave the Trustee a power which could be exercised:
'… at any time prior to the expiration of each Accounting Period to accumulate the income, to pay, apply or set aside the net income of the trust for any one or more of the General Beneficiaries living or in existence at the time of the determination, and/or to apply it for charitable purposes.'
17 Accordingly, so the Commissioner contends, the Settlor's intention was that if no effective determination was made under cl 3(b) at all, or if any determination that was made was ineffective, then the Special Beneficiaries, including each applicant, were absolutely entitled to the income and liable to include their share of the net income in their assessable income under s 97 of the Assessment Act.
18 The applicant in each case contends that the appointment in favour of the Adcock Trust was authorised by subs 61(3) of the Trusts Act 1973 (Qld) ("the Trusts Act") or, in the alternative, the minute operated to distribute the $429,000 appointed to the Adcock Trust to Steven I. Hart. Each applicant contends:
'(i) the Respondent is not entitled to challenge the validity of the application of the sum of $429,000 to the [Adcock Trust], because:-
(a) the relevant amount was duly entered in the books of the [Hart Family Trust] to the credit of [the Adcock Trust] in accordance with Clause 3(c)(iii) of the [Hart Family Trust] Trust Deed;
(b) no beneficiary has challenged the validity of the distribution;
(c) the Court cannot, or in the alternative should not, determine that such application is invalid unless all interested parties, and in particular, the trustee for the time being of [the Adcock Trust], are before the Court;
(d) even if (which is denied) there was no valid determination to pay, apply or set aside such income in favour of the Trustee of [the Adcock Trust], the Trustee in fact so applied it, and that application continues in force unless and until it is rectified by the Trustee or set aside by a Court in an action by a beneficiary for breach of trust;
(ii) subsection 97(1) of the Income Tax Assessment Act 1936 ("ITAA 1936") did not apply to the sum of $107,250 which the Respondent purported to include in the taxable income of the Applicant, in that:-
(a) the Applicant was not at any time during the year of income presently entitled to that income within the meaning of subsection 97(i);
(b) Section 101 of the ITAA 1936 does not deem the Applicant to have been presently entitled to that income, in that:-
(I) the Trustee has not exercised any discretion to pay or apply such income to the Applicant;
(II) no such amount has been paid to the Applicant or applied for the Applicant's benefit;
(III) in the alternative, any such entitlement did not arise during the year of income;
(iii) if (which is denied) the Trustee failed validly to apply the income in question in accordance with its decision as set out in the above minute, it has, by resolutions and instruments made and executed on or about the same date as this Statement, remedied its defaults in that regard;
(iv) the Applicant:-
(a) impliedly by:-
(I) the notice of objection; and
(II) this Statement (as originally filed); and
(b) specifically, by:-
(I) this Amended Statement; and
(II) Deed of Disclaimer executed on 17 April 2003;
disclaimed and disclaims any interest in the said sum.'
19 Each applicant asserts that the Adcock Trust was a beneficiary during the year ended 30 June 1996, and the appointment of income to it was valid and did not offend the rule against perpetuities. Each applicant asserts that he/she was not presently entitled to a share of the income and the Commissioner's adjustment of the net income of each applicant, including an amount of $107,250 was incorrect.
20 It is convenient to deal first with the contention that the appointment of income in favour of the Adcock Trust was authorised by subs 61(3) of the Trusts Act, and then with the alternative contention that the minute operated to distribute the $429,000 to Steven I. Hart.
21 Subsection 61(3) of the Trusts Actprovides:
'Where any property is held by a trustee in trust for a beneficiary of full age who has a contingent interest in that property, the trustee may, at the trustee's sole discretion, pay to such beneficiary or otherwise apply for or towards the beneficiary's maintenance, education (including past maintenance or education) advancement or benefit, the income of that property or any part thereof.'
22 For the applicants it was submitted that the word "benefit" in subs 61(3) of the Trusts Act is not to be read ejusdem generis with the words preceding it. In Pilkington v Inland Revenue Commissioners [1964] AC 612, Viscount Radcliffe, at 634-5 referred to a number of cases which indicated that the word "benefit" was of very wide application. His Lordship said:
'This wide construction of the range of the power, which evidently did not stand upon niceties of distinction provided that the proposed application could fairly be regarded as for the benefit of the beneficiary who was the object of the power, must have been carried into the statutory power created by section 32, since it adopts without qualification the accustomed wording "for the advancement or benefit in such manner as they may in their absolute discretion think fit".'
23 It was contended that the application may be for the benefit of a beneficiary, even though the beneficiary does not receive it, as noted by Gummow J in Commissioner of Taxation v Vegners (1989) 90 ALR 547. The claim on behalf of each applicant was that it was beneficial to the beneficiaries of the Trust to have the income applied in a way that did not attract an income tax liability for them on moneys they did not receive, which was the result if the distribution was valid.
24 In my opinion, subs 61(3) of the Trusts Act has no application in the present case. The Trustee, in appointing the Adcock Trust as beneficiary, in the amount of $429,000 was not exercising a discretion to apply that sum for or towards the benefit of any Specified or General Beneficiaries of full age. In making the appointment, the Trustee did not purport to exercise this power. He purported to appoint income to the Adcock Trust on a basis that it was a beneficiary in its own right pursuant to the Trustee's power under cl 3(b) of the Trust Deed. Further, in my view, it is impossible to accept the proposition that giving away $429,000 of trust property to a non-beneficiary because otherwise tax might have to be paid on it could be an application of trust income for the benefit of any beneficiary within subs 61(3) of the Trusts Act. The distribution to the Adcock Trust was not authorised by subs 61(3) of the Trusts Act.
25 Being of that view, it is unnecessary to consider whether the appointment is struck down as offending the rule against perpetuities, and in particular, the claim by the Commissioner that if the appointment to the Adcock Trust was validly made under s 61(3) of the Trusts Act, the appointment was void, because it was made at a time when the perpetuity period for the Adcock Trust was greater than the period for the Hart Family Trust and is not saved by the "wait-and-see" rule in subs 210(1) of the Property Law Act 1974 (Qld).
26 Having determined that the distribution to Adcock Trust was ineffective, I turn to consider the contention by the applicants that the resolution to distribute "the balance to Steven I. Hart" distributed the $429,000 to Mr Steven Hart. It was contended by the Commissioner that, the purported distributions being ineffective, the default beneficiaries of the family trust were presently entitled to that income.
27 In BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001)46 ATR 347 ("BRK (Bris)), Cooper J was concerned with circumstances similar to the present where the Trustee of a family trust purported to appoint income to a unit trust, but the purported beneficiary was not a beneficiary of the family trust.
28 The minutes of a meeting of directors of Burradale Pty Ltd, the Trustee of the Wagner Family Trust held on 30 June 1994 recorded:
'IT WAS RESOLVED:
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64 Mr David Boddice SC, senior counsel for the Commissioner relies on some observations of Hill J, with whom Burchett and von Doussa JJ agreed, in Commissioner of Taxation v Jackson (1990) 27 FCR 1 ("Jackson"). Jackson was a case quite different from the present. The Commissioner disallowed an objection against an assessment of taxable income. After disallowance and the institution of an appeal by the taxpayer, the Commissioner purported, without issuing a new or amended assessment, to make a determination that an amount equivalent to the amount in dispute formed part of the taxpayer's assessable income pursuant to s 177F of the Assessment Act. The Full Court concluded that the Commissioner could not place reliance on his determination under s 177F made without amendment of the assessment.
[6]
65 Hill J referred to the judgment of Brennan J (as he was then) in The Commissioner of Taxation for the Commonwealth of Australia v Dalco (1990) 168 CLR 614 at 621:
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'Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong.'
Hill J commented at 20:
'The passages cited point out with some force that it is for the taxpayer to show that the assessment objected to is excessive. They do not, however, support the view that the issue before the Court or a Tribunal is other than the review of the objection decision. To succeed in that review the taxpayer must, conformably with Dalco and with s 190(b) of the Act, show that the assessment does not represent his true tax liability, but the review or appeal, as the case may be, is not, as other proceedings in the law are not, wholly unconfined; it must be limited to events affecting that substantial liability no later than the date upon which the objection decision is made.'
66 Here is argued for the Commissioner that the disclaimer, which of course occurred later than the date upon which the objection decision was made, cannot be relied on by the applicants for that reason.
67 In my opinion, if the disclaimer is retrospective in its operation in the sense of 'extinguishing' an otherwise existing liability, and is effective or valid, then it would be unfair to deny an applicant the opportunity to rely on it, particularly in the light of s 14ZZO of the Administration Act. The issue of disclaimer is not a recent one, and no prejudice would flow to the Commissioner in allowing it to be argued.
68 It is not suggested that there is any difference in the cases of the applicants, including any differences on the question of disclaimer, so it is convenient to consider disclaimer in the context of the application of Tamara Ramsden.
69 For the applicant, it was submitted that when she became aware of the supposed distribution to her, she was entitled to, and did disclaim that interest (if any). She has never assented to the distribution. The disclaimer, it is submitted, operates retrospectively with the consequence that the applicant was not liable as assessed.
70 For the Commissioner, it was contended that the Deeds of Disclaimer were not effective to avoid the applicant's liability to tax for the 1996 year. It was submitted it had no relevant retrospective operation, and operated if at all, effectively, only as a prospective renunciation or release of interest.
71 I accept that a beneficiary of a discretionary trust may disclaim for each exercise of the discretion, that is to say, the fact that the beneficiary has accepted benefits previously does not bar a disclaimer in respect of later exercises of discretion: In re Gulbenkian's Settlements (No 2), Stephens v Maun [1970] 1 Ch 408, Plowman J at 418 said:
'In Townson v. Tickell (1819) 3 B. & Ald. 31, Abbott C.J. said, at p.36:
"The law certainly is not so absurd as to force a man to take an estate against his will. Prima facie, every estate, whether given by will or otherwise, is supposed to be beneficial to the party to whom it is so given. Of that, however, he is the best judge, and if it turn out that the party to whom the gift is made does not consider it beneficial, the law will certainly, by some mode or other, allow him to renounce or refuse the gift."
If a man cannot be compelled to accept a gift I see no reason why he should not be equally free to refuse to accept the exercise of a power which the donor has conferred on the trustees to make a gift in his favour. Despite Mr. Foster's argument to the contrary, the reasoning which applies to a direct benefit, such as a power to pay money to the object of the power, appears to me to apply equally to an indirect benefit, such as a power to apply the money for his benefit instead of paying it to him.'
72 I recognise that a beneficiary has entitlement to income under a trust for the purposes of s 97 of the Assessment Act from the moment it arises, notwithstanding that the beneficiary has no knowledge of it and might be able later to disclaim the entitlement.
73 A Full Court of the Federal Court (Davies, Sheppard and Hill JJ) said in Vegners v Federal Commissioner of Taxation (1991) 21 ATR 1347 at 1349:
'… an entitlement under a trust in valid notwithstanding that the beneficiary has had no knowledge of it. See, eg Equity and the Law of Trusts by Pettit, 2nd ed, p 63. One of the cases most oft cited in this respect is Standing v Bowring (1885) 31 Ch D 282. Other cases to the same effect are referred to in Pettit. In this country, the principle has been discussed and applied by the High Court of Australia in FCT v Cornell (1946) 73 CLR 394; 3 AITR 405 and by the Court of Appeal of New South Wales in Grey v Australian Motorists and General Insurance Co Pty Ltd [1976] 1 NSWLR 669.
A beneficiary may disclaim an entitlement on its coming to his or her knowledge, as the above cases show. But the submission was not put to the Administrative Appeals Tribunal and has not been put to this court that, if she were entitled to disclaim, Mrs Vegners did so. She received the $3504 each year from the trustee, and retained it.'
74 These present appeals are not cases where the applicant is presently entitled, by s 101 of the Assessment Act. The income was not appointed to the applicant as a discretionary beneficiary, but the entitlement arises as a taker in default of appointment.
75 I do not accept that, while a person may disclaim an appointment of income as a discretionary beneficiary, the person is not entitled to disclaim where the entitlement to income arises in default of appointment by a trustee.
76 In The Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394, Latham CJ said at 401-2:
'If, however, it were held that a trust had been created by the transfer of the shares with the intention of conferring benefits upon Mrs. Corfield and some sufficiently identifiable members of the taxpayer's family, the case for the taxpayer would nevertheless fail because, as Holroyd J. in Townson v. Tickell (1819) 3 B. & Ald. 31, at p. 38 [106 E.R. 575, at p. 577] said (speaking of a devise):- "I think that an estate cannot be forced on a man. A devise, however, being prima facie for the devisee's benefit, he is supposed to assent to it, until he does some act to show his dissent. The law presumes that he will assent until the contrary be proved; when the contrary, however, is proved, it shows that he never did assent to the devise, and, consequently, that the estate never was in him." Best J. said (1819) 3 B. & Ald., at p. 39 [106 E.R., at p. 578]:- "It seems to be contrary to common sense to say, that an estate should vest in a man not assenting to it: there must be the assent of the party, before any interest in the property can pass to him." The same case shows that the dissent need not be evidenced by disclaimer in a court of record or by deed; any evidence of actual dissent is sufficient. The law was stated with equal definiteness in Standing v. Bowring (1885) 31 Ch. D. 282, at p. 288, where it was held that, when there is a transfer of property to a person, it vests in him even before he knows of the transfer, "subject to his right when informed of it to say, if he pleases, 'I will not take it.' When informed of it he may repudiate it, but it vests in him until he so repudiates it." See also London & County Banking Co. v. London & River Plate Bank (1888) 21 Q.B.D. 535; Mallott v. Wilson (1903) 2 Ch. 494.
The letter written by Mrs. Corfield's solicitors on 27th November 1941 in my opinion clearly shows that Mrs. Corfield objected to the establishment of any trust fund whatever for the purpose of meeting the payments due to her under the deed of 1936. She and her advisers fully appreciated that the establishment of any such trust would be prejudicial to her from the point of view of liability for income tax, and, as they were evidently satisfied as to the solvency of the taxpayer, there was no reason why she should accept the proposals which were made on his behalf. The letter was a clear and decisive refusal to agree to the establishment of any fund for the purpose of paying the annuity to Mrs. Corfield. The result, therefore, is that, even if the evidence were sufficient to establish a trust in favour of Mrs. Corfield in the absence of evidence of dissent, the dissent which is proved makes it impossible to hold that a trust in her favour continued to exist.'
77 Jenkins LJ said in Re Stratton's Disclaimer [1958] 1 Ch 42 at 54:
'I think it is clear from [In re Parsons [1943] Ch 12] that a disclaiming legatee or devisee has between the testator's death and the moment of disclaimer a right in respect of the legacy or devise, in that he is, during that period, entitled to call upon the executors to pay or transfer to him the subject-matter of the bequest or devise in due course of administration. It is none the less a right because it is defeasible by the beneficiary's own act of disclaimer. That merely means that he is free to choose whether to avail himself of it or not until such time as he has either unequivocally disclaimed or unequivocally accepted the gift. If he disclaims, then he avoid the gift, and with it the concomitant right, but that does not alter the fact that down to the moment of disclaimer he did have the right and would still have had it if he had not disclaimed.'
78 In Re Paradise Motor Co. Ltd. [1968] 1 WLR 1125, it was said at 1133:
'In order that someone should be treated as having, by words or actual conduct, disclaimed a gift, it must, I think, be shown that he possessed reasonably full information as to the nature and amount of the gift. Here, Johns, like many before him, proved ready to pocket his pride when he learned of the amount at stake.'
The Court of Appeal said at 1142:
'Pennycuick J. … considered that, for a disclaimer of a gift to be effective as such, the donee must possess reasonably full information as to the nature and amount of the gift. We do not think, with respect, that that generalisation is of universal application, and we do not think that it applies here. The message to Watson was quite plainly couched in language which showed that he was in no circumstances accepting entitlement to any shares.'
79 I do not accept that the applicant accepted the interest because, in her notice of objection, she accepted that she was a beneficiary of the trust.
80 The applicant at no stage, in my judgment, has accepted the interest. The various disclaimers constitute an absolute rejection of the distribution to her as a Specified Beneficiary in default of appointment of income by the Trustee. The notice of objection is consistent only with her contention that there was no interest in her in any part of the $429,000 that had been appointed to the Adcock Trust. A beneficiary will be taken to have accepted the interest where the beneficiary is made aware of it and does not, before a reasonable time has elapsed, seek to disclaim it: Hodge v Griffiths [1940] 1 Ch 260. The act of disclaimer must, usually, occur before any act constituting assent to the distribution. At all times the applicant has disputed that she had any entitlement to any part of the $429,000, and in my judgment she has at no time done any act signifying assent to the distribution to her.
81 In my opinion, the disclaimer was effective to disclaim any interest she had in the distribution to her contended for by the Commissioner.
82 The same view follows in relation to the disclaimers by Philip Hart and by Troy Hart.
83 I will hear from the parties as to the form of orders I should make to give effect to these reasons, and on costs.
I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender
[8]
Counsel for the Applicant: Mr Lister Harrison QC with Mr Peter Bickford
[9]
Solicitor for the Applicant: Hawthorn Cuppaidge Badgery
[10]
Counsel for the Respondent: Mr David Boddice SC with Mr Mark Robertson
[11]
Solicitor for the Respondent: Australian Government Solicitor
To appoint the net income of The Wagner Family Trust for the year ended 30th June 1994 as follows:
(a) The sum of $304,021.72 to Westside Commerce Centre Pty Ltd as trustee of the Hendon Unit Trust for its absolute benefit.
(b) The following sums to the following beneficiaries for their absolute respective benefits: NIL
(c) the Balance to Jessica Wagner and Bill Wagner equally between them for their absolute benefit.'
29 The minutes of a meeting of directors of B.R.K. (Bris) Pty Ltd, as Trustees for Wagner Family Trust on 30 June 1995 recorded:
'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.'
30 Cooper J rejected a submission on behalf of the applicant Trustee that the Trustee exercised its power of appointment in such a way that it had the effect of appointing the income in question in each of the years to Wilhelm Wagner and Jessica Wagner, this submission being based on the words of the 1994 distribution: '… the Balance to Jessica Wagner and Bill Wagner equally between them for their absolute benefit'; and for the 1995 distribution resolution:
'WILHELM J WAGNER REMAINDER OF
JESSICA O WAGNER BALANCE EQUALLY'
31 In the view I take of the matter, the Settlor has described in cl 3(e) of the Trust Deed (earlier set out) the consequences where an appointment of income is ineffective. In my judgment, the power under cl 3(b) of the Trust Deed is exercisable only prior to the end of the accounting period, not at the end of that period nor a reasonable time thereafter.
32 I do not agree that because the Trustee had had until the last instant of the 1996 year to exercise its discretion, the effect of the default clause would be to include the income in the default beneficiaries' taxable income, not in 1996 year but in the next year of income. I respectfully am unable to agree with the observations of Cooper J at 356 in this aspect of his Honour's judgment in BRK (Bris), namely that where the discretion to the Trustee remained open until the last moment of the income year to exercise:
'Default, in these circumstances, would not have occurred until the income year had expired. Thereafter, if the default proviso were effective and valid, it would have taken effect according to its tenor. The consequence would be that in the subsequent financial year, the default beneficiaries would become entitled to income of the Trust earned in the previous financial year. However, the position would remain that as at the end of the financial year, there was no beneficiary presently entitled to the income.'
33 The default clause in the Trust Deed, cl 3(e), is similar to the clauses in the trust deeds considered in Commissioner of Taxation v Marbray Nominees Pty Ltd (1985) 81 FLR 280 ("Marbray") and East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 90 ALR 457 ("East Finchley"). Clause 3(4) of the Trust Deed considered in Marbray provided:
'The Trustees shall hold so much of the net income of the Trust Fund for each Accounting Period as shall not be the subject of a determination effectually made in relation to such Accounting Period in trust successively for the persons described in sub-clauses (1) (2) (3) and (4) of clause 4 hereof.'
34 Tadgell J in Marbray said, at 292:
'Clause 3(4) is obviously intended to be capable of operation upon the net income of the trust fund from year to year, save in so far as that income is not the subject of a determination pursuant to cl 3(1) to pay or apply it or to set it aside or accumulate it. Clause 3(4) and (5) could not so operate if the expression "person described" in cl 3(4) were construed to mean, in effect, "the Specified Beneficiaries who shall be living on the Vesting Day". Clause 3(4) is not concerned at all with the factual position on the Vesting Day. It is concerned to identify individuals, alive at the time it operates, by reference to their description in cl 4 and not by reference to their condition on the Vesting Day.
It follows that, in accordance with the deed, the respondent held the net income of the trust in each of the two years in question on trust for the specified beneficiaries.'
35 Clause 4.2 of the relevant Trust Deed considered in East Finchley provided:
In the event that the trustee shall fail to make an effective determination in accordance with cl 4.1 hereof prior to midnight on the last day of any accounting period then any such income not paid or applied or set aside or accumulated (hereinafter called "the undistributed income"), or, where a determination has been made under cl 4.1 to accumulate income and such accumulation would be void then the trustee shall hold the undistributed income upon trust for the persons successively described in paras (a) to (e) of the second schedule as shall then be living and if more than one in any paragraph in equal shares …'
36 Hill J said at 468:
'Should it have turned out that the resolution was either legally ineffective to constitute present entitlement in the overseas beneficiaries or if it should have been the case that the discussion as to the overseas beneficiaries never happened or indeed if it had been the case that the resolution was a sham intended as a disguise to deceive the Commissioner or that the acts done by Dr Thomas overseas were a sham, then the consequence would be that the default beneficiary clause would have come into operation and the beneficiaries entitled under it would have been presently entitled to the whole of the income of the estate not otherwise disposed of by the resolution to the immediate family of Dr Thomas. This being the case there would have been no part of the net income of the trust estate that had not been dealt with either under s 97 or 98 with the consequence that s 99A of the Act could not have applied and the assessment would have been shown to have been excessive.'
37 In each of Marbray and East Finchley, the court indicated that the income for the relevant year, where there was an ineffectual appointment by 30 June, went to the takers in default.
38 The applicants seek to distinguish the reasons for judgment of Cooper J in BRK (Bris), contending that the minute of the meeting of the Hart Family Trust in this case shows an intention to distribute all the income, and that only $4,750 should go to Troy Hart with "the balance", whatever it might be, to go to Steven I. Hart, whereas it was submitted that Cooper J discerned an intention from the sequence "first $220,000, next $100,000, remainder …" that the remainder should not include the preceding $320,000.
39 In my respectful opinion, there is no such point of distinction between BRK (Bris) and this. It might be noted in BRK (Bris) that there was no ranking in respect of the resolution for the 1994 year.
40 Dealing with the submission that in the 1994-1995 income years, the Trustee exercised its power of appointment in such a way that it had the effect of appointing the income in question in each of the years to Wilhelm Wagner and Jessica Wagner, Cooper J said at 356:
'In my judgment the submission is misconceived. In the 1994 income year the clear intention of the applicant was to appoint to Mr and Mrs Wagner only so much of the Trust income, if any, as exceeded $304,021.72. It was not intended that Mr and Mrs Wagner take the sum of $304,021.72 in addition to any income in excess of that amount, in the event that the appointment to WCC should fail. The position is no different in respect of the 1995 year. The trustee purported to appoint discrete amounts of income to the Hendon Unit Trust as to the first $220,000, and to the Northbourne Trust as to the next $100,000. Finally, as to any remainder after the application of the first $320,000 of income, that remainder was to be appointed to Mr and Mrs Wagner; they did not as a matter of construction or intention on the part of the trustee, take by default all of the income in the event of failure of the other 2 appointments.'
41 In the view I take of the matter, the appointment of income to the Adcock Trust not being effective, Steven Hart, being the beneficiary entitled to the "balance of the income", did not take the income ineffectively appointed to the Adcock Trust. That appointment being ineffective the Settlor has specified the consequences.
42 I turn to the contention that the Commissioner is unable to challenge the validity of the distribution. It was contended for the applicants that the Commissioner must take the world as he finds it, and cannot officiously seek to set aside or treat as set aside a trust distribution which the interested parties are content to allow to stand. That is to say, the Commissioner is not entitled to challenge the validity of trust transactions in the absence of any challenge by any beneficiaries: Cridland v The Commissioner of Taxation of the Commonwealth of Australia (1977) 140 CLR 330 ("Cridland v COT") at 341 is said to support this later proposition.
43 Further, it was submitted that the Court should not make such a determination in taxation proceedings in the absence of all interested parties, and a court should not determine that the persons to whom the distribution was made are in fact not entitled to claim the moneys without hearing from them. It was further contended that the decision to apply the trust fund for the benefit of a non-beneficiary was merely a violation of an equitable obligation which may be acquiesced in by the beneficiaries, (as the applicants assert has happened here), and the Trustee as legal owner was able to apply the trust assets as it saw fit, though that rendered it liable to an action for breach of trust at the suit of any beneficiary who objected, and none has. For the applicants it was said that these arguments were not advanced to Cooper J in BRK (Bris), so that case cannot be taken to have rejected them.
44 I do not agree.
45 The Commissioner has a duty to assess whether a taxpayer is a beneficiary presently entitled to income for the purposes of s 97 of the Assessment Act. Neither the Commissioner nor the Court are required to give effect to a transaction that is null and void, or otherwise legally ineffective. A trustee who acts ultra vires in making an appointment of income effects nothing. Cooper J in BRK (Bris) said at 353:
'The purported resolutions were nullities and liable to be set aside ab initio by a court:'
His Honour referred to Re Cavill Hotels Pty Ltd [1998] 1 Qd R 396, in particular the observations of Williams J at 402, and the observations of Mervyn Davies J in Turner v Turner [1984] 1 Ch 100 at 111.
46 The Trustee had no power to appoint the Adcock Trust as a beneficiary entitled to benefit from the Trust provided for in the Trust Deed, and the Trustee had no power to appoint any income in any income year to the Adcock Trust, as it was outside any class eligible to be the object of an appointment of income under the terms of the Trust.
47 The ultra vires appointment was thus, in my view, void ab initio and a nullity, and not merely voidable following a challenge by disappointed beneficiaries.
48 The decision of the High Court in Cridland v COT is not contrary to the above conclusions. In that case an engineering student (C) had applied for a unit of entitlement in two unit trusts, so as to be able to average his income pursuant to Pt III Div 16 of the Assessment Act as a person who carried on business of primary production. Since C had not made a donation stipulated in the Trust Deed or paid the consideration referred to in the transfer of the unit entitlement, the Commissioner concluded that he was not an income beneficiary, notwithstanding his registration as a person entitled to a unit.
49 The High Court held that by the terms of the Trust Deed, the Trustee was required only to account to those persons registered as income beneficiaries, and the fact that there might have been a non-compliance or irregularity concerning that registration, which could be the basis of a claim for equitable relief, did not entitle the Commissioner to issue an assessment on the footing that the taxpayer was not regularly entered as an income beneficiary in the relevant year. Mason J (as he was then) held that the action of the Trustee in paying income to C was not beyond power. Mason J with whom Barwick CJ, Stephen, Jacobs and Aickin JJ agreed, said at 341:
'Non-compliance with the requirements of the trust deed antecedent to registration might give rise to some equitable claim to relief against a person who had been irregularly registered as an income beneficiary, at least at the suit of a transferor, but it could not affect the power of the trustee to pay income to a person whose name appeared in the register of income beneficiaries at the relevant time. If there be a non-compliance or an irregularity which could ground a claim to equitable relief in the present case, it is not a matter on which the respondent can rely in order to sustain his assessment.'
50 I turn now to the question of disclaimer.
51 There is a preliminary question concerning the applicants' contention that he or she has disclaimed any entitlement to any default distribution. The objection was lodged on 19 September 2000, the objection decision was given on 26 April 2001, and the appeal to the Federal Court was lodged on 5 June 2001. According to Mrs Petersen, the proposed Deeds of Disclaimer were considered at a meeting of Nemesis Australia Pty Ltd (formerly Steve Hart Family Holdings Pty Ltd), as Trustee of what was called the Steve Hart Family Trust and is now called the Nemesis Group Discretionary Trust on 17 April 2002.
52 Mrs Petersen claims that to the best of her recollection, Deeds of Disclaimer were executed by Troy and Philip Hart and Tamara Ramsden in terms of those draft Deeds of Disclaimer on 17 April 2002. There is no record of receipt of the executed draft Deeds of Disclaimer by the solicitor for the applicants, and the originals or copies of those executed Deeds of Disclaimer which were claimed to have been executed on 17 April 2002 have not been able to be located. That meeting purported to nominate the Trustee for the time being of the Adcock Trust established 29 September 1981, as a General Beneficiary of the Hart Family Trust (now called the Nemesis Group Discretionary Trust), and the minutes record: 'This amendment is to have effect on and from the 30th June 1996.' The nomination, in my view, can have no lawful retrospective effect.
53 The draft Deed exhibited to Mrs Petersen's affidavit is unexecuted, but bears date "February 2002".
54 Tamara Ramsden filed an affidavit on 6 October 2003. In it she deposes to her date of birth as 21 October 1975 and says:
'3. I had not seen or read the Steve Hart Family Trust Deed prior to the 30th of June 1996. I have only had cause to consider the terms of that Deed during the course of preparation for the within proceedings in the Federal Court.
I was aware, as at the 30th of June 1996, that I was one of the discretionary beneficiaries of the Steve Hart Family Trust and that I had on occasion received benefits from the Trust by way of payment of school fees.
I do not have any legal qualifications. I do not have any accounting qualifications. I do not understand what a discretionary trust is or what it does. I do not understand the difference between discretionary beneficiaries and default beneficiaries.
I have no real understanding of trust concepts at all.
Until I received the Notice of Amended Assessment for the year ended 30th of June 1996, some time shortly after the 19th of July 2000, I had no idea that I might be entitled to receive any benefit from the Steve Hart Family Trust for the year ended 30th of June 1996.
After receiving the Amended Assessment I sought advice from my stepfather, Mr Hart, and caused the notice of objection dated 19 September, 2000 in exhibit "TR-2" to my affidavit sworn 22 August, 2002 to be lodged.
I am aware that solicitors Hawthorn Cuppaidge & Badgery had Counsel draw a number of documents including a deed of disclaimer which was obtained from Counsel on or about the 25th of February 2002.
I have never received any funds by way of distribution of profit from the Steve Hart Family Trust in respect of the financial year ended 30th of June 1996 nor have I had any knowledge of any potential entitlement in that regard prior to receipt of the Amended Assessment and the aforementioned legal advice.
As I have no desire to receive any monies or benefits from any such potential entitlement I have disclaimed and disavowed the said entitlements by Deed of Disclaimer as drawn by counsel executed on 17 April 2002. Unfortunately, I am unable to locate a copy of that Deed. I have today executed a further deed of Disclaimer, identical in all respects to that said Deed, save for the date thereof, a true and correct copy of which is now produced and shown to me and marked with the letters "TR-1".
The exhibited Deed of Disclaimer is executed and bears the date 2 October 2003. It provides:
'A. DATE: 2nd of October 2003
B. PARTY: Tamara Ann Hart ("the Beneficiary")
C. RECITALS:
The Nemesis Group Discretionary Trust was established by Deed of Trust dated 1st of June 1981 ("the trust deed") between Brian Hawkes as Settlor and the Trustee.
The Commissioner of Taxation has assessed the Beneficiary to income for the year ended 30th June 1996, which the Commissioner asserts the Beneficiary has become entitled to pursuant to clause 4(a) of the trust deed.
The Beneficiary denies any entitlement to any income under that clause.
Nevertheless, out of an abundance of caution, the Beneficiary desires to disclaim any such income.
D. OPERATIVE:
The Beneficiary disclaims any entitlement to any income of the Trust of the year ended 30th June 1996, except such as may have been specifically paid to or applied for the benefit of the Beneficiary and, in particular, disclaims any entitlement to any income which might otherwise have accrued under the abovementioned clause 4(a).
This disclaimer takes effect on and from 30th June 1996.'
55 A further affidavit sworn on 8 October 2003 by Tamara Ramsden was filed on 8 October 2003. In that affidavit, Tamara Ramsden says:
'2. To the best of my knowledge, information and belief I have never received any income or other benefit from Steve Hart Family Holdings Pty Ltd ("SHFH") (now called Nemesis Australia Pty Ltd ("Nemesis")) as trustee of the Steve Hart Family Trust ("SHFT") (now called "the Nemesis Group Discretionary Trust" ("the Nemesis Trust")), under either name, except pursuant to a specific decision of SHFH or Nemesis as evidenced in distribution minutes of meetings of directors of the company as trustee.
3. In other words, I have never received any benefit as a default beneficiary of the SHFT or the Nemesis Trust pursuant to Clause 3(e) of the Trust Deed.
4. I do not wish to receive any benefits as a default beneficiary of that trust. Consequently, I have today executed a Deed of Disclaimer disclaiming all of my interest under Clause 3(e) of the Trust Deed. The Disclaimer is to take effect on and from the establishment of the trust. Now produced and shown to me and marked with the letters "TR1" is a true copy of the said Deed of Disclaimer.'
56 The Deed of Disclaimer exhibited to the affidavit of 8 October 2003 bears date 8 October 2002. The second recital of the Deed of Disclaimer of 8 October 2002 states:
'2. The Commissioner of Taxation has assessed the Beneficiary to income for the year ended 30th June 1996, which the Commissioner asserts the Beneficiary has become entitled to pursuant to clause 3(e) of the trust deed.'
The operative part of the Deed of Disclaimer is as follows:
'D. OPERATIVE:
The Beneficiary disclaims all the beneficiary's interest under clause 3(e) of the trust deed.
This disclaimer takes effect on and from the date of settlement of the trust.'
57 Philip Hart filed an affidavit on 26 August 2002. That affidavit says in part:
'12. I have been informed by my solicitors that for the year ended 30th of June 1996 SHFH as trustee of the SHFT purported to make a distribution in the amount of $429,000.00 to the Adcock Trust.
13. I am aware that the Respondent Commissioner of Taxation has treated that distribution as invalid and as a result has increased my assessable income by an amount of $107,250.00, being a Ľ share of the amount purportedly distributed to the Adcock Trust.
14. I have never challenged the validity of the distribution by SHFH as trustee of the SHFT to the Adcock Trust.
15. So far as I am aware, SHFH as trustee of the SHFT has not exercised any discretion to pay or apply any part of that aforesaid distribution to me.
16. To the best of my knowledge and belief no part of the amount of $429,000 distributed to the Adcock Trust has been paid to me or applied to my benefit.'
58 In an affidavit filed on 7 October 2003, Philip Hart deposed in terms identical with pars 9, 10 and 11 of Tamara Ramsden's affidavit concerning the Deed of Disclaimer. He executed a Deed of Disclaimer dated 6 October 2003 which, apart from the date, is in the same terms as the Deed of Disclaimer of Tamara Ramsden of 2 October 2003. On 8 October 2003, Philip Hart filed an affidavit in the same terms as Tamara Ramsden's affidavit of 8 October 2003, and exhibited an identical Deed of Disclaimer. The date on each of those Deeds is 8 October 2002, although they were executed on 8 October 2003.
59 Troy Hart filed affidavits on 26 August 2002, 6 October 2003 and 8 October 2003 in similar terms to those of Tamara Ramsden and his Deeds of Disclaimer are identical to hers.
60 Section 14ZZO of the Administration Actrelevantly provides:
'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; …'
61 The predecessor to s 14ZZO of the Administration Act was subs 190(a) of the Assessment Act which stated:
'In proceedings under this Part on a review before the Tribunal or on appeal to a court -
(a) the taxpayer shall, unless the Tribunal or a court otherwise orders, be limited to the grounds stated in his objection.'
62 The applicants through their counsel seek to argue, if it is necessary to do so because the present grounds are insufficiently wide to encompass the further ground, that by virtue of a subsequent disclaimer, the amounts in issue never formed part of the assessable income in each respective case.
63 It was held by a Full Court of the Federal Court in Lighthouse Philatelics Pty Ltd v Commissioner of Taxation (1991) 32 FCR 148, that the Tribunal or the Court has power pursuant to subs 190(a) of the Assessment Act to permit a taxpayer to argue that the taxable income and tax payable are "incorrect and excessive" for reasons not initially advanced in the objection to the Commissioner, even if those reasons involve entirely fresh grounds in substitution for the original grounds, or even if they require consideration of matters not considered by the Commissioner in the original assessment process. The Court (Lockhart, Burchett and Hill JJ) said at 155:
'The Commissioner cannot be said to be confined in the course of considering the taxpayer's "objection" to the matters raised by the taxpayer in that "objection". He has an obligation to administer the Act and may determine to allow the objection for grounds totally unrelated to those raised by the taxpayer, if that be the correct course, just as he could form the view, based on a reconsideration of the matter, that the assessment should be confirmed for reasons which he had not previously considered. His task is to ensure that the correct amount of tax is paid, "not a penny more, not a penny less".'
Having at 156 held as summarised above, the Court said:
'The decision whether to allow an amendment ought to be made on the same considerations of justice upon which such decisions are regularly made in litigation. It was in the past a reproach to the law that the real issues in taxation appeals could be refused a hearing for a defective objection, and Parliament has legislated to remove that reproach; an amendment under s 190 should not be considered with reluctance, but on its merits.'