Yazbek v Commissioner of Taxation

[2013] FCA 39

Federal Court of Australia|2013-01-31|Before: Bennett J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2013-01-31

Before

Bennett J

Source

Original judgment source is linked above.

Judgment (15 paragraphs)

[1]

Background facts 8 The facts are not relevantly in dispute. The applicant was a potential object of a discretionary trust (the Trust) at all times during the relevant tax year, 2005. He is defined as the member of an "eligible class" in the discretionary trust deed, being a class of persons who could benefit under the Trust. The other objects can be described as the applicant's broader family, a total of 129 human potential objects. For the 2005 tax year, the applicant was an object of the Trust but did not receive a distribution from the Trust, nor was the power to appoint trust property to him exercised in his favour. The applicant characterises this as being that he was 'not presently entitled to any amount of the trust law distributable income' of the Trust. Such beneficiaries were the applicant's wife and a company. The applicant did have rights under the law of equity to compel due administration of the Trust.

[2]

Statutory provisions 9 The relevant version of s 170(1) of the Act is set out below. It was inserted by the Tax Laws Amendment (Improvements to Self Assessment) Act (No. 2) 2005 (Cth) and applies in relation to assessments for the 2004-05 year of income by reason of cl 15 of Schedule 1 of that Act. 10 The table in subsection 170(1) of the Act provides timeframes within which an income tax assessment can be amended by the Commissioner in different circumstances. Items 1 and 4 of the table are relevant to this proceeding. Section 170 relevantly reads: 170 Amendment of assessments (1) The Commissioner may amend an assessment as follows: Amendment of assessments Time of amendment Qualification 1. The Commissioner may amend an assessment of an individual for a year of income within 2 years after the day on which the Commissioner gives notice of the assessment to the individual. This item does not apply: (a) if the individual carries on a business at any time in that year unless the individual is an STS taxpayer for that year; or (b) if the individual is a partner in a partnership that carries on a business at any time in that year unless the partnership is an STS taxpayer for that year; or (c) to an individual in the capacity of a trustee of a trust estate at any time in that year (see item 3 for this case); or (d) if the individual is a beneficiary of a trust estate at any time in that year unless the trust is an STS taxpayer for that year or the trustee of the trust (in that capacity) is a full self-assessment taxpayer for that year; or (e) if it is reasonable to conclude that any person entered into or carried out a scheme (either alone or with others) for the sole or dominant purpose of the individual obtaining a scheme benefit in relation to income tax from the scheme for that year; or (f) in any other circumstance prescribed by the regulations. This item is subject to items 5 and 6.

[5]

The decision of the Tribunal 15 The Tribunal addressed the meaning to be given to the phrase 'beneficiary of a trust estate' according to accepted legal principle, namely to interpret it, in the absence of any statutory definition, according to its ordinary meaning, and its ordinary technical meaning where appropriate, but being mindful of the context in which those words appear. The Tribunal set out these principles in some detail in its reasons. In particular, in considering the ordinary legal meaning of the word "beneficiary", the Tribunal cited and adopted the observations of Lindgren J in Kafataris v Deputy Commissioner of Taxation (2008) 172 FCR 242 at [42] to [44], approved by Stone J in Colonial First State Investments Ltd v Federal Commissioner of Taxation (2011) 192 FCR 298. It acknowledged the different legislative provisions there considered but saw no basis for attributing any materiality to such distinction. 16 The Tribunal then turned to what it described, compendiously, as the submission that qualification (d) of item 1 of s 170(1) of the Act deals with operational matters or operative facts and not mere description or descriptive matters. It concluded that there was no basis for reading the qualification as anything other than a qualification that applies to the broad class of persons who are beneficiaries in the ordinary legal sense of that word. It said that the qualification was a descriptor, and that the qualifications in item 1 refer to a type of taxpayer without requiring that taxpayer to have derived any particular amount of income in that year. That is, that there is no need for a further operational event such as the receipt of income to arise for the qualification to apply. 17 The Tribunal did not accept the submission that the provision relates to the imposition of a tax or penalty. It pointed out that the provision simply provides for more time for amended assessments of the amount that the individual is obliged to pay by statute and also more time for the making of objections by the taxpayer. Nor did the Tribunal accept that the construction advanced by the Commissioner would produce 'unlikely, improbable and surprising if not anomalous outcomes'. The Tribunal recorded the Commissioner's submission that it was open to beneficiaries with no entitlement to the fund and who took no benefit under the trust, or those not aware that they were within the relevant class, to disclaim their interest.

[7]

Consideration 20 However, this strict sense in which a beneficiary may be defined itself recognises the common usage of "beneficiary" to describe the broader category. In Kafataris, Lindgren J considered the ordinary legal meaning of "beneficiary" in the context of a consideration of whether a trust had a "sole beneficiary" for the purposes of s 104-55(5) of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act) (which is part of the Act by reason of s 6(1) of the Act). At [41]-[44] his Honour said: 41 The expression "beneficiary" is not defined in the Act and bears its ordinary meaning. 42 According to the ordinary meaning of the word, a beneficiary is any person for whose benefit a trust is to be administered and who is entitled to enforce the trustee's obligation to administer the trust according to its terms. It is trite that for every trust there must be a "beneficiary" so understood (see, for example, Re Denley's Trust Deed [1969] 1 Ch 373 at 382-384). A beneficiary is not simply a person who as a matter of fact obtains some practical benefit from the existence of a trust: Sacks v Gridiger (1990) 22 NSWLR 502 at 508. 43 The word "beneficiary" reaches beyond a person who has a beneficial interest in the trust property. It is possible for the legal estate in land to be vested in "trustees" without equitable ownership being vested in someone else. The trustees must, however, owe fiduciary obligations in respect of the trust property to persons who, although they may have no interest in the trust property and may never have an interest in the trust property, are called "beneficiaries". In CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98, the High Court rejected (at [25]): a "dogma" that, where ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else because it is an essential attribute of a trust that it confers upon individuals a complex of beneficial legal relations which may be called ownership. That is to say, there can be a trustee who owes fiduciary obligations in respect of trust property to "beneficiaries" without any of the latter having a beneficial interest in the property. 44 Although the discretionary objects do not have a beneficial interest in any property the subject of a "discretionary" trust prior to a distribution or appointment of income or capital, they are freely referred to as "beneficiaries"; see for example, Gartside v Inland Revenue Commissioners [1968] AC 553 at 617-618; R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd (1993) 10 WAR 59 at 79; Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 at [25]-[28]. Provided it can be said with certainty that any particular person is or is not within the class of discretionary beneficiaries, there is a trust, due administration of which can be enforced by discretionary beneficiaries: see Re Gulbenkian's Settlements [1970] AC 508; McPhail v Doulton [1971] AC 424. (emphasis added) 21 Justice Lindgren held, therefore, that the relatives who were the objects of Mr and Mrs Kafataris' respective discretionary trusts were beneficiaries and, accordingly, that neither trust had a "sole beneficiary" for the purposes of s 104-55(5). His Honour concluded at [52] that: … the applicants' submission wrongly assumes that in order to be a "beneficiary" according to the ordinary meaning of that term, a Relative must have become entitled to an interest in trust property. On the contrary, it is enough that the Relative has an expectancy and is entitled to compel the due administration of the trust by the Trustees. 22 This reasoning was followed by Stone J in Colonial First State. 23 While the applicant relies on Gartside, as cited above, the Commissioner relies on Leedale v Lewis [1982] 1 WLR 1319, where Lord Scarman characterised the term "beneficiary" as: 'a term which everyone is agreed includes persons who are the objects of the discretionary trusts'. Leedale was considered by the Full Court in Secretary, Department of Families, Housing, Community Services and Indigenous Affairs v Elliott (2009) 174 FCR 387. The Full Court ultimately distinguished Leedale on the question of whether objects had an "interest" in the trust but, as the Commissioner notes, the Full Court in its reasons repeatedly referred to the objects of a discretionary trust as "beneficiaries". 24 I accept that the common use of "beneficiary" includes a person who is the object of a discretionary trust, including a person who has received no income or benefit from the trust in a given year.

[8]

Statutory context 25 It is not in issue that ordinary principles of statutory construction are relevant, including looking primarily to the statutory provision but also to its context and place within the statute and admissible extrinsic material. The basic principles of statutory construction were recently restated by the High Court in Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross [2012] HCA 56. 26 The applicant says, in summary: The provisions for individuals were introduced into s 170(1) of the Act in 2005. This amendment changed the rules for individuals so that most individuals had a 2-year rather than a 4-year amendment period. This was said in the Explanatory Memorandum to apply to a majority of taxpayers. The 2-year period was not to apply, broadly, to those engaged in large businesses as a principal, partner, or beneficiary in a trust. There are numerous family discretionary trusts with potentially very large numbers of potential beneficiaries, many of whom would not necessarily know that they could be so characterised. Mischievous taxpayers could include as beneficiaries all residents of Australia or specific public figures. This would deny these included persons the benefit of the 2-year amendment rule. Parliament's intention that the majority of individuals will have a 2-year amendment limitation period would be defeated by the inclusion of potential beneficiaries as beneficiaries for the purposes of s 170(1). There is no logical reason to extend the assessment period for individuals who are not in receipt of benefits from a trust. Other provisions of the Act have linked assessment with the "present entitlement" of the beneficiary (ss 97(1) and 95A(2)); a share of a capital gain or franked distribution to which the beneficiary is "specifically entitled" (ss 115-228 and 207-58 of the 1997 Act), that is, received or is reasonably expected to be received; and amounts being "trust property paid to" the beneficiary or "applied for the benefit of" the beneficiary (s 99B(1) of the Act).

[14]

The link between the assessment and the beneficiary 38 The applicant then submits that there is a necessary link between the assessment that may be the subject of amendment and the status of the person as a beneficiary. That is, for the qualification to apply, the assessment must be by reason of that person's status as a beneficiary: he or she must be a beneficiary in receipt of income or benefit or be assessed in the capacity of a beneficiary. Put another way, he says that there must be a connection between the assessing power and the amendment power, between the assessment of income or benefit from the Trust and the power to amend. The applicant says that there are limited ways in which a "beneficiary" can be assessed as such which do not involve having become an 'actual beneficiary', but involve some further trigger fact or circumstance. He draws attention to s 97(1)(a) of the Act which provides for the assessable income of a beneficiary: 'the beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate' and also to s 99B which refers to 'an amount, being property of a trust estate, is paid to, or applied for the benefit of, a beneficiary of the trust estate'. 39 The applicant submits that the Commissioner cannot use qualification (d) to amend an individual's assessment beyond two years, other than in that person's capacity as a 'beneficiary of the [relevant kind of] trust estate'. This is said by the applicant to accord with the nature of the other qualifications in item 1, which are circumstances which provide what he describes as a 'tenable justification for giving the Commissioner extra time to make amendments' which relate only to those circumstances, which are more complex. Otherwise, the applicant contends, s 170(1) becomes a 'capricious system' giving extra time to the Commissioner which would otherwise be unavailable and such a consequence cannot have been intended by Parliament. The applicant says that it follows that the Court should reach an available alternative construction that is reasonably open and more clearly conforms with legislative intent (referring to IRG Technical Services Pty Ltd v Federal Commissioner of Taxation (2007) 165 FCR 57 per Allsop J at [21]). Further, he says, the rule of construction of tax statutes, considered in Anderson v Commissioner of Taxes (Vic) (1937) 57 CLR 233 at 243 and Hepples v Federal Commissioner of Taxation (1992) 173 CLR 492 at 510-511 and endorsed by Edmonds and Gilmour JJ in Virgin Blue Airlines Pty Ltd v Federal Commissioner of Taxation (2010) 190 FCR 150 at [30], requires that the imposition of a special, more rigorous, or penal tax regime must be in plain terms. This means, he says, that the words 'a beneficiary of a trust estate at any time in that year' must be construed to mean a person entitled to receive a benefit under the trust, being an ambit of the application of the tax that extends no further than that which can be taken from the clear words of the statute. 40 The Commissioner's response is first to rely upon the fact that qualification (d) contains no qualification or restriction on the phrase "beneficiary of a trust estate". It is, he says, a simple, objective qualification, as are the other qualifications in item 1. He also says that Div 6AAA of the Act as it then applied provides for the assessment of a beneficiary, inter alia, whether or not that beneficiary had rights in law or in equity to benefits from the trust estate. The Commissioner also refers to s 99B(1) of the Act in which an amount applied for the benefit of a beneficiary may be taxed. The Commissioner says that the word "beneficiary" is used elsewhere in the Act to refer to or include the object of a discretionary trust, such as s 101 of the Act, which also draws a distinction between a beneficiary who is the object of a discretionary trust and a beneficiary receiving income or a benefit from the trust, who is deemed to be "presently entitled". Another example given is s 152-78 of the 1997 Act which refers to beneficiaries in the context of persons who did not receive a distribution of income or capital. 41 The Commissioner also points out that s 170(10) itself provides that nothing in s 170 prevents the amendment, at any time, of an assessment for the purpose of giving effect to a number of specified provisions of the Act. This is in answer to the applicant's submission that the intention was to limit those persons who were not subject to the 2-year limitation in s 170(1).

[15]

Conclusion 42 The applicant has, in this Court, basically repeated the arguments advanced to the Tribunal. I see no error in the decision or reasoning of the Tribunal. I note the reasoning of Lindgren J in Kafataris, which was followed by Stone J in Colonial First State. I do not accept that such reasoning is clearly wrong; indeed I agree with it and I do not accept the applicant's submission that the reasoning is inapposite to this case. The ordinary meaning of "beneficiary" is a person for whose benefit a trust is to be administered and who is entitled to enforce the trustee's obligation to administer the trust according to its terms. I agree with the Tribunal that it applies to the meaning to be given to "beneficiary" in the present context in the Act. That meaning accords with the ordinary and ordinary technical meaning given to "beneficiary". This was even acknowledged in the LexisNexis Dictionary on which the applicant relies. 43 I do not accept that there is an absurdity said to flow from the Tribunal's construction that would mean that the ordinary meaning should be displaced. It is not an absurd construction that Parliament intended to increase the time limit for amending an assessment of a "beneficiary" in the ordinary sense of the word where the "risk" to the taxpayer is that the taxpayer would be called on to pay amounts that are lawfully due under the statute (Ryan at [22]). 44 There is no reason in the context of the section and of the Act or the Explanatory Memorandum not to give the word "beneficiary" its commonly accepted meaning. It is not apparent that Parliament intended qualification (d) of item 1 of s 170(1) of the Act to have other than its ordinary meaning and to apply only to those contingent beneficiaries who received benefits in the relevant year. Where such was intended, the Act generally makes that clear, for example by referring to a 'beneficiary presently entitled'. 45 I do not accept that qualification (d), in the context of s 170(1), item 1 of the Act, requires that the amendment period of two years applies unless the assessment is of a beneficiary in the capacity of a beneficiary or is otherwise linked to income received as a beneficiary. The qualification is descriptive of the person. If the person is the beneficiary of a trust estate in the ordinary sense of that word, the time for amendment in item 1 does not apply. 46 It follows that the application should be dismissed with costs. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

Parties

Applicant/Plaintiff:

Yazbek

Respondent/Defendant:

Commissioner of Taxation

Legislation Cited (5)

Administrative Decisions (Judicial Review) Act 1977(Cth)s 5

Income Tax Assessment Act 1936(Cth)ss 6(1), 95A(2), 97, 98, 98A, 99B, 100A

Administrative Appeals Tribunal Act 1975(Cth)s 44

Income Tax Assessment Act 1997(Cth)ss 104-55(5), 115-228, 152-78

Taxation Administration Act 1953(Cth)

Cases Cited (16)

Jurisdiction 3 This proceeding commenced as an appeal under the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). Under s 44 of the AAT Act, a party may appeal to the Federal Court on a question of law from any decision of the Tribunal. A right of appeal lies only from a decision of the Tribunal which constitutes the effective decision or determination of the application for review (Phillips v Inspector-General in Bankruptcy [2011] FCA 612 per Dodds-Streeton J at [46] - [55]). In this case, the decision of the Tribunal was of an interlocutory nature. Without objection from the Commissioner of Taxation (the Commissioner), the original application (NSD 1231 of 2012) was discontinued and the applicant filed the current application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act), presumably under s 5 of that Act. There is no dispute that this Court has jurisdiction under the ADJR Act. However, the Commissioner has, helpfully, addressed the issue and I will deal with it briefly. 4 Section 5 of the ADJR Act provides that a person aggrieved by a decision to which that Act applies may apply to the Federal Court for an order for review on the ground, relevantly in s 5(1)(f), that the decision involved an error of law. Schedule 1 to the ADJR Act provides that certain classes of decisions are not decisions to which the ADJR Act applies. Relevantly, decisions making, or forming part of the process of making, or leading up to the making of, assessments of tax, or decisions disallowing objections to assessments of tax, or decisions amending or refusing to amend assessments of tax, under certain Acts are not decisions to which the ADJR Act applies. The list of Acts does not include the AAT Act, but does include decisions made under particular sections of the Taxation Administration Act 1953 (Cth). The list of exclusions in Schedule 1 does not include decisions of the Tribunal, other than decisions conducted by the Security Appeals Division of the Tribunal. 5 Although the Tribunal is said to stand in the shoes of the Commissioner in affirming, setting aside or varying the decision, the process that the AAT undertakes is not an objection decision or the making of an assessment (Szajntop v Gerber (1992) 28 ALD 187 per Hill J at 190). The Commissioner contends, and I agree, that it is a decision of the AAT and is reviewable under the ADJR Act. 6 The decision of the Tribunal was not a decision as to procedural rights. It affected substantive rights and was determinative in these circumstances of the right of the Commissioner to amend an assessment outside the 2-year period from the notice of assessment. If the applicant had been successful, the proceeding would have been complete. The decision was 'final or operative and determinative in a practical sense of the Tribunal's power in conducting the review notwithstanding that [it] was made before the ultimate decision to be made by the Tribunal on the correctness or otherwise' of the Commissioner's decision (Commissioner of Taxation v McMahon (1997) 79 FCR 127 per Lockhart J at 129). 7 The Court has jurisdiction to hear the application for review and I am satisfied that it should do so.

[2012] AATA 477

(1937) 57 CLR 233

(2011) 192 FCR 298

(1997) 79 FCR 127

(2000) 201 CLR 109

(1992) 173 CLR 492

(2007) 165 FCR 57

(2008) 172 FCR 242

(2009) 174 FCR 387

(2010) 190 FCR 150

(1990) 22 NSWLR 502

(2005) 224 CLR 98