Income Tax Assessment Act 1936 Cth. ss.170, 260.

Peate v. The Commissioner of Taxation (1963-1964) 111 CLR 443 and [1966] UKPCHCA 1; (1966) 116 CLR 38

Millard v. Commissioner of Taxation [1962] HCA 28; (1962) 108 CLR 336

The Commissioner of Taxation v. Gulland, Watson and Pincus [1985] HCA 83; (1985) 160 CLR 55

Tupicoff v. Federal Commissioner of Taxation (1984) 4 FCR 505

McAndrew v. Commissioner of Taxation [1956] HCA 62; (1966) 98 CLR 263

Australasian Jam Company Proprietary Limited (1953) 88 CLR23

Solicitors for the respondent: Australian Government Solicitor

There are before the court Notices of Referral of six decisions of the respondent ("the Commissioner") disallowing objections by John Watson Daniels ("the taxpayer") against assessments to income tax in respect of each of the years of income ending 30 June, 1981, 1982, 1983, 1984, 1985 and 1986. The assessment in respect of the 1981 year was an original assessment and the remainder were amended assessments. At the request of the parties, the cases have been heard together. They involve, amongst other things, a consideration of ss.260 and 170 of the Income Tax Assessment Act 1936 (Cth.) ("the Act").

2. The taxpayer was born in Scotland in 1940, and married in 1969. He has two children, born in 1970 and 1972 respectively. In the 16 or 17 years before migrating to Australia he had worked in Holland as a contract draftsman, on the basis that his employer was an agency which provided drafting services to the end users.

3. Before coming to Australia, the taxpayer had sent a resume of his experience and qualifications to a number of Australian firms, which were either end users of drafting services or agencies for the supply of such services. The taxpayer received replies from some of them, including Bechtel Pacific Corporation Limited ("Bechtel") who had received a completed employment application form from him on 1 September 1980. In its letter dated 19 September 1980 Bechtel suggested that on arrival in Australia he should make an appointment for an interview.

4. The taxpayer arrived in Australia on 14 January 1981 and on 27 January he was engaged by Jon and Associates, an agency, to render drafting services which they had agreed to provide to Bechtel as the end user. For the work which he did between 27 January and 18 February he was paid by cheque from Jon and Associates made payable to him. He included the amount of the cheque, $399, in his personal income tax return for the year ended 30 June 1981 under the heading "Contract Drafting".

5. Jon and Associates had advised the taxpayer to see Mr. Brown, an accountant, upon whose advice J.W. Daniels Design Services Pty. Ltd. ("the company") was incorporated on 18 February 1989 and thereafter acted as trustee for the J.W. Daniels Family Trust, ("the Trust") which was constituted on the same day. All subsequent cheques from Jon and Associates were made payable to the company.

6. There was tendered in evidence a document in the following terms:

This agreement made 20th January, 1981 between Jack Daniels and

J.W. Daniels Design Services Pty. Ltd. (hereinafter called "the

Company".)

1. It is agreed that the company will use its best endeavours

to procure work for Jack Daniels in his capacity as a draftsman.

2. It is agreed that the company will receive all payments due

under contracts performed by Jack Daniels.

3. It is agreed that the Company will pay Jack Daniels an annual

fee as may be mutually agreed from time to time for the

performance of the work contracted.

7. In his affidavit of 21 December 1988 the taxpayer said, amongst other things,

"3. On 20th January 1981 Jack Daniels (hereinafter

called 'Daniels') entered into a contract with the

prospective Trustee Company which was to procure

work for him in his capacity as a draughtsman.

Annexed hereto and marked JWD21 is a copy of the

said agreement." (This has been set out above).

"4. The Trustee Company has employed Daniels as a

draughtsman/designer and has made payments to him

as follows:-

(a) One half of the family Trust's net income for

the tax income year ending 30th June 1981

(b) $11,000 for the year ending 30th June 1982

(c) $17,000 for the year ending 30th June 1983

(d) $13,000 for the year ending 30th June 1984

(e) $28,000 for the year ending 30th June 1985

(f) $23,000 for the year ending 30th June 1986

These payments were shown in the income tax returns

filed by the Trustee Company on behalf of the

Trust. . . .

An adjustment sheet in the following terms in

respect of the year ended 30th June 1986 was

received on 22nd April 1987:

'The following is the basis of calculation of net

income from personal exertion for the year ended

30th June 1986.

Gross Income $45,522

Total Expenditure Claimed $44,712

Less Expenditure disallowed

Wages - John Daniels $23,000

- Olga Daniels $ 3,860

Filing Fees $ 95

$26,955 $17,757

Net Income $27,767'

5. Adjustment sheets couched in similar terms were

received in respect of the other years. . . .

6. Contracts were obtained for Daniels as detailed in

the following documents:" (The deponent then set out

the relevant letters).

"6. (sic) The Trust carries on the business of providing

drafting services to various firms on a totally

arms-length basis. The Trust agreed to provide the

relevant firms with very specialised high level

expertise on an assignment by assignment basis. The

level of the expertise required for each assignment

was beyond the capacity of the personnel of the firms

to which the Trust contracted its services to.

Although the nature of the services provided by the

Trust required some time to be spent on the premises

of the various firms with whom it contracted its

services, it is emphasised that the personnel

involved with providing such services on behalf of

the Trust can in no way be construed as having acted

under a master/servant relationship with the firms

concerned, as was the position of course in the case

of the firms' own employees. There was no formal

provision for the Trust's personnel to work all their

specific hours on the client's premises. Nor did

they perform the work under the supervision of any of

the client's employees. Also of course the Trust

could be performing work for more than one client at

the same time.

The Trustee Company invoiced the firms for all work

done in its name. . . .

Payment for the work done by Daniels was received by

the Trustee Company and banked into its bank account.

. . .

Olga Daniels (Daniels' wife) was employed by the

Trust doing general office duties during the years

under appeal in accordance with an agreement entered

into in January 1981. . . .

8. Details of the wages paid to Olga Daniels are shown

in the income tax returns lodged. The net income of

the Trust for the year ended 30th June 1981 was

divided between Daniels and his wife. In subsequent

years they were paid wages and the net income of the

Trust in the year ended 30th June 1982 was divided

between Daniels, his wife, his two children and

Blanca Layanna. In the years 1983 and 1986 inclusive

the net income of the Trust was divided between

Daniels, his wife, and his two children. Details of

payments are shown in the income tax returns filed.

9. The Trustee Company became registered as a group

employer on 1st January 1982. (Group No. 2363804).

. . .

10. On 17th September 1985 the Trustee Company was

registered as an employer for Workcare with the

Accident Compensation Commissioner (No. 1513363).

. . .

11. The Trustee Company has kept a separate office

facility - it uses its own letterhead on stationery -

it owns its own plant and equipment.".

8. The Commissioner, in the original assessment for 1981 and the amended assessments for 1982-86, assessed the taxpayer on the basis that he, and not the company, was the recipient of the income shown in the Trustee Company's returns. This assessment was based upon s.260 of the Act which reads as follows:

"(1) Every contract, agreement, or arrangement

made or entered into, orally or in writing, whether

before or after the commencement of this Act, shall

so far as it has or purports to have the purpose or

effect of in any way, directly or indirectly -

(a) altering the incidence of any income tax;

(b) relieving any person from liability to pay any

income tax or make any return;

(c) defeating, evading, or avoiding any duty or

liability imposed on any person by this Act;

or

(d) preventing the operation of this Act in any

respect;

be absolutely void, as against the Commissioner, or

in regard to any proceeding under this Act, but

without prejudice to such validity as it may have

in any other respect or for any other purpose.

(2) This section does not apply to any contract,

agreement or arrangement made or entered into after

27 May 1981.".

9. Having been requested by the taxpayer to identify the "contract agreement or arrangement alleged to have been struck down by s.260", the Commissioner replied that it was "the imposition of the trust between Mr. Daniels and the respective employers". The word "imposition" by common consent has been read as if it were "interposition".

10. In Peate v. The Commissioner of Taxation (1963-1964) 111 CLR 443 and [1966] UKPCHCA 1; (1966) 116 CLR 38 a group of doctors, having determined the partnership under which they formerly practised, each formed a family company to which they sold their individual practices and plant. Each doctor then entered into a service agreement with his family company. As Menzies J., sitting at first instance, pointed out (at p 447), the central feature of Dr. Peate's agreement with his family company was that he should serve it "as Medical Practioner in the business carried on by the Company" "at a salary of 1,000 pounds per annum or other agreed sum and in so doing should obey the lawful orders of the directors".

11. That agreement contemplated that his family company might nominate a company or partnership carrying on a similar business which Dr. Peate should serve and Menzies J. (at p 449) was satisfied that the intended nominee was A.E. Westbank Pty. Limited, the same company which was set up to be the nominee of each of the family companies of the other members of the group. Dr. Peate's wife received a salary for her services as secretary to his family company.

12. Assessments were made by the Commissioner which wholly disregarded the family company and disregarded the nominee company "except to the extent that in starting from its net income Dr. Peate was given the advantage of a proportion of the moneys which it had spent and which it claimed as deductions. In the result Dr. Peate was assessed to tax on a taxable income of 4,298 pounds instead of his return of taxable income of 1,232 pounds". (p 455)

13. Menzies J. decided that "the purpose and effect of what was done was to obtain increased tax deductions from assessable income and to divide what would otherwise have been Dr. Peate's taxable income between himself, his wife and his children". He was satisfied that what was done was not explicable "by reference to ordinary business or family dealing", to use the language of Lord Denning in Newton's case [1958] UKPCHCA 1; (1958) 98 CLR 1, (at p 8).

14. Menzies J. did not think "that the War Assets Case [1954] HCA 81; (1954) 91 CLR 53 shows that what took place here was an ordinary business transaction" (p 459).

15. His Honour referred to Millard v. Commissioner of Taxation [1962] HCA 28; (1962) 108 CLR 336, in which a registered bookmaker had entered into an agreement with a proprietary company whereby it was provided that as from its date the company should take over from the taxpayer and carry on the bookmaking business on its own behalf and that as from the same date the taxpayer should carry on all bookmaking activities hitherto carried on by him on his own behalf for and on behalf of the company and as its agent. The company bound itself to pay him a fixed sum at an annual rate during the continuance of the agreement. All shares in the company were held by the taxpayer, his wife and his children.

"To my mind it is about as plain as it could be

that the whole purpose and effect of the agreement

was to split the appellant's income into a number

of parts in order to minimize the amount of tax

which would become payable".

17. Having held that s.260 applied to Peate's case, Menzies J. went on (at p 461) to hold that it was the making of the agreements with the nominee company and the making of Dr. Peate's agreement with his family company "which effectuated the tax-avoiding purpose with regard to Dr. Peate. These agreements must, therefore, be disregarded".

18. In the Full Court of the High Court, Kitto J., with whom McTiernan and Owen JJ. agreed, said (at p 469):

"But the question remains, whether the overt acts

that were done under the plan are fairly explicable

without an inference being drawn that tax-avoidance

is a purpose of the arrangement as a whole.

Menzies J. thought they were not, and with respect

I agree. The arrangement bears ex facie the stamp

of tax-avoidance. An understandable purpose of

providing for the doctors' families, and doing so

quite honestly, is perfectly evident; but what is

equally evident is a purpose of doing so by a

method which will divert income away from the

participating doctors to or for the benefit of

their families, to the end that a substantial part

of the tax might be avoided which would have been

incurred if the income had first been derived by

the doctors and then applied by them for the

benefit of their families.

The case therefore falls, plainly as I venture to

think, within the application of s.260.".

"it is clear enough that here there was an

arrangement constituted by a predetermined and

concerted series of transactions which had the

effect, and were calculated to have the effect, of

avoiding the liability of the appellant to tax on a

specified share of profits earned by him in

co-operation with a number of other medical

practitioners and yet leaving him free, to all

intents and purposes, to make such dispositions of

that share for his own benefit and for the benefit

of his wife and children.".

20. Windeyer J. was also of opinion that s.260 applied to the facts of Dr. Peate's case.

21. In the Privy Council [1966] UKPCHCA 1; (1966) 116 CLR 38, it was said (at p 43):

"The first question therefore to be determined is

did the contracts, agreements and arrangements made

in 1956 or any part of them have one of the

purposes or effects stated in this section.

In the opinion of their Lordships the answer is in

the affirmative. Before these arrangements were

made in 1956 the appellant received 14 per cent of

the net profits of the partnership and was assessed

accordingly. After they were made, the doctors who

had been partners treated patients in the same way

as they had before but as a result of these

arrangements, their incomes from the practice of

their profession were reduced to the salaries

received from the 'family' companies who received

either by way of service fees or dividends the same

percentage of the net profits of Westbank as the

doctors had been entitled to under the partnership

agreement.

In their Lordships' opinion these arrangements have

the purpose and effect of avoiding a liability

imposed on each doctor by the Income Tax and Social

Services Contribution Assessment Act.

It follows from this conclusion that the respondent

was right to treat as void as against him or in

regard to any proceedings under the Act the whole

or any part of any contract, agreement or

arrangement which directly or indirectly had this

effect.".

22. Peate's case was applied in the cases of The Commissioner of Taxation v. Gulland, Watson and Pincus [1985] HCA 83; (1985) 160 CLR 55.

23. Dr. Gulland, a medical practioner "who had practised on his own account, began to practise as an employee of a unit trust, with the result that some of the income which would otherwise have been expected to be his was received by the beneficiaries of the trust who were members of his family. Both before and after the rearrangement, the practitioner conducted professional activities at the same place essentially in the same manner although the trustees of the unit trust made superannuation arrangements for the employees of the trust under which contributions to the superannuation fund were allowable deductions under s.51 of the Income Tax Assessment Act 1936 (Cth).".

24. Gibbs C.J., Wilson, Brennan and Dawson JJ., (Deane J. dissenting) held that:

"Section 260 of the Act enabled the Commissioner to

disregard the rearrangement and to treat the loss

of the trust as a loss incurred by the

practitioner; by Gibbs C.J. and Brennan J. on the

ground that while a taxpayer may choose to organize

his affairs in such a way as to take advantage of

tax benefits provided by the specific and

particular provisions of the Act, the choice

principle recognized by W.P. Keighery Pty. Ltd. v.

Federal Commissioner of Taxation (1957) 100 CLR

66 did not apply to an arrangement which did not

attract such a benefit but sought to divert income

from one taxpayer to another; and by Dawson J. on

the ground that the choice principle did not apply

when it was apparent from the circumstances that a

choice involving a change in the way a taxpayer's

business or professional activities were conducted

had been made in order to avoid tax.".

25. Mr. Watson who had conducted a medical practice in partnership set up a family trust, as did his partner. Together they set up a service trust controlled by the former partners and a unit trust in which the units were held by the trustees of the family trusts. The partners sold the practice to the unit trust, employment agreements were made between the unit trust and the practitioners, a superannuation fund was created for them as employees of the unit trust and a service agreement was made between the service trust and the unit trust. Original assessments were issued to Mr. Watson on a basis consistent with the effectiveness of the arrangements. An amended assessment was later raised on the application to the arrangements of s.260.

26. Dr. Pincus, had "conducted a medical practice in partnership, which was dissolved and a family trust was set up by each of the former partners. The assets of the partnership, through the medium of these family trusts, were sold to the trustee of a unit trust who thereafter employed Dr. Pincus. Half of the income of the unit trust was distributed to his children as beneficiaries of the family trust".

27. In his judgment in the cases of Gulland and Watson, Gibbs C.J., after reviewing the authorities, said (at p 71-2)

"In my opinion the arrangements made by Mr. Watson,

like those in Peate v. Federal Commissioner of

Taxation, bear on their face an indication of a

purpose to avoid tax. It is true that the

arrangement revealed other purposes as well, namely

the desire to make adequate provision for the

superannuation of Mr. Watson and to benefit the

members of his family. I do not think that the

attempt to obtain deductions for contributions to

the superannuation fund should be treated as merely

another attempt at tax avoidance. It would have

been possible, theoretically at least, for Mr.

Watson to provide for himself a superannuation

scheme while he remained self-employed, but unless

he were an employee, contributions to the

superannuation scheme would not have been tax

deductible. As at present advised I do not

consider that s.260 would have frustrated an

arrangement made by Mr. Watson to become an

employee for the purpose of enabling his employer

to have the benefit of the deductions allowed by

s.82AAC of the Act, even if the employer were a

company or trust which he himself controlled.

However, the arrangements in fact made, went far

beyond what was necessary to take advantage of the

tax benefit provided by s.82AAC. The creation of

the unit trust, and the allocation of units in the

trust to the trustees of the family trust, together

with the employment agreement, viewed objectively,

can only be regarded as an attempt to split the

income from Mr. Watson's practice, and thus to

avoid tax which Mr. Watson would otherwise have

paid, or to alter the incidence of the tax payable

on that income. I am unable to agree that tax

avoidance was an inessential or incidental feature

of the arrangement. At the very least it was one

of the main purposes of the arrangement and s.260

accordingly applied.

In my opinion s.260 also applies to the

arrangements made by Dr. Gulland. I have already

mentioned the points of distinction between the two

cases. The introduction of another medical

practitioner quite unconnected with the practice,

as co-trustee of the unit trust emphasized the

artificiality of the arrangement. On the other

hand, the arrangement, if effective against the

Commissioner, would have increased rather than

reduced Dr. Gulland's income in the relevant income

year, because the unit trust made a loss during

that year. It does not follow that the arrangement

did not have one of the purposes or effects

described in s.260. Viewed as an arrangement

intended to operate in future years, the objective

purpose of the arrangement can be seen to be an

attempt to avoid tax. Further, the arrangement had

the purpose and effect of altering the incidence of

tax in the relevant income year.

The fact that Dr. Gulland's family trust was

already in place leads to no different conclusion.

The creation of the unit trust, and the issue of

all the units in that trust to the trustee of the

family trust, stamped the arrangement as one whose

purpose or effect was to avoid tax or alter the

incidence of tax.".

28. The learned Chief Justice considered the facts in the Pincus case, looked at the points of distinction, and having concluded that they were not material, went on to hold that s.260 was applicable.

29. Peate's case had earlier been applied by a Full Court of this court in Tupicoff v. Federal Commissioner of Taxation (1984) 4 FCR 505, in which the taxpayer had resigned his appointment as an agent on commission for an assurance company, and procured the appointment in his stead of a company which was the trustee of a newly formed discretionary trust, the beneficiaries of which were the taxpayer and members of his family. He thereafter continued selling policies for the assurance company, which paid or credited the appropriate commissions to the trustee of $10,492 to the wife and children of the taxpayer and lodged an income tax return accordingly. The Commissioner added the amount of $10,492 to the taxable income of the taxpayer. It was held at first instance that the taxpayer's arrangement was void as against the Commissioner within the meaning of s.260 and the Full Court dismissed the taxpayer's appeal.

30. In Commissioner of Taxation v. Bunting (89 ATC 4358) (Lockhart J., 7 April 1989) had before him an appeal from the Administrative Appeals Tribunal which had decided that the arrangements made by the taxpayer were not avoided by s.260.

31. Mr. Bunting had migrated from England to Australia in March 1980, having been employed in England for about a decade by various companies as a computer programmer and later as a computer systems analyst. After his arrival in Australia he arranged for the incorporation of a company on 9 April 1980 and on 14 April it became the trustee of a discretionary trust, the beneficiaries of which were members of his family. Mr. Bunting was excluded from the class of beneficiaries.

32. The Tribunal had found that Mr. Bunting became an employee of the trustee company which entered into contracts with end users to provide them with consultancy services. The necessary consultancy work was done by Mr. Bunting. The end users paid the trustee company for these services and it paid him a salary and on 29 May 1981 established a superannuation fund for him, its only employee.

33. The Tribunal was satisfied that there was no transaction or situation which preceded the derivation of income by the trust upon which s.260 could operate, holding that the section says nothing about how a new stream of income should flow, in a case where no existing stream of income could be said to have been rechannelled. It did not regard the earlier derivation of income in the United Kingdom as constituting an antecedent situation for the purposes of s.260. It reduced the taxable income of Mr. Bunting accordingly.

"No business or family purpose can be found for the

creation of the family trust. The Trust is a

discretionary trust from which Mr. Bunting is

expressly excluded as a beneficiary. This provides

a strong indication that the primary purpose of the

transaction was to split Mr. Bunting's income

between himself and members of his family.".

35. His Honour held that the choice principle was of no assistance to Mr. Bunting and turned to consider what he described as "the critical question on which this case ultimately turns", namely "whether there was an antecedent transaction or situation in the sense in which those expressions are used in the authorities.", saying (at p 4363):

"It is generally accepted that sec.260 does not

apply where there was no antecedent transaction or

situation whereby income was derived. This

principle is based on the ground that the operation

of sec.260 has been said to be dependent upon an

alteration in the incidence of tax or in some

existing liability to pay tax:".

36. His Honour quoted the passage from the judgment of Gibbs C.J. in Gulland (at p 73) which has been set out above, and continued:

"It is true that Mr Bunting derived no income in

Australia until after he migrated here. But he

arrived in this country on 27 March 1980 and very

soon thereafter commenced looking for employment of

the kind from which he had derived income in the

United Kingdom. He commenced working here on 14

April 1980, less than three weeks after his

arrival. He must have taken steps to put the

income-splitting structure in place almost as soon

as he arrived here because Manting was incorporated

on 9 April 1980, less than two weeks after his

arrival in this country, and the deed of trust was

executed five days later, the same day as he

commenced work as a computer consultant. In the

United Kingdom Mr Bunting had been employed for

about 10 years by various companies doing the same

kind of work that he did here. There was no

antecedent transaction, but there was an antecedent

situation consisting of Mr Bunting's practice of

his work in the computer industry as or akin to a

computer consultant and as an employee. He was in

receipt of income; and the fact that it was in the

United Kingdom, not Australia, though relevant, is

not in my opinion a circumstance which deprives the

facts of their character as an antecedent situation

within the sense in which that expression is used

in the sec.260 cases.

The arrangement changed that situation and did so

for the purpose of altering the incidence of income

tax. The change did not give rise to a new source

of income. It was Mr Bunting's services before and

after the arrangement that produced the income

albeit through the intervention of a corporate

structure under the arrangement. The moneys paid

to Manting were directly related to and calculated

by reference to Mr Bunting's services on the basis

of an hourly rate. It is from Mr Bunting's

activities as an employed computer consultant that

the income in question here was derived

notwithstanding changes in the intricacies of Mr

Bunting's employment details.".

37. In the light of these judgments, it can be seen that the taxpayer in the present case faced formidable difficulties. His counsel sought to overcome them by submitting that:

1. the taxpayer is entitled to the benefit of the choice

doctrine;

2. the taxpayer was starting afresh in Australia, so that

there was no antecedent transaction or situation;

3. (a) the Commissioner could succeed under s.260 only if

he could avoid, not merely the "contract of

employment" of 20 January 1981 and the "imposition"

of the Trust between the taxpayer and the end

users, but also each of the individual contracts

made by the company for the provision of drafting

services;

(b) as some of those individual contracts were made

after 27 May 1981 they were saved by the provisions

of s.260(2);

4. in any event the Commissioner was not entitled to rely

upon the amended assessments because of the provision in

s.170(3) of the Act, as it stood at the relevant dates.

38. It was not necessary for the taxpayer to deal with any contention based upon sham, as the Commissioner did not press this question.

39. Dealing with the first submission, the doctrine of choice was considered in Tupicoff's case 1984 (4 FCR 505) where a Full Court held that it had no application to a case where "the practical, although not the legal, source of the income of the trust is the personal exertion of the taxpayer" (see, per Beaumont, J. at p 522).

40. In Gulland (cited above) Gibbs C.J. said (at p 70):

". . . it is simply not right to say that the Act

allows a taxpayer the opportunity to have his own

income from personal exertion taxed as though it

were income derived by a trust and held for the

benefit of a number of beneficiaries.".

". . . the choice principle operates only to the

extent necessary to give effect to a 'specific

provision' of the Act. The choice principle gives

expression to the scope of s.260 ascertained by

reading down the words of the section in order to

allow other and specific provisions of the Act to

have their intended operation. The choice

principle is inapplicable when the arrangement does

not attract a tax benefit conferred by a specific

provision but is an arrangement which, as in the

present cases, seeks to divert income from one

taxpayer to another.".

42. In my opinion, the principle laid down in Tupicoff, Gulland, Watson and Pincus governs the present case and the first submission should be rejected.

43. Speaking of the subject matter of the second submission, Gibbs C.J. in Gulland and Watson (cited above) said at p 73:

". . . there is nothing in s.260 that supports the

view that that section can apply only when there

has been an antecedent transaction between parties.

An arrangement will, for example, be within the

section if it alters the incidence of income tax in

a case in which the only relevant antecedent

circumstance is that the taxpayer is in receipt of

income.".

44. In the present case, the receipt by the taxpayer of payment by Jon and Associates for his work between 27 January and 18 February and his inclusion of that payment as income in his personal tax return constituted an antecedent transaction. Even if it had not taken place, I consider that his work for 16 or 17 years in Holland as a contract draftsman employed by an agency would have constituted an antecedent situation. It is indistinguishable from the position in Bunting's case which Lockhart J. held, as I respectfully consider, correctly to amount to an antecedent situation.

45. Turning to the third submission, it can be seen from the particulars given that the Commissioner under s.260 seeks to avoid only the interposition of the trust between the taxpayer and the respective employers, contending that no more is required to sustain the assessment and amended assessments in question.

46. Once that is done, what remains is a series of payments in respect of the personal exertion of the taxpayer which the Commissioner thereupon treats as part of his assessable income, disregarding the interposition of the trust. In my opinion the Commissioner has no need to seek to avoid the contracts between the trust and the end users. Indeed, he relies upon them to show the derivation of income. As Menzies J. observed in Peate (at p 461) the agreements to be disregarded in that case were those between Dr. Peate, his family company and the nominee company. Menzies J. did not consider it necessary to strike down the agreements made with the individual patients of the practice.

47. In the same way, the Commissioner does not need to strike down the individual contracts made here by the company for the provision of drafting services. Accordingly, the third submission of the taxpayer is rejected.

48. His fourth submission was based on s.170(3) of the Act, which, at the relevant times, read as follows:-

"(3) Where a taxpayer has made to the Commissioner

a full and true disclosure of all the material

facts necessary for his assessment, and an

assessment is made after that disclosure, no

amendment of the assessment increasing the

liability of the taxpayer in any particular shall

be made except to correct an error in calculation

or a mistake of fact; and no such amendment shall

be made after the expiration of three years from

the date upon which the tax became due and payable

under that assessment.".

49. The onus rests upon the taxpayer to show that there is a full and true disclosure of all the material facts necessary for his assessment (McAndrew v. Commissioner of Taxation [1956] HCA 62; (1966) 98 CLR 263).

50. As Fullagar J. observed in (Australasian Jam Company Proprietary Limited [1953] HCA 52; (1953) 88 CLR 23, at p 33):

"I think further - what is of some importance in

the present case - that, if there is a material

omission in the taxpayer's return, it is nothing to

the point for the taxpayer to say to the

Commissioner: 'It was obvious on the face of the

return that there was something I had not told you:

you could have asked me about it, and, if you had

done so, the information would have been

immediately and willingly supplied'.".

51. In Watson's case at first instance (1983) 83 ATC 4336 at p 4351 Kennedy, J. held that in a case under s.260 the taxpayer must disclose the whole of the arrangement.

52. The first question to be answered under the sub-section is whether "the taxpayer has made to the Commissioner a full and true disclosure of all the material facts necessary for the assessment".

53. Even if, on the view most favourable to the taxpayer, one reads the returns of the taxpayer, the Trust and the company together, one does not find in them any disclosure of the fact, known to the taxpayer, that he had entered into the "contract of employment" with the company pursuant to which it was agreed that the company was to use "its best endeavours to procure work" for him "in his capacity as a draftsman", to receive "all payments due under contracts performed by" him and to pay him "an annual fee as may be mutually agreed from time to time for the performance of the work contracted".

54. This was, in my opinion, a material fact which was "necessary for the assessment", as it would have enabled the Commissioner to consider whether he should seek to invoke s.260 in reliance upon it.

55. Accordingly, the taxpayer can take no comfort from sub-sec. (3).

56. In my opinion, the overt acts which were done under the taxpayer's plan are not fairly explicable without an inference being drawn that tax avoidance was at the very least a main purpose of the arrangement as a whole. The taxpayer used a method which diverted income away from him to or for the benefit of his family, in order to avoid a substantial part of the tax which would have been incurred if the income had first been derived by him and then applied for the benefit of his family. To borrow the language of Kitto, J. the present case falls, plainly as I venture to think, within the application of s.260. The decisions of the respondent disallowing the taxpayers objections should stand. In accordance with the wishes of the parties, I will leave it to them to bring in minutes of orders to be made in each of the six cases and reserve liberty to apply if it proves necessary.