Applicant: The Trustee for Goldenville Family Trust

Tribunal Numbers: 2022/2242, 2022/2243, 2022/2244, 2024/0628, 2024/0629, 2024/0630

Tribunal Numbers: 2022/2248, 2022/2249, 2022/2250

The income tax assessments and penalty assessments issued to the Trustee of the Goldenville Family Trust are set aside.

The income tax assessments and penalty assessments issued to Liang Fang Huang are remitted to the Commissioner of Taxation for reassessment.

The income tax assessments and penalty assessments issued to Luan Xiang Huang are remitted to the Commissioner of Taxation for reassessment.

The income tax assessments and penalty assessments issued to Qiu Yi Huang are remitted to the Commissioner of Taxation for reassessment.

TAXATION - application for review of an objection decision - default assessments - evasion - failure to disclose income - family trust - validity of trust resolutions - resolutions not valid - written resolutions did not record anything that had been resolved or decided by trustee prior to 30 June - meetings did not take place - default beneficiaries entitled to income in accordance with trust deed - shadow director - director does not speak, read or write English - shadow director does not read or write English - evidence not credible or plausible - shadow director's sister is non-resident beneficiary - whether income received was properly characterised as interest

Administrative Review Tribunal Act 2024 (Cth) ss 52, 56(1)

Income Tax Assessment Act 1936 (Cth) Division 11A, ss 128A(1AB), 128A(1AC), 128A(1AD), 128B(2), 128D, 167

Income Tax Assessment Act 1997 (Cth) ss 6-5

Taxation Administration Act 1953 (Cth) ss 14ZZK, 14ZZK(b)(i)

Bosanac v Commissioner of Taxation (2019) 374 ALR 425; (2019) 93 ALJR 1327; [2019] HCA 41

Commissioner of Taxation v Carter (2022) 274 CLR 304; (2022) 399 ALR 521; (2022) 96 ALJR 325; [2022] HCA 10

Commissioner of Taxation v Dalco (1990) 168 CLR 614; (1990) 90 ALR 341; (1990) 64 ALJR 166; (1990) ATC 4088; (1990) 20 ATR 1370; [1990] HCA 3

Commissioner of Taxation v Liang (2025) 307 FCR 1; [2025] FCAFC 4

Gashi v Federal Commissioner of Taxation (2013) 209 FCR 301; (2013) 296 ALR 497; (2013) 91 ATR 1; [2013] FCAFC 30

George v Commissioner of Taxation (1952) 86 CLR 183; [1952] ALR 961; (1952) 26 ALJR 441; (1952) 5 AITR 360; (1952) 10 ATD 65

Ho v Akai Pty Ltd (in liq) (2006) 247 FCR 205; (2006) 24 ACLC 1526; [2006] FCAFC 159

McPartland v Commissioner of Taxation [2025] FCAFC 23

Trautwein v Federal Commissioner of Taxation [1936] HCA 46; (1936) 56 CLR 196; (1936) 10 ADJR 251; (1936) 4 ATD 81

ZFPR and Commissioner of Taxation [2025] ARTA 572

1. In each of the 2015, 2016 and 2017 income years the Goldenville Family Trust, by written resolution, distributed its interest income to two identified beneficiaries of the Trust. One of those beneficiaries, the First Applicant[1] in these proceedings, is a resident of mainland China. The other is her sister-in-law, an Australian resident and the sole director of Goldenville Pty Ltd the trustee of the Trust, the Fifth Applicant.
2. The effect of a trust distributing interest income to a non-resident beneficiary is to reduce the amount of tax paid on that income.
3. The outcome of this matter depends on two issues:

(a) first, the validity of end of financial year resolutions said to have been executed by the Trust, by which elections were made as to how the interest income in each of the years is distributed; and > > (b) secondly, the proper characterisation of funds which the Trust received in each of the income years ended 30 June 2015, 2016 and 2017. > > 1. For the Applicants to succeed, they must be successful on both issues. For the reasons which follow, I am not satisfied that the trust resolutions are valid, nor am I satisfied that the income received was properly characterised as interest.

1. Between July 2019 and May 2021, the Commissioner conducted an audit of the affairs of the Trust.[2] During the course of that audit, in July 2020, the Commissioner provided its initial findings to the Trust,[3] and sought a response. At that time, and thereafter, Ms Luk acted for the Trust and assisted in providing answers to the Commissioner.
2. In May 2021, the Commissioner published his audit findings.[4] As a result of the audit findings income tax assessments or amended income tax assessments were issued to the Trust and various beneficiaries. The assessments issued to the Trust and some of the taxpayers were alternative assessments. Objections were subsequently lodged by all taxpayers,[5] and on 27 January 2022 the Commissioner published reasons in which all objections were not allowed (Objection Decision). These applications were filed with the Administrative Appeals Tribunal (AAT) on 19 March 2022.[6]
3. The matters were initially heard in the first half of 2024 (first hearing). However, administrative exigencies resulted in the applications being reheard, by a differently constituted Tribunal, following the commencement of the Administrative Review Tribunal (ART) in October 2024.

1. Goldenville is the corporate trustee of the Trust. The Trust was settled by deed dated 24 March 2009.[7] It is a discretionary trust. I set out below the significant relevant beneficiaries.

1. At the time of its incorporation, and on the establishment of the Trust, Luan Xiang Huang, known by his anglicised name as Mr Harry Huang, was the sole director, company secretary, and shareholder of Goldenville.[9] In January 2013 Mr Huang's wife, Li Fang Huang, became the sole director, company secretary, and shareholder of Goldenville. At the same time, Goldenville moved its registered office from an address in Queensland to their current solicitor's offices in Sydney.
2. Both Mr and Mrs Huang were born in China in the mid-1950s and their mother tongue is Mandarin. Mr Huang moved to Australia in mid-1990 and his wife migrated in 1999.[10] Neither Mr nor Mrs Huang read or write in English, and Mrs Huang speaks no English. Mr Huang speaks some English. They have two children, a daughter and a son. Their son is Qui Yi Huang, the Third Applicant. Their daughter is Kitty Qiuting Huang, who is not a participant in these proceedings.
3. Mr Huang has a sister who resides in China, Xiangming Huang, the First Applicant.
4. Since his arrival in Australia, Mr Huang has been continuously working in the building and construction industry. He says he is the holder of a platinum builder's licence and has worked in both Queensland and New South Wales, where he moved in about 2009.[11]
5. Jianqui Zhang is a Chinese-born businessman in the construction industry in Sydney, operating through the JQZ Group of companies. Mr Zhang speaks some limited English.
6. The JQZ Group operates by way of purchasing land and developing it by building residential lots, typically apartments, through special purpose vehicles incorporated for each individual project. These companies are typically the corporate trustee of a unit trust. In this way the risks associated with an individual project are confined to the entity involved, and the investors in that entity. This is a common structure for land development in Australia.
7. Mr Huang met Mr Zhang in about 2010. In the 2015-2017 income years, Mr Huang was an employee of SPC Building Constructions Pty Ltd, a company in the JQZ Group, which apparently supplied services to various of the special purpose entities in the Group. Other companies in the JQZ Group relevant to these proceedings were Canterbury Road (Dulwich Hill) Pty Ltd, ZF Two Pty Ltd, North Parramatta No 1 Pty Ltd and JQZ Ten Pty Ltd.
8. On 4 and 5 May 2011, members of the Huang family and the Trust gave $1 million to Canterbury Road for use in a building development being undertaken by it. The payments comprised two amounts of $675,000 and $200,000 from the Trust, $50,000 from Kitty Qiuting Huang, and $75,000 from Mr and Mrs Huang.[12]
9. Including the initial payment of $1 million, there were a series of payments into and out of various JQZ companies, which are summarised in the following table.[13]

1. As can be seen from this table, the funds paid by the Trust, or by Huang family members and apparently credited to the benefit of the Trust, to the JQZ Group comprised:

(a) $1,000,000 to Canterbury Road;[18] > > (b) $2,310,000 to ZF Two,[19] of which $660,000 was new money;[20] > > (c) $5,100,000 to North Parramatta;[21] and > > (d) $9,400,000 to JQZ Ten.[22]

2. As can also be seen from the table at [17] above, the sums paid by the various companies in the JQZ Group to the Trust comprised:

(a) $1,650,000 from Canterbury Road;[23] > > (b) $5,142,995 from ZF Two;[24] and > > (c) $9,680,000 from North Parramatta,[25] of which $280,000 was a payment made to enable the Trust to pay an outstanding withholding tax debt on the interest income allocated to Xiangming Huang, Mr Huang's sister, in the 2015 income year.[26]

3. Furthermore, as the table at [17] above also shows, the amounts which are said by the Applicants to have been interest payments made to the Trust by JQZ Group companies were:

(a) $650,000, received by the Trust from Canterbury Road, in the 2014 income year;[27] > > (b) $2,832,995, received by the Trust from ZF Two, in the 2015 income year;[28] and > > (c) $4,310,000, received by the Trust from North Parramatta in the 2017 income year.[29]

4. Unlike in the earlier several years, the funds provided to JQZ Ten in the 2017 income year were provided by way of taking units in the unit trust.[30] Those funds have not yet been repaid as JQZ Ten has not yet completed the construction project it was undertaking at Homebush in Sydney.
5. Goldenville is recorded as having made resolutions at meetings of the directors on each of 30 June 2015, 30 June 2016 and 30 June 2017, by which it purported to distribute the interest income of the Trust. The distributions recorded in the minutes were:

1. By this means it was sought to distribute the vast majority of the income of the Trust in each of the years in issue to Mr Huang's sister in China.

1. Whilst, as in all tax cases, the primary issue is whether the assessments are excessive and, if so, what the assessments should be, in this matter the answer to those questions requires the response to two issues:

(a) first, are the resolutions valid in each of the three income years? > > (b) secondly, if they are valid, what is the true characterisation of the income received by the Trust?

2. Other than with respect to an amount of $1,099,972 in the 2015 income year, there is no dispute that the funds provided to the Trust by each of the JQZ Group companies over and above the return of the "investments", was income of the Trust. The characterisation of that income as interest or not is critical to the Applicants' position in this case as a result of the favourable tax treatment given to non-resident taxpayers.
3. Ultimately, the parties agreed[34] that if the resolutions fail, the default beneficiaries of the Trust become presently entitled to the income in equal shares. I therefore do not need to deal with the position regarding the alternative assessments which were issued, other than to make orders in the terms which were agreed.

1. The primary legislative provisions relevant to these proceedings are contained in:

(a) the Income Tax Assessment Act 1936 (ITAA36); and > > (b) the Income Tax Assessment Act 1997 (ITAA97).

(a) For the purpose of Division 11A of the ITAA36, interest includes an amount:[36] > > > (i) that is in the nature of interest; > > > > (ii) to the extent that it could reasonably be regarded as having been converted into a form that is in substitution for interest; > > > > (iii) to the extent that is could be reasonably be regarded as having been received in exchange for interest in connection with a washing arrangement; > > > > (iv) that is a dividend paid in respect of a non-equity share; or > > > > (v) an instrument that is an upper tier 2 capital instrument, or class of instruments; but > > > > (vi) does not include an amount to the extent to which it is a return on an equity interest in a company. > > (b) An amount that is in the nature of interest may be an amount representing a discount on security.[37] An amount that is in substitution for interest is a lump sum payment made instead of payments of interest.[38] > > (c) Where an amount has the character of interest for which a foreign beneficiary is made entitled, a liability is raised at 10% withholding tax.[39] > > (d) Interest income that is subject to the 10% withholding tax will not be assessable income and not be exempt income.[40]

(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.

(2) If you are an Australian resident, your assessable income includes the*ordinary income you*derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3) If you are a foreign resident, your assessable income includes:

(a) the*ordinary income you *derived directly or indirectly from all*Australian sources during the income year; and

(b) other*ordinary income that a provision includes in your assessable income for the income year on some basis other than having an*Australian source.

(4) In working out whether you have derived an amount of*ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

1. In this matter, and in light of the concession which I set out below, there is no dispute as to the operation of the taxation law that applies to the assessments issued to the various Applicants.

1. Pursuant to section 14ZZK(b)(i) of the Taxation Administration Act 1953 (TAA) taxpayers bear a burden in this Tribunal which is twofold:

(a) to prove that the assessments are excessive; and

(b) to prove what the assessments should have been.[41]

1. There are very many cases which discuss the onus provisions and how they operate in a practical sense. The observations I made in ZFPR and Commissioner of Taxation[42] bear repeating in the context of this case:[43]

1. That is, taxpayers bear a burden in this Tribunal to prove to the civil standard, on the balance of probabilities, each of the two elements identified in section 14ZZK of the TAA, being that the assessment is excessive or otherwise incorrect, and what the assessment should have been.[44] 2. It is not sufficient to merely point to some miscalculation by the Commissioner.[45] Nor is it permissible to merely assert that the matters which led the Commissioner in the course of the audit to be dissatisfied with the disclosed income of the Applicant are the issues in the Tribunal, so that the evidence is confined to these sources of funds alone. Unless the Commissioner makes a formal concession or agrees to narrow the issues, the taxpayer must approach the case on the basis I have set out above. 3. The Commissioner does not bear any onus in this matter. A respondent's role in the Tribunal is set out in section 56(1) of the ART Act, and it is plain from the authorities that the Commissioner is not required to prove anything.[46] 4. It is erroneous to say, as the Applicant did here, that the 'burden of proof in s 14ZZK is only effective in the absence of evidence' and that '[t]he burden of proof falls away' if the taxpayer leads evidence. The question is whether the evidence led by the taxpayer meets the onus so that the Tribunal is satisfied that it is more probable than not that the assessments were excessive, and what the assessments should have been. 5. In Commissioner of Taxation v Liang [2025] FCAFC 4,[47] the Full Court considered the onus, both in practical and legal terms, when a taxpayer was assessed on deposits of an unknown origin into a property trust. Relevantly, the Full Court said at [41]:

...it was for the taxpayers to disprove the basis of that assessment by establishing the relevant facts. It was not for the Commissioner to posit or prove a basis from which it might be inferred that the Deposits were income but for the taxpayers to place the relevant facts before the Tribunal.[48] > > 1. In cases where, as here, the foundation of a taxpayer's case is their own oral evidence rather than proper records retained in the course of their business, it is very difficult for the taxpayer to prove that the assessments are excessive and thereby discharge their onus.[49]

1. As a result of the concession made in closing submissions, the Commissioner accepts that if I find the resolutions are not valid, clause 5.4 of the Trust Deed has the effect that the default beneficiaries become presently entitled to the income from the Trust, in equal shares, in each of the three years under review. In that case, all the assessments should be set aside and the matters remitted to the Commissioner for reassessment.

1. The following documents were admitted as exhibits:

(a) Exhibit A1 - Witness statement of Luan Xiang Huang, Mandarin language version, dated 19 August 2022; > > (b) Exhibit A2 - Witness statement of Luan Xiang Huang, English language version, dated 19 August 2022; > > (c) Exhibit A3 - Witness statement of Luan Xiang Huang, Mandarin language version, dated 16 April 2023; > > (d) Exhibit A4 - Witness statement of Luan Xiang Huang, English language version, dated 16 April 2023; > > (e) Exhibit A5 - Witness statement of Ming-Cheng Hung, dated 29 November 2024; > > (f) Exhibit R6 - Commissioner's office copy of the income tax return for the Trust for financial year 2016, lodged on 30 November 2016; > > (g) Exhibit R7 - Amended income tax return for the Trust for financial year 2016, lodged 29 May 2017; > > (h) Exhibit R8 - Financial report of the Trust for year ended 30 June 2017, dated 16 May 2022; > > (i) Exhibit R9 - Income tax return for the Trust for the 2017 year, received by the Commissioner on 8 March 2018; > > (j) Exhibit A10 - Witness statement of Jianqiu Zhang, dated 31 August 2022; > > (k) Exhibit A11 - Witness statement of Jianqiu Zhang, dated 20 April 2023; > > (l) Exhibit A12 - Witness statement of Jianqiu Zhang, dated 12 March 2024; > > (m) Exhibit R13 - Computerised version of the income tax return for the Trust for the year ended 30 June 2013, received on 24 March 2016; > > (n) Exhibit R14 - Income tax return for the Trust for the year ended 30 June 2014, lodged on 24 March 2016; > > (o) Exhibit R15 - Income tax return for the Trust for the year ended 20 June 2015, lodged on 24 March 2016; > > (p) Exhibit A16 - Tribunal book version of the witness statement of Luan Xiang Huang, dated 19 August 2022, and attachment HH1, comprising 94 pages; > > (q) Exhibit A17 - Witness statement of Luan Xiang Huang, dated 16 April 2023 including annexures, comprising 62 pages; > > (r) Exhibit A18 - Tribunal book version of the witness statement of Li Fang Huang, dated 19 August 2022, with amendments;[50] > > (s) Exhibit A19 - Witness statement of Li Fang Huang, Mandarin language version, dated 19 August 2022, translated on 17 February 2024; > > (t) Exhibit A20 - Witness statement of Li Fang Huang, English language version, dated 19 August 2022; > > (u) Exhibit R21 - Those of the T Documents and Supplementary T Documents in folders 1 through 9, and folder 11, identified by the parties as being a document they relied on;[51] > > (v) Exhibit R22 - ASIC Form 484, document number 7E4562579 for SPC, dated 9 July 2012; and > > (w) Exhibit R23 - ASIC Form 484, document number 7E5011327 for SPC, dated 8 February 2013.

(a) the Applicant's Statement of Facts, Issues and Contentions dated 2 August 2022 (Applicant's SFIC); > > (b) the Applicant's summary outline dated 13 March 2024; > > (c) the Applicant's outline of final submissions dated 24 April 2024; > > (d) the Applicant's updated submissions on penalty dated 5 June 2024 (Applicant's submissions on penalties); > > (e) the Applicant's findings of fact dated 6 June 2024 (Applicant's findings of fact); > > (f) the Commissioner's Statement of Facts, Issues and Contentions dated 8 June 2022 (Commissioner's SFIC); > > (g) the Commissioner's submissions dated 13 May 2024; > > (h) the Commissioner's table of critical findings filed 13 June 2024; > > (i) the Applicant's written closing submissions dated 28 February 2025 (Applicant's written closing); > > (j) the Commissioner's written closing submissions dated 11 March 2025 (Commissioner's written closing); and > > (k) the transcript of the first hearing.[52]

1. Mr Huang, commonly known as Harry, is a construction supervisor who migrated to Australia in 1990. He is the Fourth Applicant in these proceedings. He speaks some limited English, but does not read or write in English other than to a very limited degree. His native language is Mandarin, and he gave his evidence in Mandarin through an interpreter.
2. Until 2011, he was the sole director, secretary, and shareholder of Goldenville. He offered no explanation in his evidence as to why he handed over those responsibilities to his wife,[53] but he continued to act as if he were the controlling mind of the company.
3. I found Mr Huang's evidence hard to accept on any significant issues. I do not accept that the statements he made in his witness statement[54] as to how he came to give very large sums of money to the JQZ Group over an extended period of time, as plausible. Furthermore, in cross-examination he could not recall whether what he said in his witness statement was correct about important details, including who approached who for money.[55] Nor do I accept as plausible his evidence regarding the telephone conversation he claimed to have had in June 2015 with Mr Hung.
4. Ultimately, unless corroborated by a contemporaneous record, I do not accept Mr Huang's evidence.

1. Mrs Huang is the Fifth Applicant in these proceedings and the wife of Mr Huang. She is the sole director of Goldenville and thereby the only person who can operate the powers of the trustee of the Trust. She does not speak, read, nor write any English at all. Her native language is Mandarin, and she gave her evidence in Mandarin through an interpreter.
2. Mrs Huang was entirely reliant on her husband for advice in respect to the affairs of the Trust and Goldenville. She made no independent decisions herself and followed her husband's instructions in carrying out her functions as the sole director of Goldenville. The manner in which she gave her evidence, including her repeated instance of everything happening on 30 June in any year, which had been admitted by both her husband and Mr Hung to have not been the case,[56] and her somewhat curious explanation[57] of why she sought to become the sole director of Goldenville, which stands in stark contrast to the explanation given by Mr Huang to the ATO in an interview in 2017,[58] along with her complete lack of knowledge regarding the activities of the Trust, have led me to form the impression that Mrs Huang's evidence was the subject of a great deal of preparation which may not have resulted in her giving evidence of her own knowledge and recollections. I cannot rely on her evidence other than in some quite limited respects.

1. Mr Zhang is a Chinese-born property developer who has numerous business interests in Sydney, operated through the JQZ Group of companies. He speaks very limited English and gave his evidence in Mandarin through an interpreter. There was no Mandarin translation version provided of the three witness statements Mr Zhang made, so that I was not provided with any level of comfort that the witness statements[59] are in fact his own evidence or merely documents he signed.
2. Whilst I have no doubt that Mr Zhang is a savvy businessman, I did not form the impression that he was a reliable historian of the arrangements that he had with Mr Huang regarding the funds the Trust provided to the companies in the JQZ Group. His evidence of the arrangement regarding the loans differed from that of Mr Huang.[60]
3. One difficulty with his evidence is that the "accounting documents" which form part of his written evidence,[61] do not support the proposition that the Trust lent funds, at least in part they show loans from Mr Huang personally. Further, there is nothing to suggest that the documents are in fact business records of the JQZ Group, they are documents which could easily have been constructed for the purposes of this hearing. Given that Mr Zhang is not the accountant for the JQZ Group,[62] there is no evidence of the provenance of the records so that I cannot be comfortable that the documents provide an accurate record of what is in the accounts of the relevant companies.

1. Mr Hung is the accountant who acted for Mrs Huang and Goldenville in the 2015 to 2017 income years. As part of that role, he provided the resolutions which are at the heart of this matter. He gave his evidence in Mandarin through an interpreter, and in English.
2. Mr Hung's evidence as to the timing and number of the telephone conversations he had with Mr Huang, as to the advice he gave, and regarding his usual practice in preparing accounts and income tax returns for clients, is generally reliable and in accordance with the usual practice of taxation accountants.

1. The Commissioner made detailed objections to the witness statements of the various witnesses for called by the Applicants.[63] Whilst the rules of evidence do not strictly apply to the Tribunal,[64] an applicant must still prove its case, and an important fact finding role of the Tribunal is to pay close heed to the quality of the evidence led. I have already made findings about the reliability of the evidence of the various witnesses.
2. The Commissioner's objections are predominantly in two categories, being hearsay, and with the use of conclusionary words including[65] borrow, loan, lend, interest, and principal to describe the arrangements entered into between the Trust and the JQZ Group (Loan Objection). There are also objections to speculation and to the witnesses giving secondary evidence of documents.
3. I will not make individual rulings on each objection. However, the witness statements were generally unsatisfactory and became even more so when the witnesses were cross-examined.
4. I accept the proposition that the witness' use of words which are the subject of the Loan Objection does not assist me in determining the true nature of the arrangements that were entered into between the Trust and the JQZ Group. As a result I have disregarded the use of the terms borrow, loan, lend, interest, and principal in the witness statements as providing any basis for concluding the true nature of the arrangements entered into between the Trust and the JQZ Group.
5. The hearsay objections are generally well founded. In particular, the recitation by Mr Huang of conversations he had with Mr Zhang, and separately with his own family members in 2011[66] and 2013,[67] are unlikely to be accurate given both the passage of time, the lack of corroboration, and their inherent implausibility. In my view these conversations are more likely to be entirely fabricated. These are only examples of the problems with the witness statements, and I am unable to place much weight on the statements at all given the issues with them.

1. By Deed of Trust dated 24 March 2009,[68] the Trust was established and Goldenville was appointed as trustee. The Deed is a standard form discretionary trust deed drafted by Queensland-based lawyers on instructions from Australian Company Incorporation Services Pty Ltd.[69] No amendments to the original 2009 Deed appear to have been made. There is no evidence that it has been translated into Mandarin, which, in light of the evidence given by Mr Huang and Mrs Huang as to their lack of English language skills, leads me to infer that neither of them have read it or have any real understanding of what it does and how the Trust is meant to operate.[70] Mr Hung must have read the Deed, given that substantial extracts from it are included, unusually, in the resolutions which are at the heart of this matter.
2. The Deed contains a default distribution provision at clause 5.4, in the following fairly standard terms:[71]

(a) If:

(i). the Trustee has not exercised the discretion under clause 5.3(a) on or before the 30th day of June in a Year; or

(ii). the whole or any part of the income of the Trust (however described or defined), has not been accumulated or distributed or made the subject of a determination under this clause 5,

then the Trustee is deemed to have made a determination to Set Aside any Income remaining to and is deemed to hold that Income on trust absolutely for the Default Beneficiaries as at 12.00 midnight on that day

(b) If and only if there are no Default Beneficiaries alive or in existence at 12.00 midnight on the 30th day of June in a Year, the Trustee will be deemed to have accumulated the remaining Income referred to in clause 5.4(a).

1. As the matter was argued, it was ultimately agreed that clause 5.4(a) would govern the position if I were to find, as I do, that the resolutions for the 2015, 2016 and 2017 income years are invalid. That is, if the resolutions are invalid, the income of the Trust in each year is to be distributed on an equal basis to those of the Default Beneficiaries who were alive as at 30 June in that income year.
2. The Default Beneficiaries are defined in clause 1.1 and item 11 of the Schedule to the Deed as Qiu Yi Huang, Li Fang Huang and Luan Xiang Huang. That is, Mrs and Mr Huang and their son, who are respectively, the Fifth, Fourth and Third Applicants.

1. Two issues impact my consideration of the validity of the resolutions. These are:

(a) First, when were they made? > > (b) Secondly, did the written resolutions actually record anything that had been resolved or decided by Goldenville as trustee of the Trust prior to 30 June in the three years under consideration?

2. The first question assumes less importance than the second, given the manner in which the case was put before me on behalf of the Applicants. Whilst at the first hearing the case was run on the basis that the resolutions were actually signed on 30 June in each year, a more realistic case was run before me, being that the resolutions "memorialised", that is, recorded, a decision that was made by Goldenville in June of each of the three years.
3. Consequently, for each of the three years the primary question is whether there was a decision made by the trustee of the Trust, that is, Goldenville, on or before 30 June in that year, as to how interest income was to be distributed in that financial year?
4. All of the dealings of the Trust and Goldenville were undertaken by Mr Huang. Mrs Huang made no independent decisions herself and completely relied on her husband to tell her what the Trust and Goldenville had to do, or might do, or had done.[72] I am unconvinced that Mrs Huang played any decision-making role at all. Indeed, I doubt that she was even consulted or conferred with about what decisions were made. She said that she became a director so that she would know about the family income, sustain the family and make sure they had a standard of living,[73] which, noble as it is, in practice appears to have amounted to no more than a right to be informed. In the end I doubt that she even had that level of insight.
5. Mr Huang is a shadow director of Goldenville;[74] being a person in accordance with whose instructions or wishes Mrs Huang always acted. Her evidence was:[75]

MS GATLAND: did you have a discussion with your husband about those deposits? > > INTERPRETER: Yes, I think we had a discussion, and then I don't know. I think I said to my husband, 'You make the decision. You do whatever you want. You make the arrangement' And it's been too long. My memory is not very clear now. > > MS GATLAND: When you said to your husband, 'You make the arrangement', what did you mean? > > INTERPRETER: Meaning I asked my husband to deal with the money because I don't know how to do it. Every year, my husband deals with the money. I authorised my husband to do whatever he - seemed was - he thought was right to do.

6. This suggests Mrs Huang played no decision-making role at all. I doubt very much that Mr and Mrs Huang had any discussions at all about how to deal with the income received by the Trust. In my view, it is more likely than not that Mrs Huang's role was limited to signing the papers, including the resolutions in issue here, when placed in front of her and that little, if any, explanation of what was being signed or the impact of them was given to her.
7. Whilst the resolutions were said to be a record, made after 30 June in each year, of a decision taken by the company in its capacity as trustee of the Trust prior to 30 June in that year, I am unable to accept that. I do not accept the proposition that any meetings took place between Mr and Mrs Huang prior to 30 June in any of the years in issue.

1. The Minutes for the 2015 income year relevantly record the following resolution:[76]

It was resolved that in accordance with the Discretionary Powers in regard to income vested in the Trustee under the Trust Deed of GOLDENVILLE FAMILY TRUST that the Interest Income of the trust for the financial year ended 30 June 2015 be apportioned set aside and applied for the benefit of the following:

1. During her evidence Mrs Huang said that she could not use a computer,[77] and she did not know how her husband accessed bank account information.[78] She is unaware if bank statements arrived by mail and even if they did, she would not know about it as she cannot read the mail and does not know what is in it.[79]
2. The deposits which were the subject of the cross-examination extracted above were made on 24 June 2015 into the Goldenville account with the ANZ Bank. The cross-examination proceeded with the bank statement being displayed and Mrs Huang being asked about two deposits from ZF Two,[80] of $2,310,000 and $2,832,995 made on 24 June 2015. She gave evidence of having a discussion about the two deposits with her husband in a manner which suggested that she was aware of the specific deposits.[81] However, the bank statement indicates that the end period for the statement is 1 July 2015, and there was no computer at home, so the statement either in its paper form or in an on-line form, could not have been seen by Mrs Huang prior to 1 July 2015, if indeed she had seen it at all.
3. Whilst it is theoretically possible for Mr Huang to have spoken to Mrs Huang regarding the deposits, in my view that is highly unlikely given her evidence as to how she dealt with the Trust, and her total reliance on her husband, particularly when considered in the context of her view of her place in the world.[82] In my view it is improbable that Mrs Huang knew about the receipt by the Trust of a large sum of money, even less the details of how much had been received, prior to 30 June 2015. It is also unlikely that she knew of the decision to reinvest the funds in another JQZ Group company, the day after their receipt, prior to the end of the financial year.
4. Mr Huang gave the following evidence regarding a discussion with his wife:[83]

My memory for that year was particularly clear. I still have a very clear memory, because that year I remember I received a big amount of money on 25 June that year. And whenever JQZ would pay me money, their accountant team would notify me. And that year, I received the notice, and I immediately called my accountant. Actually at the time, the company director was my wife, but we had a discussion. And after discussion within ourselves, I was the one who talked to our accountant. I said there was this big income, and I talked with my accountant about how the money would be distributed. And I still clearly remember the time I contacted my accountant was before 30 June that year.

5. Later, when questioned about the detail of the discussions with his wife, he said:[84]

MS GATLAND: Just taking one part of the evidence you've just given to the Tribunal, that before 30 June 2015, 'me and my wife made the decision to give my sister $2.79 million'. Are you able to explain how you arrived at that figure? > > INTERPRETER: I just know that was the decision that we made together, but I cannot remember how we arrived at that figure. > > MS GATLAND: Did your wife prepare that figure? > > INTERPRETER: My wife doesn't know anything. Normally, I tell my wife about my decision and discuss with her. And ask for her support and consent. > > MS GATLAND: Did your accountant tell you that figure, being the figure of $2.79 million, before 30 June 2015? > > INTERPRETER: No, not possible. > > MS GATLAND: Why is it not possible? > > INTERPRETER: Because at the time, only a - no, that's not possible because by that time, the accounts for that year were not finalised yet. I think this figure was just my, like - estimation. Like, according to my estimation, I 35 thought this figure should be right. > > MS GATLAND: Are you saying that you estimated a figure and came to $2.79 million before 30 June 2015? > > INTERPRETER: Yes.

6. Notably, Mr Huang said nothing in his witness statement regarding a meeting or discussion with his wife. Nor did he mention "estimating" the figure of $2.79 million prior to 30 June 2015.
7. Whilst I can accept that Mr Huang knew that there was a large amount of money being deposited into the Trust's account prior to 30 June 2015, I do not accept as probable that he and his wife decided upon any particular distribution plan for the income based on a specific figure that he had calculated in his head, prior to 30 June. Even less do I accept that his estimated figure happened to precisely match the figure in the finalised income tax return prepared by Mr Hung after Mr Hung had reviewed all the transactions for the year and prepared financial statements.[85] I do not believe Mr Huang.
8. The evidence includes three signed copies of a resolution dated 30 June 2015,[86] apparently all signed by Mrs Huang. The signature on the first and second of these documents is clearly different from that on the third. No explanation for this was able to be provided.
9. The evidence as to the signing of the resolutions is quite fanciful. Mrs Huang was adamant in cross-examination that she signed the resolution before 30 June 2015, despite that not forming part of her evidence in chief before me.[87] However, her oral evidence is contradicted by Mr Hung, who was responsible for the preparation of the minutes.[88]

I helped the clients to prepare the Trust Resolutions in each of the relevant years and made the Resolution 30 June in each of the relevant years because the client advised me that the meeting in each of the relevant years took place on 30 June. Before 2022 when the ATO changed its practice, all Minutes of Resolution were prepared based on records of the client and based on instructions from the client as to distributions having been made as at 30 June in each year.[89]

10. Mr Hung's evidence as to when he prepared the resolutions, that is after 30 June in each year, is unsurprising and consistent with the "memorialised" case the Applicants argued before me. It is, however, critical to that case for there to have been a meeting prior to 30 June in each of the years at which an actual decision was made, and that actual decision must have then been communicated to Mr Hung at some point. I have already set out above my finding that there was no meeting prior to 30 June. At its highest, if, which I do not accept, at some time Mrs Huang had told her husband to make a decision, that is not in my view a sufficient basis to find that a resolution of the Trust was made prior to 30 June, which was then memorialised in the minutes. In my view it is most unlikely that any discussion took place between Mr and Mrs Huang at any point regarding the Trust. It is more likely that Mr Huang continued to act in the same manner as he had done when he was the sole director of Goldenville, with the only exception being to give paperwork to Mrs Huang to sign and instructing her to sign, as necessary.
11. Mr Huang gave no evidence in chief of the signing of the resolutions, or of providing instructions to Mr Hung. His evidence in cross-examination as to the instructions given to the accountant was:[90]

INTERPRETER: My memory for that year was particularly clear. I still have a very clear memory, because that year I remember I received a big amount of money on 25 June that year. And whenever JQZ would pay me money, their accountant team would notify me. And that year, I received the notice, and I immediately called my accountant. Actually at the time, the company director was my wife, but we had a discussion. And after discussion within ourselves, I was the one who talked to our accountant. I said there was this big income, and I talked with my accountant about how the money would be distributed. And I still clearly remember the time I contacted my accountant was before 30 June that year. > > MS GATLAND: What did you tell your accountant in that call? > > INTERPRETER: I still remember this very clearly. I remember that year we received interest income, 2.83 million. And I said to my accountant, 'I want 2.79 million paid to my eldest sister and then the rest I paid to my wife'. > > MS GATLAND: When did that conversation take place? > > INTERPRETER: Before 30 June. Between 25 and 30 June that year.

12. Mr Hung, the accountant, gave evidence that he received a call from Mr Huang before the end of June 2015 in which Mr Huang told him that Goldenville had generated a big amount of income.[91] He then gave the following evidence:[92]

MS GATLAND: When you asked him, what are you going to do to distribute it, what response did you get? > > INTERPRETER: As far as I can remember, I remember he said distribute it in a way that we can pay minimum tax, that because I still want to retain some money in hand so that I can make future investments. > > MS GATLAND: Was it then that you talked about the relevant taxation issues? > > INTERPRETER: Yes. > > MS GATLAND: And what did you say to him? > > INTERPRETER: I explained that, even that is interest income, was the tax rate. Explained what would be the tax rate if the income is distributed to an Australian tax resident. And what would be the tax rate, if the income was distributed to a non-Australian tax resident. > > MS GATLAND: And what tax rate, did you identify a tax rate in regard to the non-resident? > > INTERPRETER: 10 per cent, I said. > > MS GATLAND: And what about to a resident? > > INTERPRETER: 20 per cent the tax rate bracket of that year. > > MS GATLAND: What did Mr Huang say to you after you had told him about the relevant taxation issues? > > INTERPRETER: Mr Huang advised that he hoped that the profit will, a certain amount of profit will be distributed to his wife. To a point that, just by at a limit, so his wife doesn't have to pax tax. And then the rest will be distributed to her sister at a tax rate of 10 per cent. And I also mentioned it to Mr Huang, saying that if you wish to do that, then after deducting the 10 per cent, the rest of the money will have to be distributed to your sister. > > MS GATLAND: Are you able to explain, what after deducting the 10 per cent means? > > MS GATLAND: After Mr Huang said what his hopes were, with regard to the distributions, what did you say? > > INTERPRETER: I responded, 'I have to do a calculation first, so that I have a clear idea of how much the income is. And then I can calculate for you how the income can be distributed the way you want it.' > > MS GATLAND: Did you then ask how much money had been received by the Goldenville Family Trust? > > INTERPRETER: During that phone conversation, I didn't specifically ask how much was the income but because I need to see the financial documents, I just said you need to get all the relevant documents, the bank statements, as soon as possible. That will allow me enough time to do the calculation. So for that year - for that financial year ending - the 2015 financial year, I believe very quickly after 30 June, Mr Huang provided me with bank statements. > > MS GATLAND: When you say you needed enough time to do the calculation, what does that mean? > > INTERPRETER: Because before 30 June, even if we were able to confirm how much was the total revenue, the total income, we were not able to confirm how much was the total expenses. Because there was still expenses incurring. So I said in order to give you the most accurate figure - was your profit, I need to wait until - I wait after 30 June until I have the exact figure for the total expense. > > INTERPRETER: He said okay. After 30 June, I will give you the relevant documents as soon as possible. > > MS GATLAND: And was that the end of the call? > > INTERPRETER: That's basically what we talked about over that phone call. > > MS GATLAND: Was there any discussion about you preparing minutes for the Goldenville Family Trust? > > INTERPRETER: Yes. > > MS GATLAND: What was said? > > INTERPRETER: I said I need to know the exact figure before I can let you know how you should be distributed. > > MS GATLAND: Do you recall receiving the documents that Mr Huang provided to you in about August 2015? > > INTERPRETER: I can't remember the exact month, but I just clearly remember that they provided the documents to me very early that year. So after June 30, very quickly will be either July or August. > > MS GATLAND: And what did you do when you received that material? > > INTERPRETER: From reading the bank statement, I then asked the clients which deposits were income and which, like - withdrawals were expenses. And then after identifying the incomes and the expenses, I calculated the profit. And then next, I advised the client how the income - how the profit should be distributed. > > INTERPRETER: I remember he specifically identified which income was the interest income. > > MS GATLAND: How did that communication take place? Was it over the phone? > > INTERPRETER: Yes. > > MS GATLAND: And you had a phone call with Mr Huang where you went through every transaction with him? > > INTERPRETER: Yes. > > . . . > > MS GATLAND: In relation to that phone call, are you able to recall when that phone call took place? > > INTERPRETER: I can't remember. > > MS GATLAND: Did that occur within about two months of 30 June 2015? > > INTERPRETER: It should be. > > MS GATLAND: It didn't occur before 30 June 2015? > > INTERPRETER: Not before. After 30 June because it would be after I have received their bank statements. And then I go through the transactions with them.

13. It is plain from this evidence that Mr Hung recalls two separate telephone conversations. The first apparently took place at a time after the income was received, so it must have been after 24 June 2015, and the second took place at a time after Mr Hung received the bank statements and transaction records, that is after 1 July 2015. It is clear that specific figures for distribution could not have been discussed in the first telephone call because Mr Hung did not know the amount of income received, nor did he know what expenses were to be deducted so as to be able to work out the total profit for the 2015 income year, and thereby the amount to distribute to Mr Hung's sister, Xiangming Huang.[93] The working out of the amount to be distributed to the sister could not have taken place until after the second call.
14. Mr Hung had also said that he did the calculation of profit around July or August of 2015, following which he notified Mr Huang of the figure, then later prepared the financial reports.[94] This suggests there were three telephone calls, of which two must have been after 30 June 2015.
15. A notable feature of the returned "interest" income received by the Trust in the 2015 year is that it was received into the Trust's bank account on 24 June 2015 and reinvested in a JQZ Group company, along with the "principal" which was also returned 24 June 2015, on 25 June 2015. On Mr Hung's account, he gave advice that the Trust retain the 10% withholding tax, so that it could be paid. I accept he gave that advice; it is precisely the sort of advice an accountant would typically provide. However, no tax was in fact withheld, which led to an accounting and tax issue in the 2016 year, specifically a need for Mr Huang to obtain funds from the JQZ Group to pay the tax when it was due, and a subsequent need to amend the Trust's income tax return in the 2016 year. The fact the advice was given but not followed, combined with the fact that Mr Huang is plainly not a person with any real accounting or taxation expertise or knowledge, but who appears to have otherwise followed the accountant's advice, suggests that the discussion between Mr Hung and Mr Huang did not happen before the payment out by the Trust of $5,100,000 on 25 June 2015.
16. Mr Hung's evidence was that his usual practice was to prepare the Trust's accounts by reference to the bank statements.[95] The 2015 financial accounts have a print date, that is a date which is automatically generated by the computer on the date they are printed, of 18 March 2016,[96] as do the reports for the 2013 and 2014 years for the Trust,[97] which were apparently completed at the same time. The Trust's tax return for the 2015 year[98] was lodged on 24 March 2016, a Thursday.[99] Mr Hung said he sent documents by email after Mr and Mrs Huang moved to Sydney[100], which is corroborated by the fact that a digital "sign here" sticker is affixed to one of the signed copies of the 2015 Minutes.[101] It is unlikely that the minutes would have been sent before the Trust's financial statements and tax returns were prepared and sent,[102] which means they could not have been sent by email to Mr Huang prior to 18 March 2016, a Friday. Mr Huang gave evidence that his practice was to print the documents as soon as possible, sign them and then scan them back to Mr Hung.[103] The fact that the tax returns were filed on Thursday 24 March 2016 is consistent with this practice. There was no explanation as to how this might have been achieved given Mrs Huang's evidence that there was no computer at home, however I am prepared to accept Mr Hung's evidence on this because it is quite a standard manner in which an accountant sends documents to their client and the timing of the printing of the documents and the filing of the tax returns suggests that they must have been printed, signed and scanned before email them back to Brisbane for Mr Hung's office to attend to the filing of the return on Thursday 24 March 2016.
17. I find:

(a) the minutes were prepared after 30 June 2015, and signed at some time between 18 March and 24 March 2016; > > (b) the minutes record instructions given to Mr Hung by Mr Huang no earlier than in the second telephone conversation which took place after Mr Hung received the Trust's bank statements and other records, which was after 1 July 2015, and more likely in a third telephone conversation which took place once the calculation of profit was done by Mr Hung; > > (c) there was no meeting between Mr and Mrs Huang before 30 June 2015, or indeed at any time, during which she instructed or agreed with Mr Huang to distribute $2,790,000 of interest income to Xiangming Huang and the balance to herself; and > > (d) as a result of these findings, the 2015 Trust resolution does not record a decision made by the Trust[104] prior to 30 June 2015, and is therefore invalid.

1. In the 2015 income year there is a disagreement between the parties regarding the quantum of funds received by the Trust. The difference is $1,099,972, which the Commissioner assessed as income and which the Applicants say is not income. This amount is comprised of:

(a) $450,000 paid into ZT Two, one of the JQZ Group companies, in four tranches between 4 and 20 March 2014, which was part of the "principal" paid to the Trust on 24 June 2015, but which did not come from the Trust;[105] and > > (b) $650,000 which is apparently contended by the Applicants was received in the 2014 income year,[106] but which was not accounted for in the Trust's 2014 income tax return, prepared and filed at the same time as the 2015 return.[107]

2. No records have been provided by the Applicants which identify where the $450,000 came from. It appears to have been provided by a third party or parties for the Trust's benefit. Mr Huang gave evidence at the first hearing regarding this and said he believed that the funds must have come from other family members. In light of the onus requirements and the lack of evidence from the Applicants, I am not satisfied that the amended assessment for the 2015 income year is excessive as to this amount.
3. The second amount, $650,000, is also problematic in terms of the evidence. The Applicants' solicitor informed the ATO in February 2018 that this payment was a refund of principal the JQZ Group made in error and so it was refunded by the Trust to the JQZ Group,[108] but contented in this matter that it was interest income received by the Trust which was reinvested with the JQZ Group.[109]. That contention is, in effect, a concession that the funds were taxable. Assuming the more recent contention is correct, it was properly assessable in the 2014 income year, and was not declared. Whilst this means that the 2015 assessment is excessive as to that amount, it is a matter for the Commissioner to give consideration as to what consequences flow for the Trust in the 2014 income year. Notably, the Trust resolution for the 2014 year[110] does not make any distribution of the income for that year so no question arises as to whether there is a valid resolution regarding the distribution of Trust income.

1. The Minutes for the 2016 income year record:[111]

It was resolved that in accordance with the Discretionary Powers in regard to income vested in the Trustee under the Trust Deed of GOLDENVILLE FAMILY TRUST that the Interest Income of the trust for the financial year ended 30 June 2016 be apportioned set aside and applied for the benefit of the following:

1. The 2016 financial statements for the Trust were signed by Mrs Huang on 17 May 2017.[112] An amended income tax return for the Trust was lodged in May 2017,[113] the original having been lodged in November 2016. There are signed minutes for the 2016 year in evidence,[114] which are dated 30 June 2016. The original word document of the 2016 resolution was provided by Mr Hung during the course of the hearing, for which the metadata records that the minutes were created in May 2017, which is consistent with Mr Hung's evidence as to when he created them.[115]
2. As was the case with the 2015 income year, the 2016 resolution recorded in the minutes will only be valid if it reflects a decision made at a meeting held by the Trust prior to 30 June 2016.
3. In her witness statement, Mrs Huang's evidence about the 30 June 2016 meeting was:[116]

30 June 2016 > > I can identify myself as having attended a meeting of Directors of Goldenville as Trustee of the Goldenville Family Trust on this date.

4. Mrs Huang also identified in oral evidence her signature on the minutes of the meeting.[117] She gave no evidence about a meeting or discussion with her husband prior to 30 June 2016 regarding the distribution of income of the Trust.
5. In light of the evidence of Mr Hung regarding his preparation of minutes, I do not accept Mrs Huang's evidence that she attended a meeting to sign a resolution on 30 June 2016, as her witness statement suggests.
6. Mr Huang's witness statement was silent on a meeting of the Trust taking place on or prior to 30 June 2016. In his cross-examination, Mr Huang initially said that he had a meeting with his wife on 30 June,[118] then said he had a meeting with her before 30 June.[119] He also said that at the time he had the discussion with his wife the Trust's income was not yet known.[120] The following exchange also occurred:[121]

MS GATLAND: There was no resolution that occurred on or before 30 June 2016 that distributed an amount of $15,000 to your wife. > > INTERPRETER: My decision was quite clear. Just to let my accountant do the calculation, and whatever the figure comes out of the calculation is the figure that we wanted.

7. Mr Huang then explained the instructions he gave to Mr Hung:[122]

I said, 'Keep my wife's income at around the tax-free threshold and give the rest to my older sister'. And I also said, 'Although I don't have the specific figures, the most accurate figures as of yet'.

8. It is plain from Mr Hung's evidence that there was no resolution made by the Trust prior to the end of the 2016 income year to distribute interest income in the manner recorded in the resolution.
9. Mr Hung's evidence about his oral instructions was that he relied on the instructions provided to him by Mr Huang in relation to the 2015 income year, and did not discuss the amounts to be distributed until after he had prepared the financial reports for the Trust for the 2016 income year, which was around the time he prepared the amended income tax return for the Trust. Mr Hung did not ask for instructions for the 2016 distribution, but told Mr Huang what he had done after he allocated the amounts.[123]
10. I find:

(a) the minutes for the 2016 income year were prepared in May 2017 and signed in May 2017; > > (b) at best, they record instructions given to Mr Hung by Mr Huang at some time in about May 2017, when Mr Hung sought specific instructions after having prepared the 2016 financial statements; > > (c) there was no meeting between Mr and Mrs Huang before 30 June 2016, or indeed at any time, during which she instructed Mr Huang to distribute $15,000 of interest income to Mrs Huang and the balance to Xiangming Huang; and > > (d) as a result of these findings, the 2016 Trust resolution does not record a decision made by the Trust[124] prior to 30 June 2016, and is therefore not valid.

1. The Minutes for the 2017 income year recorded:[125]

It was resolved that in accordance with the Discretionary Powers in regard to income vested in the Trustee under the Trust Deed of GOLDENVILLE FAMILY TRUST that the Interest Income of the trust for the financial year ended 30 June 2017 be apportioned set aside and applied for the benefit of the following:

1. Amended 2017 financial statements for the Trust[126] were apparently signed by Mrs Huang on 22 May 2022.[127] The income tax return for the Trust was received by the Commissioner on 8 March 2018.[128] The signed minutes for the 2017 year, dated 30 June 2017, are also in evidence.[129]
2. In light of the fact that the Applicants' case is that the resolutions were memorialising an earlier decision of the Trust, and as with the 2015 and 2016 income years, the resolution recorded in the minutes dated 30 June 2017 will only be valid if it reflects a decision of the Trust made on or prior to 30 June 2017.
3. In her witness statement Mrs Huang said:

30 June 2017 > > A true copy of the Minutes of Meeting of Directors of Goldenville for the year ended 30 June 2017 duly signed by me is at Exhibit HH1 pp75-78.

4. Mrs Huang gave no evidence of any meeting or discussion with her husband regarding instructions for the distribution of income for the Trust for the 2017 income year.
5. As noted above, Mr Hung's practice was to prepare the minutes at about the time he prepared the tax returns and financial statements, relevantly in early March 2018,[130] or thereabouts, so that whilst the minutes are dated 30 June 2017, they were in fact not created until about March 2018.
6. Mr Hung said he had a discussion with Mr Huang around the time the amendments were made in May 2017:[131]

MS GATLAND: Are you able to say whether you received instructions from Mr Huang concerning transactions that had occurred for the trust, before 30 June 2017? > > INTERPRETER: I think that could be the case. In 2016 we [lodged an] amended tax return. And I had a phone call with Mr Huang in regards to that. And during the phone call, Mr Huang did mention that, in the future, whenever there is more income coming into the family trust, he wished to continue to use the previous income distribution arrangement plan.

7. Mr Huang gave evidence that his instructions given to Mr Hung prior to 30 June 2017 were to 'make sure my wife's personal taxable income for that year is within $20,000.'[132]
8. Both Mr Hung's and Mr Huang's evidence are suggestive of a general plan for how the Trust income was to be dealt with. The evidence does not however support the proposition that a decision was made by the Trust to distribute in accordance with the resolution recorded in the minutes for the 2017 year and that instructions on that were provided to Mr Hung prior to 30 June 2017, or indeed at any other time.
9. I find:

(a) the minutes were prepared in March 2018 and signed in March 2018; > > (b) they were prepared to give effect to a general plan as to how to distribute income of the Trust, discussed between Mr Hung and Mr Huang in about May 2017; > > (c) there was no meeting between Mr and Mrs Huang before 30 June 2017, or indeed at any time, during which she instructed or agreed with Mr Huang that the Trust distribute $18,450 of interest income to Mrs Huang and the balance to Xiangming Huang for the 2017 income year; and > > (d) as a result of these findings, the 2017 Trust resolution does not record a decision made by the Trust prior to 30 June 2017, and is therefore not valid.

1. Even if I had been satisfied that the resolutions were valid, I could not come to the conclusion that the Applicants had discharged their onus in establishing the income of the Trust in any of the years was truly interest income.
2. The attraction of characterising the Trust's income as interest income was the beneficial income tax treatment that was available if interest income was distributed to a non-resident,[133] in this case Mr Huang's sister. The first evidence of Mr Huang being aware of that beneficial treatment is in June 2015 when Mr Hung, the accountant, explained the tax position to him, after receipt of the first payment of from JQZ Group.
3. The amounts provided to the JQZ Group are summarised in the table at paragraph 17 above. They show a round-robin of funds going from an initially relatively small investment from the Trust (and the family members), building at a substantial rate over the following years to a final investment by the Trust in 2017 of $9.4 million. During the period only $1,660,000, was "new" money,[134] all other funds which were reinvested were characterised as "interest". Thus, on a total investment of $1,660,000, the Trust's investment grew to $9.4 million over a period of 6 years. On its face this is a quite remarkable rate of return on a "loan".
4. Whilst I accept that a loan contract may be formed orally and without explicit discussion of all relevant details, there are a number of problematic elements to the evidence which suggest to me that the loan/interest scenario which the Applicants rely on was a reconstruction of the arrangement with the JQZ Group which came about after Mr Huang became aware of the favourable tax treatment of interest income distributed offshore to his sister. That is, in June 2015 at the earliest.

(a) First, the total lack of documentary evidence. Whilst it is understandable that the discussions between Mr Huang and Mr Zhang may not have been formally recorded at the time of the initial investment in 2011, it is surprising, to say the least, that there are no financial statements for the Trust which record the initial investment of $1 million. Notably, the 2012 financial statements for the Trust,[135] which were prepared by Mr Hung, and which record the 2011, 2012 and 2013 figures, show the total asset position of the Trust as being:

It was not until the 2014 year that the Trust's financial statements included a loan as an asset.[136]

(b) Secondly, Mr Hung's evidence. Mr Hung does not mention the 2011 - 2013 financial statements in his witness statement filed on 29 November 2024. Mr Hung had not given evidence at the first hearing and his statement was made after the first hearing, and therefore after the Commissioner had filed written submissions in May 2024 criticising the lack of documentary evidence regarding the loans,[137] specifically with reference to the recording of the loans in the 2011 - 2013 financial statements. In his witness statement Mr Hung said:[138]

During the relevant years and during the time I acted for Harry, his wife and Goldenville I had a routine practise of receiving from Harry each year all bank records, cheque records for himself, his wife and Goldenville Pty Limited and any wages records together with records and transaction and any records of investments. I used such record to prepare the tax returns for Harry, his wife and Goldenville as trustee for the Goldenville Family Trust.

Despite this, Mr Hung gave no explanation as to why he did not record a loan from the Trust to the JQZ Group in the financial statements he had prepared for the years prior to 2014. Notably, Mr Hung prepared and lodged both the 2013 and 2014 income tax returns for the Trust at the same time as the 2015 return was done.[139] This was at a time when the 2011 loan had been made to JQZ Group and had not been repaid to the Trust.

(c) Thirdly, inconsistencies in the Applicants' evidence. The evidence as to the initial loans in the 2011-2014 year is confused and inconsistent. Whilst those years are not in issue in this matter, the characterisation of the money flows between the Trust and the JQZ Group in those years forms the foundation for the characterisation of the funds in the years in issue before the Tribunal.

(i) In his evidence in Exhibit A2 and A16 at [27], Mr Huang explained that $1 million was paid by the Trust to ZF Two on 5 May 2011, which was repaid on demand on 27 June 2013, with 'interest' of $650,000 being paid to the Trust on 24 September 2013. At [28] - [30] Mr Huang gives evidence that he offered to lend $650,000 to the JQZ Group, as the Trust was not using it at that time, and on 30 September 2013 he drew a cheque for $650,000 for the JQZ Group company, ZF Two.

(ii) In an email dated 29 July 2022 to Mr Huang from Kiera Zhang, apparently an accountant at JQZ Group,[140] $1 million is identified as going into Canterbury Road on 5 May 2011, returned to the Trust on 27 June 2013, and $1 million being paid by the Trust to ZF Two on 2 July 2013. $650,000 is recorded as being paid by Canterbury Road to the Trust on 24 September 2013 and $650,000 is paid from the Trust to ZF Two on 30 September 2013.[141]

(iii) In correspondence to the ATO during the course of the review being undertaken, prior to the audit,[142] the Applicants' solicitors explained:

• in May 2011 the Trust lent $1 million to the JQZ Group;
• a repayment of $1 million was made to the Trust, apparently in error, on 27 June 2013;
• the Trust refunded the $1 million to JQZ Group, on 2 July 2013;
• the loan of $1 million was meant to be repaid on 24 September 2013, plus 10% interest;
• however, on 24 September 2013 only $650,000 was received by the Trust as part repayment of the $1,000,000 principal as JQZ Group had cash flow problems; and
• on 30 September 2013, the $650,000 was 'returned' to the JQZ Group.

(iv) In the 2014 income year, the Trust declared $402 of interest income in its income tax return,[143] and recorded $402 as income in its financial statements.[144]

(d) Fourthly, the implausibility of the interest rate evidence. Both Mr Huang and Mr Zhang gave evidence before me that their discussions did not involve any identification of what interest rate would be payable.

(i) Mr Huang's evidence was at [11] and [12] of Exhibit A2; A16, as corrected in his oral evidence in chief,[145] and during cross-examination.[146] The effect of his evidence is that he never discussed interest rates with Mr Zhang, but trusted Mr Zhang to give him a good interest rate.

(ii) Mr Zhang's evidence in Exhibit A10 gives no detail of any discussions, and makes a series of conclusionary statements as to what the understanding of Mr Huang was of the terms of the "loans".[147] In his oral evidence Mr Zhang's apparently clear memory of a conversation became much less clear as he was cross-examined,[148] and eventually it emerged that he was giving evidence of what he described as his general practice, not of a specific conversation with Mr Huang.[149] I can place no reliance on this evidence.

(iii) During an interview with the ATO in November 2017, Mr Huang said in respect to interest 'we always get 10%'.[150] The assertion that interest was paid at 10% was repeated to the ATO on several occasions.[151] In December 2019, the Trust's lawyers told the ATO that 'Mr Huang has stated consistently that at least (i.e. in excess of) 10% interest was payable', which is not what had been asserted.[152]

(iv) During the course of the hearing I asked the Applicants' Counsel if the $650,000 paid to the Trust in 2013, over and above the $1,000,000 initial funds,[153] equated to an interest rate of 65% on their case, but no definitive response was provided.[154]

(e) Fifthly, the evidence as to repayment of funds to the Trust.

(i) Mr Huang gave contradictory evidence as to whether the Trust's funds were repayable on demand: in his witness statement he said that Mr Zhang said 'you can demand the repayment at any time. However if you don't demand the repayment, we will keep the funds until you demand that they be returned.'[155] In contrast, during an interview with the ATO in November 2017, he said the Trust could not demand repayment.[156]

(ii) Mr Zhang's evidence was that the funds were 'repayable at the completion of the project and or at call'.[157] However, that was not reflected in his oral evidence, where he gave evidence that his general practice was that he would repay funds early if the project was completed early, and otherwise try to make a repayment of funds if there was an emergency and if he could come up with the funds.[158]

(f) Sixthly, the contradictory evidence regarding the $650,000 received by the Trust in September 2013.[159] This was said in the Applicants' opening address to me to be interest.[160] In evidence in chief, Mr Huang made an amendment to his witness statement to reflect the case run before me, that there was no discussion regarding the actual amount of interest to be paid, just that it would be very high.[161] In cross-examination Mr Zhang was questioned about the $650,000 interest.[162] However, in a letter to the ATO dated 23 February 2018, the solicitors for the Trust asserted the $650,000 was not interest at all, but rather a partial return of the capital amount of $1,000,000 provided to the JQZ Group in 2011,[163] which assertion was repeated in a June 2018 letter to the ATO.[164]

(g) Seventhly, the pattern of payments from the Trust is more suggestive of an investment rolled over at the completion of each project in which the funds were used along with a profit share, than of a loan.[165] Mr Zhang's evidence on this pattern was that he always paid out on one investment before asking for the next one, so as not to put pressure on investors. There are alternative plausible explanations, including that the money paid out by JQZ Group as "interest" was JQZ Group money that was washed through the Trust for the benefit of the JQZ Group.[166] Whatever the true nature of the funds paid to the Trust, I am unable to conclude that the amounts over and above the Trust's investments were the payment of interest to it.

(h) Eighthly, the accounting documents provided by the Mr Zhang are not reliable for the reasons I have explained at paragraph [47] above.

1. Given the concerns I have about the plausibility of the explanation of the arrangements between the Trust and JQZ Group, and the evidence led by the Applicants, I cannot make a positive finding about the nature of the funds received by the Trust. This includes not being able to make a positive finding that there were loans from the Trust with repayments of principal and interest from the JQZ Group.
2. The Applicants' submissions focused attention on the question of whether there was a contract of loan concluded at the time the funds were transferred from the Trust to the JQZ Group. I accept there was an agreement at the time of the initial payments in May 2011, for the provision of some funds by the Trust to the JQZ Group companies. For the reasons set out above, I cannot go further than that.
3. I do not accept that the funds the Trust provided were a loan, nor do I accept that the return was interest. I regard it as implausible that Mr Zhang would elicit a loan from a person he barely knew.[167] I also regard it as implausible that Mr Huang would provide the Trust funds as a loan to someone he barely knew, given the funds had come to the Trust from the sale of investment properties,[168] the total lack of detail in the discussions regarding the rate of return the Trust would receive, and the evidence of whether the funds were repayable on demand. It appears unlikely to me that people like Mr and Mrs Huang, plainly hardworking people who had built up some modest wealth during their lives in Australia, would simply give their money to someone they did not know on an unsecured promise of an unspecified return at an unspecified time.
4. I have already found that the discussion between Mr Hung and Mr Huang at which the question of distribution of income and the tax treatment of it was first discussed took place after 24 June 2015.[169] Both Mr Huang and Mr Zhang gave evidence that the request for a new investment was made before the Trust was repaid in June 2015. This means that at the time Mr Huang spoke to Mr Hung, after 24 June 2015, Mr Huang had already decided to reinvest the full proceeds returned to the Trust.
5. In my view the styling of the Trust's funds transfers to the JQZ Group as "loans" and the returned excess funds as "interest" was an afterthought arrived at after Mr Huang obtained advice from Mr Hung in mid-2015 regarding the tax treatment of the income received on 24 June 2015, and the funds were reinvested with a different JQZ Group entity on 25 June 2015.

1. As a result of the findings and for the reasons I have set out above, I conclude the Applicants have failed to prove that the assessments are excessive, nor have they proven what the assessments ought to be. In accordance with the concession made by the Commissioner as to the disposition of the matter, I make the following orders:

(a) The income tax assessments and penalty assessments for the 2015, 2016 and 2017 income years issued to the Trust are set aside. > > (b) The income tax assessments and penalty assessments for the 2015, 2016 and 2017 income years issued to Liang Fang Huang are set aside and remitted to the Commissioner for reassessment. > > (c) The income tax assessments and penalty assessments for the 2015, 2016 and 2017 income years issued to Luan Xiang Huang are set aside and remitted to the Commissioner for reassessment. > > (d) The income tax assessments and penalty assessments for the 2015, 2016 and 2017 income years issued to Qui Yi Huang are set aside and remitted to the Commissioner for reassessment.

I certify that the preceding 114 (one hundred and fourteen) paragraphs are a true copy of the reasons for the decision herein of Deputy President Clare Thompson SC

........................[sgd]................................................

Australian Taxation Office Litigation and Legal Services

Discretionary trust, settled by Deed on 24 March 2009

Sole director, secretary and shareholder of Goldenville until 18 January 2013

Sole director, secretary and shareholder of Goldenville since 18 January 2013

Son of Luan Xiang Huang and Li Fang Huang, brother of Kitty Quiting Huang

Daughter of Luan Xiang Huang and Li Fang Huang, sister of Qiu Yi Huang

A business partner of Luan Xiang Huang between 2001 - 2004

Accountant for Mr and Mrs Huang and the Trust during the 2015 - 2017 income tax years

Jianqiu Zhang a director and sole secretary since 22 June 2015

Canterbury Road (Dulwich Hill) Pty Ltd ATF Canterbury Road (Dulwich Hill) Unit Trust

Jianqiu Zhang was the sole director from 28 October 2013 until its deregistration

Involved in the construction of 87 units at 1-3 Belmore Street and 67 Shaftsbury Road, Burwood (Burwood Project)

Jianqiu Zhang a director and sole secretary from 25 June 2011 until its deregistration

Involved in the construction of 280 units at Turella (Turella Project)

North Parramatta No 1 Pty Ltd ATF North Parramatta No 1 Unit Trust

Involved in the construction of 300 units at Norton Street Paramatta (North Paramatta Project)

T-DOCUMENTS RELIED ON BY THE PARTIES AND ADMITTED AS PART OF EXHIBIT R21**

The Trustee for the Goldenville Family Trust A/C Xiangming Huang

Letter from Applicants to correct the ATO interview record

1. list of documents included; and
2. subsequent documents listed

1. various supporting materials provided to evidence the statements made

Letters to Trustee of the Goldenville Family Trust and Li Huang

1. statement for account number xxxx853;
2. statement for account number xxxx581;
3. statement for account number xxxx454;
4. statement for account number xxxx709;
5. statement for account number xxxx717;
6. statement for account number xxxx213;
7. statement for account number xxxx248;
8. statement for account number xxxx227;
9. statement for account number xxxx454;
10. statement for account number xxxx263; and
11. statement for account number xxxx1454.

Organisation Extract of Canterbury Road (Dulwich Hill) Pty Limited obtained from the Australian Securities and Investment Commission's database

Organisation Extract of Goldenville Pty Ltd obtained from the Australian Securities and Investment Commission's database

Organisation Extract of SPC Building Constructions Pty Ltd obtained from the Australian Securities and Investment Commission's database

Organisation Extract of ZF Two Pty Limited obtained from the Australian Securities and Investment Commission's database

[1] An agreed dramatis personae is reproduced at Annexure A.

[2] Exhibit R21, T61, T68. A review had been conducted by the Commissioner prior to the commencement of the audit.