GYBW v FC of T

Members:
BJ McCabe DP
Hespe SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2019] AATA 4262

Decision date: 21 October 2019

BJ McCabe (Deputy President) and Hespe (Senior Member)

1. The Applicant has sought review of the decisions of the Commissioner denying its objections against amended income tax assessments and penalty assessments for the 2013, 2014 and 2015 income years and of the Commissioner's decision to not further remit shortfall interest charges.

2. The Applicant is the trustee of a self-managed superannuation fund (the D Fund) within the meaning of the Superannuation Industry (Supervision) Act 1993 ( SIS Act ). It was accepted by the parties that the D Fund is also a complying superannuation fund for the purposes of the Income Tax Assessment Act 1997 ( 1997 Act ).

3. The amended assessments included in the Applicant's taxable income dividends and franking credits received by it in respect of its 20% shareholding in a company ( B Holdings ) as non-arm's length income under s 295-550 of the 1997 Act. Thus the dividends and franking credits were taxable at the highest marginal rate, rather than as exempt current pension income.

4. The penalty assessments were issued applying a base penalty rate of 50% on the basis that the shortfall in tax payable resulted from recklessness on the part of the Applicant or its agents. The base penalty amounts were increased by 20% for the 2014 and 2015 years pursuant to s 284-220(2) of Schedule 1 of the Taxation Administration Act 1953. Although the Commissioner exercised his discretion to remit this 20% increase, the Commissioner did not further remit the base penalty amount.

5. The Commissioner had remitted part of the shortfall interest charge on the basis of delays in the audit process but on objection declined to further remit the shortfall interest charge.

6. The main issues in dispute are:

(a) Whether the dividends and franking credits received by the Applicant in respect of its shares in B Holdings are non-arm's length

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income; and
(b) If so, whether the penalty has been correctly imposed.

NATURE OF THE EVIDENCE BEFORE THE TRIBUNAL

7. There was some confusion in the documents before the Tribunal as partnerships traded under names that would ordinarily be ascribed to companies, companies changed names and some companies bore the same name as the trading name under which the partnerships traded. This resulted in entities having the same name but different ABNs. The confusion was not assisted by the fact that the witness's use of entity names in their witness statements (which took the form of affidavits) was imprecise.

8. There were also a number of difficulties with the witness statements, particularly that of Mr D. Much of his statement related to matters that were not within his first-hand knowledge and as such, are accorded little weight. Other parts of his statement, including his purported evidence of the arm's length nature of other dealings or the value to be ascribed to the business or to goodwill, were no more than statements of opinion. Given Mr D was not an independent expert, his opinions are of no relevance. They are no more than submissions.

Facts

9. Mr and Mrs D were the sole directors of the Applicant and the sole members of the Fund.

10. Mr K, a person who was not a family relation of either of Mr or Mrs D, had been an employee of F Pty Ltd. Mr K had a background in defence. The main business of F Pty Ltd was the manufacturing of parts for the motor vehicle industry but it also carried out work for the Department of Defence in relation to the servicing, repair and overhaul of a helicopter landing system on a class of Australian Navy ships. Mr K was involved in the work performed for the Department of Defence. Mr K resigned from F Pty Ltd in mid-2004.

Chronology of Events

11. In mid-2006, Mr K and three other former F Pty Ltd employees (Mr M, Mr E and Mr P) commenced their own service business relating to the servicing, repair and overhaul of the helicopter landing system for the Department of Defence. The only customer of that business was the Department of Defence and thus the performance of the business depended upon receiving purchase orders from the Department.

12. Mr K had very limited financial skills or training at the time the business commenced.

13. Around mid-2006, Mr D, through the accountancy practice of which he was a partner, provided accounting services to Mr K and the other former F Pty Ltd employees. Mr D advised upon and set up an ownership structure for the service business, which involved an equal partnership between the trustees of four discretionary trusts, one of whom was Mr K as Trustee for the T K Discretionary Trust. The partnership operated under the name BR Pty Ltd. None of the trust deeds or partnership agreement were in evidence. According to Mr D, a company with the same name as the partnership, BR Pty Ltd (but with a different ABN) acted as trustee and nominee for the partnership. Each of the former F Pty Ltd employees (including Mr K) were directors and equal shareholders in BR Pty Ltd. Mr D was the tax agent for the partnership and company secretary for BR Pty Ltd.

14. F Pty Ltd continued to try to compete with the partnership. Mr K told a director of F Pty Ltd that they could continue to compete with each other but each side had different advantages - the partnership had technical skills but F Pty Ltd had a licence agreement from a Canadian parts manufacturer. A new partnership between the BR Pty Ltd partners (as to 50%) and FDO Pty Ltd (as to 50%) was formed on 11 March 2008. According to the financial statements for the years ended 30 June 2008 and 30 June 2009 the partnership traded as BE Pty Ltd. No written partnership agreement was in evidence.

15. No money was exchanged between the partners to establish the BE Pty Ltd partnership. The net assets of the BR Pty Ltd partnership were transferred to the new partnership at book value (that is, assets were transferred and the new partnership assumed the liabilities).

16. The Tribunal was provided with an unexecuted copy of a management agreement between the BR Pty Ltd partnership and BE Pty Ltd, appointing BE Pty Ltd as manager of the business of the BR Pty Ltd partnership.^[1] DKD-32. The

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Tribunal was not provided with any explanation of the role of this agreement or whether it was ever executed or implemented. The Tribunal was not provided with any information about a company called BE Pty Ltd in 2008.

17. The business carried on by the BE Pty Ltd partnership suffered a shortage of work in the beginning of 2009. The partnership between FDO Pty Ltd and BR Pty Ltd was terminated with effect from 30 June 2009. An unexecuted agreement was in evidence which provided for the transfer by FDO Pty Ltd of its interest in the BE Pty Ltd partnership to BR Pty Ltd, in consideration for which BR Pty Ltd was to pay to FDO Pty Ltd a sum equal to the partnership loan/partnership capital account (including all money advanced and profit credited to the accounts to 30 June 2009, less any withdrawals). The unexecuted agreement provided that the partnership had been determined in accordance with paragraph 11 of the partnership agreement, noted in the recitals as having been executed on 1 July 2008. Because the partnership agreement of 1 July 2008 was not in evidence, it is not possible to discern the effect of the partnership agreement on the terms of the termination.

18. The Tribunal was provided with copies of financial statement for the BE Pty Ltd partnership for the year ended 30 June 2010. Given the partnership between FDO Pty Ltd and BR Pty Ltd was terminated with effect from 30 June 2009, it is not apparent why financial statements for a partnership between FDO Pty Ltd and BR Pty Ltd were prepared for the year ended 30 June 2010.

19. In mid-2010, the relationship between the partners in the BR Pty Ltd partnership broke down.

20. The evidence in Mr D's witness statement was that on 15 October 2010 Mr K bought out the other three partners for a total of $750,000. However, the executed termination of partnership agreements ^[2] DKD-35 at pp 502-517. before the Tribunal provided that the purchaser was T K Investments Pty Ltd as trustee for the T K Discretionary Trust. As a contemporaneous document, the executed partnership agreement is more reliable than the witness statement.

21. Only part of the termination amount was paid on 15 October 2010. The balance of the termination amount was left as an outstanding liability owed by the T K Discretionary Trust to the three former partners. The amount paid to each of the partners differed:

(a) to one partner (Mr M), a total of $330,000 was payable, half of which was paid on the signing of the agreement. According to Mr K, he was willing to pay Mr M more because Mr M was suffering from a mental illness and Mr K did not wish to seek to negotiate with him further;
(b) to the other two partners (P) and (E), a total of $210,000 was payable to each, a third of which was payable on the signing of the agreement.

22. The amount paid to each partner was in "full settlement of all of his entitlements in the partnership capital, goodwill, profits to the date of termination, work in progress, wages, holiday pay, superannuation, refund of expenses and any other entitlements that are presently due or may arise in the future as being due to the outgoing partner."^[3] Clause 3 of the agreements referred to at footnote [2] above. Except in the case of Mr M, the sum paid to each partner was less than the amount standing to the credit of their capital accounts and was thus less than the book value of those partner's interest in the net assets as recorded in the financial statements of the BR Pty Ltd Partnership as at 15 October 2010. Mr K's evidence was that he regarded the value of the business to be nil and he considered the payment to the former partners to be more in the nature of recognition of the unpaid overtime they had worked.

23. Thereafter it appears that the business which had been carried on by the BR Pty Ltd partnership was owned by the T K Discretionary Trust. According to the witness statement of Mr D, by this time, the trustee of that trust was BE Pty Ltd. This is not consistent with the terms of the Termination of Partnership Agreements which had the trustee as T K Investments Pty Ltd and no documentary evidence was provided to the Tribunal supporting a change of trustee.

24. Mr D's evidence was that upon the termination of the partnership, Mr K acquired all the shares in BR Pty Ltd. Given that the partnership between the discretionary trusts had come to an end, it is not clear what role BR Pty Ltd played at that time.

25.

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Confusingly, BR Pty Ltd changed its name to BE Pty Ltd on 28 August 2011.

26. Immediately after termination of the BR Pty Ltd partnership, Mr M ceased to have any on-going involvement in the business but two of the former partners remained as employees. Two years later one of those remaining former partner employees (Mr P) had a stroke and retired on 15 October 2012. The last remaining former partner employee retired on 27 May 2015.

27. According to Mr D's witness statement, on 1 July 2011, Mr K as trustee for the T K Discretionary Trust transferred the assets and liabilities of the business to BE Pty Ltd. Given that there is no evidence before the Tribunal that Mr K was the trustee for this discretionary trust, the Tribunal infers that the reference to Mr K is in error. By this time, Mr K was, however, the sole director and shareholder of BE Pty Ltd.

28. The Tribunal was provided with a balance sheet for BE Pty Ltd "as of June 2011".^[4] Affidavit of DKD-15, pp 219 – 221. The basis for the preparation for this balance sheet, the date on which it was prepared and the reasons for its preparation were not in evidence. The balance sheet had a handwritten notation on it "T K Discretionary Trust 16 October 2010 to 30 June 2011". The only evidence that BE Pty Ltd was the trustee of the T K Discretionary Trust is an ambiguous statement in the witness statement of Mr D.^[5] See Affidavit of DKD at [14]. . Other statements made in that same witness statement refer to Mr K as trustee for the T K Discretionary Trust.^[6] See Affidavit of DKD at [18]. To the extent that the notation is to be read as a reference to BE Pty Ltd being the Trustee of the T K Discretionary Trust for the period 16 October 2010 to 30 June 2011, it is not consistent with the terms of the partnership termination agreement dated 15 October 2010. It is not consistent with the ASIC search records which indicate that BR Pty Ltd changed its name to BE Pty Ltd on 28 August 2011.^[7] Section 37 T-Documents (“ T-Documents ”), T118. There was no entity named BE Pty Ltd in the period 16 October 2010 to 30 June 2011 and there was no evidence that BE Pty Ltd was a trustee of the T K Discretionary Trust in the period 16 October 2010 to 30 June 2011.

29. The balance sheet discloses net asset of $0.17 but as having a liability to T K Investments of $1,799,782 and liabilities to the former partners for the outstanding partnership termination amounts which had been owed under the partnership termination agreements by T K Investments as trustee for the T K Discretionary Trust. According to Mr D's witness statement, this balance sheet "shows net assets of the T K Discretionary Trust as being $0.17."^[8] Affidavit of DKD at [19]. The Tribunal does not accept this part of Mr D's witness statement as accurate. The Tribunal is not satisfied that the net assets of the T K Discretionary Trust was $0.17 when it had an amount of $1,799,782 owed to it. At most, the Balance Sheet is a purported record of the book value of the assets acquired and liabilities assumed by BE Pty Ltd on 1 July 2011.

30. In August 2011, Mr D advised Mr K that he was contemplating retirement from his accounting practice. Mr K asked Mr D to become the Chief Financial Officer for the BE Pty Ltd business. Mr K offered Mr D a 20% interest in the business. According to Mr K, this was to ensure that, as Mr D was "going to look after the business finances and handle the money I wanted him to have "skin" in the game and an incentive to do the right thing."^[9] Affidavit of Mr K at [28]. According to Mr K, "I knew that the nominal value of the 20% interest in the business would be insufficient to incentivise [Mr D] to join me. Therefore in addition to the 20% interest, I paid Mr D a salary of over $200,000 to join as CFO."^[10] Affidavit of Mr K at [29]. The Tribunal accepts that Mr K considered it appropriate to pay Mr D a salary in addition to providing him with an interest in the business but does not accept this statement as evidence that the business had a 'nominal value'. Mr K's evidence was that he was "out of my depth on financial matters".^[11] Affidavit of Mr K at [26].

31. Mr D's evidence was that he took advice about "asset protection" from a law firm.^[12] Affidavit of DKD at [21]. The written advice from the law firm dated some 10 months later, 28 March 2012, was in evidence before the Tribunal.^[13] Affidavit of DKD-39, pp 561-568. The advice is expressed to concern whether the acquisition of shares by the trustee of Mr D's self-managed superannuation fund complied with the laws governing superannuation and, in particular, the Superannuation Industry (Supervision) Act 1993. The terms of that advice are discussed further below at [69].

32.

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Mr D arranged to have the trustee of his self-managed superannuation fund (the D Fund) acquire the interest in the business.

33. On 8 September 2011, B Holdings was incorporated with Mr K as the sole director and T K Investments Pty Ltd as sole shareholder, acquired 800 B Holding shares for $800. The trustee of Mr D's superannuation fund acquired 200 shares in B Holdings for $200.^[14] Affidavit of DKD at [24].

34. On 9 September 2011, Mr K transferred the shares in BE Pty Ltd to B Holdings Pty Ltd for $200 (equal to the paid up value of the BE Pty Ltd shares).^[15] Affidavit of DKD at ]25]. There were no retained profits recorded in the accounts of BE Pty Ltd at that time.

35. Mr D's evidence was that he had the superannuation fund acquire the shares in B Holdings for asset protection. Given that he was adamant that the shares were not worth more than $200 when they were acquired, his concerns relating to asset protection seemed to arise because "it was hoped that, you know, in the very long term it may produce a return".^[16] Transcript at p 52.

36. Mr D's evidence was that by September 2011, business turnover "had collapsed" and there was no guarantee further work orders would be received.^[17] Affidavit of DKD at [33]. Profit and loss statements for the months of July, August and September 2011 disclose that the total income for BE Pty Ltd fell from just over $350,000 in the month of July to $108,818.08 in the month September with gross profit falling from $301,870.91 to $94,326.70 over that same period.^[18] T-Documents, T100 p 977. Although the net profit figures show a loss of nearly $90,000 for the month of September, that appears to result from large rental and bookkeeping fees of over $65,000 incurred in that month. Given that these outgoings may be referable to a period longer than a single month, the net profit monthly figures need to be approached with caution. The financial records show that the profit for the period July 2011 to September 2011 was in excess of $500,000, with net profit of $15,000.^[19] T-Documents, T100 p 978.

37. The Tribunal was also provided with a list of Government contracts in respect of which the B group ^[20] This included BE Pty Ltd and BRE Pty Ltd was a supplier for the period 1 January 2009 to 1 January 2013.^[21] T-Documents, T107 pp 1013-1015. That list discloses that there were some contracts on foot or with a start date in September 2011. Mr K's evidence was that he would have submitted a response to a purchase order prior to the contract state date. The contracts with a start date in September 2011 reflect purchase orders that had been responded to earlier.

38. Shortly after Mr D's superannuation fund acquired its shares in B Holdings, fortune shined upon the business, partly as a result of misfortune experienced by the Australian Navy. An entire landing system on a naval ship was totally destroyed, an event that was unexpected and unprecedented. The Navy required an existing landing system from another naval ship be removed and reinstalled on the naval ship whose system had been destroyed and put out requests for quotes. Mr K put in a quote on 7 November 2011. A purchase order for over $6m was awarded to BE Pty Ltd on 9 November 2011.

39. Around about the same time, the Department of Defence decided in January 2012 to carry out large unscheduled maintenance jobs. BE Pty Ltd was awarded a purchase order for over $2.8m on 9 January 2012 to service and maintain certain landing system components.

40. On 17 April 2012, the Department of Defence awarded BE Pty Ltd a further purchase order for over $4.6m for a new helicopter landing system kit.

41. On 29 May 2012, Mr K quoted for two large helicopter landing system overhaul jobs. BE Pty Ltd was awarded two purchase orders on 4 June 2012 for a total over $5m.

42. The total of the purchase orders received between November 2011 and June 2012 was far in excess of anything the business had experienced before.

43. Mr D retired from his accountancy practice on 30 June 2012 and commenced employment with the B group of companies as CFO "as per [the] arrangement" with Mr K."^[22] Affidavit of DKD at [29]. The Tribunal was provided with a copy of an executive's employment agreement between Mr D and BE Pty Ltd dated 1 July 2012 which provided that BE Pty Ltd agreed to engage Mr D as Chief Financial Officer. Mr D would receive a gross wage of $243,000 per annum together with the allocation of a motor vehicle or an allowance, plus superannuation contributions.^[23] Affidavit of DKD-37 (It is noted that the employment agreement discloses the wrong ABN for the

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employer (picking up incorrectly the ABN of the partnership which had traded under the name BR Pty Ltd)).

44. The work on the helicopter landing system fell away after the overhaul work was completed. However, as a result of a strategy to diversify away from complete reliance on the Department of Defence, the B group's business had diversified into the following areas:

(a) The development and manufacture and sales of Ground Power Units
(b) The development and manufacture and sales of Power Skates
(c) Winding of heavy duty electric motors for heavy industrial and the mining industry
(d) Warehousing and stock control facilities
(e) Repair and service of roadside electronic signage
(f) Repair and overhaul of a helicopter landing system for the Australian and New Zealand Defence Forces
(g) Repair and service of robots used by the Australian Federal Police for bomb detection and de-activation.^[24] Affidavit of DKD at [39].

45. Mr D's evidence was that none of these endeavours were contemplated on 9 September 2011.^[25] Affidavit of DKD at [40]. The basis for this statement is not clear. It is also contrary to the following facts:

(a) A company called B Electrical was registered on 9 September 2011.^[26] Supplementary T-Documents, ST12 pp 38-40. Mr K's oral evidence was that this company was incorporated around the same time as the purchase by the B group of companies of a business of modifying and repairing electric motors. Mr D was an initial shareholder in B Electrical as was Mr K. On 14 September 2011, Mr K and Mr D transferred their shares in B Electrical to B Holdings;
(b) A company called B Rentals was incorporated on 8 September 2011;^[27] Supplementary T-Documents, ST14 pp 44-46.
(c) A company called B GSE was incorporated on 12 August 2011.^[28] Supplementary T-Documents, ST13 pp 41-43. According to the B group website, B GSE was Australia's largest manufacturer of ground power units and was the exclusive Australian and New Zealand agents for the Canadian parts manufacturer. (It is noted that this is not consistent with the terms of the agency agreement which had BE Pty Ltd as the agent). Mr K was the initial shareholder in B GSE and those shares were transferred to B Holdings.

46. The evidence supports a conclusion that as at 9 September 2011, at least some of the diversification endeavours were in contemplation, though their success was not certain. Mr K's evidence was that although he had aspirations of how the business was going to diversify, he quickly learnt that was not really the way to run the business. He had appointed a business development manager who it seems tried to diversify the business too much. The diversification strategy was not successful. B Electrical, B Rentals and B GSE have all since been deregistered.

Shareholders Agreement

47. On 23 January 2013, B Holdings, the Applicant (as the trustee of the D Fund) and T K Investments Pty Ltd executed a shareholders agreement.^[29] T-Documents, T40, pp 513 – 525. Although executed in 2013, the agreement is expressed to be dated 8 September 2011. Mr D's evidence was that this agreement reduced to writing an agreement made at the time of the subscription for the shares in B Holdings.

48. Clause 12(a) relevantly provided:

In the event of a compulsory transfer event or when at any time a shareholder (outgoing shareholder) wishes to sell their shares in the company then that shareholder or their personal representative must:

(i) Offer, in the case of a compulsory transfer all of their shares, and if not a compulsory transfer event those shares they wish to sell, [Mr K] or any person elected by him, shares in the company at the price determined herewith.

(ii) Mr K, or any person elected by him, has the right to purchase such shares offered to him at the priced determined in accordance herewith

(iii) A compulsory transfer event occurs when a shareholder is in serious disagreement with [Mr K] or fails to observe or perform the provisions of this agreement ….

(iv) The identity of the shareholders being a matter of fundamental importance to the shareholders, a compulsory transfer event occurs if there is a change in the persons

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having the effective control of a shareholder that is a corporation or a trust

(v) …

(vi) The shareholders acknowledge that due to the uncertainty of the Australian Government's budget and decisions by The Department of Defence in granting annual contracts to the company (which contracts constitute the major proportion of the company's business) that no figure for goodwill can be attributed in any sale and that the asset values in the company are substantially related to Defence Department contracts and therefore the price of the shares on sale will remain the same as the issue price of the shares plus any after tax profits of the holding company and each of its subsidiaries that have not been distributed as dividends at the end of the financial year immediately prior to the time of the transfer of shares of the holding company and each of the subsidiaries.

49. Clause 12(g) provided:

Each shareholder must at all times do all acts and things reasonably within their respective power and capacity to promote and assist the development of the business. In the event that the company must employ a shareholder then they must receive all normal entitlements.

50. Clause 12(i) provided:

Each shareholder acknowledges and agrees with the company and each other that:

(i) At any time whilst they are a shareholder, or after they cease to be a shareholder, or otherwise associated with the company, or the business conducted by the company, then such shareholder covenants and warrants to the company, and the other shareholders that they must not directly or indirectly and whether solely or jointly with or as director, manager, agent, servant, adviser, consultant, investor, trustee, partner joint venturer (or any of them) carry on or be engaged or interested in any business of a like nature to the business conducted by the company …..

(ii) …

(iii) The area, people and period stated in schedule 3 for the restraint of trade referred to herein is expressly acknowledged by each of the shareholders to be no greater than reasonably necessary to protect the goodwill and intellectual property of the business conducted by the company so as not to derogate from the company's right to enjoy the full benefit of ownership of the business and its goodwill and intellectual property, as well as to protect the future value and return to the company and its shareholders of its investment, development, management, development, management, operation, trading and marketing of the business of the company.

Dividend Payments

51. On 10 October 2012, BE Pty Ltd declared a fully franked dividend of $3,365,000 to B Holdings for the year ended 30 June 2012.^[30] T-Documents, T39, p509.

52. On 18 October 2012, B Holdings declared a full franked dividend, paid as follows:

(a) To T K Investments Pty Ltd a dividend of $2,691,600 with a $1,153,386.30 franking credit;
(b) To the trustee of the D Fund, a dividend of $672,900 with a $288,283.71 franking credit.^[31] T-Documents, T42, p542.

53. On 30 August 2013, BE Pty Ltd declared a fully franked dividend of $5,300,000 to B Holdings for the year ended 30 June 2013.^[32] T-Documents, T39, pp 506-507.

54. On 31 August 2013, B Holdings declared a full franked dividend, paid as follows:

(a) To T K Investments Pty Ltd a dividend of $4,200,000 with a $1,800,000 franking credit;
(b) To the trustee of the D Fund, a dividend of $1,050,000 with a $450,000 franking credit.^[33] T-Documents, T39, p505.

55. In the year ended 30 June 2015, BE Pty Ltd declared a fully franked dividend of $500,000 to B Holdings for the year ended 30 June 2014.^[34] T-Documents, T126, p1155,

56. In the year ended 30 June 2015, B Holdings declared a full franked dividend, paid as follows:

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(a) To T K Investments Pty Ltd a dividend of $280,000 with a $120,000 franking credit;
(b) To the trustee of Mr D's superannuation fund, a dividend of $70,000 with a $30,000 franking credit.

57. The Applicant provided financial statements, agreements, legal advice and audit reports to the tax agents for his superannuation fund. The Applicant's evidence (taken by the Tribunal to be in the nature of submission) was that the "tax agents were fully informed about the circumstances of the acquisition on 9 September 2011 and restructure on 8 September 2011."^[35] Affidavit of DKD at [58].

58. The D Fund's financial statements were also reviewed by two SMSF auditors.^[36] Affidavit of DKD at [59].

59. By letter dated 22 July 2016, the ATO notified the Applicant that it was reviewing the income tax and superannuation regulatory obligations of the Applicant and associated entities for the income years ended 30 June 2011 to 30 June 2015. The review was expected to be completed by 13 January 2016.

60. By letter dated 15 April 2016, the Applicant was advised that the risk review had been escalated to an audit. The audit was expected to be finalised in December 2016.

61. The ATO issued its audit position paper on 22 December 2016.

62. By letter dated 12 April 2017, the Applicant was advised that an adjustment would be made to the taxable income of the D Fund for the 2013 to 2015 years of income.

63. By letter dated 13 April 2017, the Applicant was provided with a positon paper setting out the Commissioner's views on penalties and the remission of shortfall interest charge. The Commissioner granted some remission of shortfall interest due to delays in completing the audit.

64. Notices of amended assessments were issued to the Applicant on 19 April 2017.

65. By notice of objection dated 16 June 2017, the Applicant objected to the amended assessments.

66. Notices of assessment of shortfall penalty were issued on 21 July 2017.

67. By notice of objection dated 7 September 2017, the Applicant objected to the notices of assessment of shortfall penalty.

68. By notice dated 19 February 2018, the Commissioner disallowed the Applicant's objections.

Advice from Law Firm

69. The 28 March 2012 letter of advice from the law firm set out the instructions on which it was based.^[37] Affidavit of DKD-39, pp 561 – 568. Those instructions included:

(a) In or about September 2011, the Fund purchased 200 ordinary shares in [B Holdings] for $200 within about a week of the registration of [B Holdings] and at a time when [B Holdings] had no assets other than initial subscription money paid by TK Investments Pty Ltd (co-shareholder) ($800) for all of the shares in [B Holdings].
(b) By reason of the investment, the Fund holds 20% of the ordinary shares in [B Holdings] which in turn holds 100% of all of the shares in the four remaining companies in the B group (trading companies).
(c) Mr D is the chief officer for the B group and the company secretary for each of the companies in the B group.
(d) Mr D is not an employee of [B Holdings] and does not receive a fee for acting as company secretary or chief financial officer or any other remuneration but the accounting practice of which Mr D is a partner receives fees for acting as accountants to the B group. No superannuation contributions are paid by [B Holdings] or any other company in the B group to the Fund.
(e) After the trading companies were registered they purchased businesses from third parties with money provided by loans made by the co-shareholder to either [B Holdings] or the trading companies.
(f) The Fund has a number of investments in addition to the Shares.
(g) The fund is in pension phase.

70. The 28 March 2012 letter of advice also records that the law firm understood that the acquisition of the shares was made for the purposes of investment, that is for the purpose of gaining interest, income, profits or gains within the meaning of the word "invest" in section 10 of the SIS Act.

71.

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The law firm advised that a trustee of a regulated superannuation fund was prohibited from intentionally acquiring an asset from a related party. On the basis, it was important [B Holdings] was not a related party of the fund as that term was defined in the SIS Act. Mr D and [B Holdings] were not related parties because neither [B Holdings] nor the trading subsidiaries make superannuation contributions to the D Fund. The advice also assumed that no arrangement had been entered into between [B Holdings] (or any of the Trading companies) and Mr D.

72. By letter dated 12 April 2012, the law firm provided further advice.^[38] Affidavit of DKD-40, pp 570 – 572. One of the issues addressed concerned the following question:

What if I do become an employee of any of the B group of companies and therefore there are superannuation contributions made. However these will be made into another fund (new fund) as the existing fund is in a pension phase.^[39] Affidavit of DKD-40, p 571.

73. The answer given was that [B Holdings] would not become a related party of the Fund by reason of becoming an employer sponsor of another SMSF of which Mr D was a member.

74. A critical element in the advice of 28 March 2012 was that Mr D could not be an employee of [B Holdings] or its subsidiaries at the time of the acquisition of the shares in [B Holdings].

Nature of the business of BE Pty Ltd

75. The business of BE Pty Ltd relied largely upon the Department of Defence for its work. The Department requested its approved suppliers to quote for each job and the Department would select the supplier by sending the successful supplier a purchase order. There was no fixed or exclusive contract between any of the B group entities and the Department of Defence. Mr K had contacts in the Department having worked for the Australian Navy for a long period and Mr K was a key employee in the BE Pty Ltd business.

76. Both Mr D and Mr K purported to give evidence about the value of the business:

(a) Mr D's evidence was that the business was not worth more than book value. Without Mr K there was no business, there was nothing forcing Mr K to stay with the business and history suggested he would have no hesitation in leaving if he became unhappy. Mr D's evidence was that, even with Mr K on board, there was no likelihood that there would be any business generated from the Department of Defence or anyone else.^[40] Affidavit of DKD at [22].
(b) Mr K's evidence was also that he considered that the business value was nil in September 2011. His evidence was that "the business had the same amount of assets as liabilities it owed and no guaranteed prospects of generating any future cash flows. I had no (and would not have agreed to any) contractual ties with the business. I could walk away whenever I wanted."^[41] Affidavit of Mr K at [30]. His oral evidence was that he had every intention of continuing on in the business in September 2011.
(c) Mr K's evidence was that in September 2011, the business had no "standing offers, effectively no contracts and no forecast work" and that even once a purchase order was received it could be cancelled. His oral evidence was that at September 2011 although there were no standing offers or longstanding contracts, there were existing purchase orders on foot and "we were sort of -yes, we always had, you know, contracts running, hopefully". The work was however "very sporadic". Mr K's oral evidence was also that the B business had a reputation with the Department of Defence as being specialists in the landing system and they preferred to have a particular employee of BE Pty Ltd as the technician to fix the system if anything went wrong. The evidence was that whilst the Department of Defence was the principal client of the business, it was not the only client. In particular, the customers of the business included other contractors who were engaged by the Department of Defence and some minor clients outside of the defence industry. The Tribunal accepts this oral evidence of

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Mr K.
(d) Mr K considered that the "20% interest was more of a risk to [Mr D] than to me as he indirectly assumed responsibility for 20% of the liabilities" and that the "business also had substantial debts owed to me, further heightening the risk to [Mr D]".^[42] Affidavit of Mr K at [30] and [37]. The statement reflects a misunderstanding of the effect of the incorporation of B Holdings. In the absence of a guarantee from Mr D, Mr D had no responsibility for the liabilities of B Holdings or any of its subsidiaries. Absent the provision of a shareholder guarantee, Mr D's risk was limited to the loss of his subscription capital.
(e) Mr K's oral evidence was that BE Pty Ltd had no value because it was not an entity he could have sold. He came up with the nominal valuation "through research and talking to a solicitor and a couple of business associates".^[43] Transcript at p 45. Mr D drew a conclusion that because there was no certainty of continuity of business with the Department of Defence, no goodwill or other intangible value existed in the business. The terms of the shareholder agreement, as set out below, suggest that the business did have goodwill that was to be protected by the terms of a restraint of trade.

77. The Tribunal does not consider the evidence of Mr K or Mr D in respect of the value to be assigned to the business or its goodwill to be of any weight. In so far as Mr D purports to give a statement of the value of the business, it is no more than a statement of opinion of an interested party. The Tribunal accepts that Mr K was a key element to the success of the business and that absent his involvement, the business would likely struggle. But the terms of the shareholders agreement do not support a finding that Mr K could walk away from the business whenever he wanted. Mr K's statements are not supported by the terms of the 2013 shareholder agreement referred to below. The 2013 shareholder agreement was said to represent the arrangements as they existed in 2011. The terms of the shareholders agreement support the conclusion that Mr K was committed to the business being conducted by BE Pty Ltd. He effectively had a pre-emptive right to acquire the shares in B Holdings if he was in serious disagreement with any other shareholder. Furthermore, Mr K's statements as to the risks to Mr D appear to be based on a misunderstanding of the financial exposure of a shareholder in a limited liability company.

78. There were also difficulties with Mr K's evidence as to the value of a licence BE Pty Ltd had with a Canadian parts manufacturer. On the one hand, F Pty Ltd's ownership of such a licence was the reason given by Mr K for the formation of a 50/50 partnership between FDO Pty Ltd and BR Pty Ltd. On the other hand, Mr K's evidence was the non-exclusive licence when held by BE Pty Ltd was of "no value" because it could be terminated by the Canadian manufacturer at short notice and BE Pty Ltd did not pay anything for the licence.

79. There were two agreements in evidence before the Tribunal - a licence agreement between the Canadian manufacturer and BE (no specific entity identified) dated 2009 and an agency agreement between the Canadian manufacturer and BE Pty Ltd dated 17 June 2011. Whilst the licence agreement did not provide for the payment of a licence fee to the Canadian Manufacturer, the agency agreement provided for the Canadian manufacturer to pay commission to BE Pty Ltd for products sold by the manufacturer in Australia and New Zealand "as a result of direct efforts by the Agent, based on a percentage of the net selling price received by the Canadian manufacturer." The agreement dated 17 June 2011 between BE Pty Ltd and the Canadian manufacturer was thus a source of potential income for BE Pty Ltd. In the absence of independent valuation evidence to the contrary, Mr K's statement that the agreement was of "no value" is not accepted.

80. The Tribunal was provided with the following summary financial history:

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Entity Name	30 June 2008	30 June 2009	30 June 2010	30 June 2011
	Turnover	Profit	Turnover	Profit	Turnover	Profit	Turnover	Profit
P DT E DT T K DT and M DT (1 July 2007 to 10 March 2008)	443,126	234,155
FDO Pty Ltd and BR Trust (11 March 2008 to 30 June 2008)	657,139	273,173
FDO Pty Ltd and BR Trust (1 July 2008 to 30 April 2009)			4,286,223	699,291
P DT E DT T K DT and M DT (1 May 2009 to 30 June 2009)			395,983	377,126
P DT E DT T K DT and M DT (1 July 2009 to 30 June 2010)					2,398,158	474,838
P DT E DT T K DT and M DT (1 July 2010 to 15 October 2010)							1,269,898	726,350
TK Discretionary Trust (16 October 2010 to 30 June 2011)							4,576,341	1,936,193
	1,100,265	507,328	4,682,206	1,076,417	2,398,158	474,838	5,846,239	2,662,543

Legislation

81. Section 295-545 of the 1997 Act provides that the taxable income of a complying superannuation fund is split into a non-arm's length component and a low tax component. Whilst a concessional rate of tax applies to the low tax component (which in the case of a complying superannuation fund in a pension phase is nil), the non-arm's length component is taxed at the highest marginal rate. The non-arm's length component for an income year is the entity's "non-arm's length income" ( NALI ) for that year less any deductions to the extent that they are attributable to that income.

82. Non-arm's length income is defined in s 295-550 which relevantly provides:

1 An amount of * ordinary income or * statutory income is non-arm's length income of a * complying superannuation fund, a * complying approved deposit fund or a * pooled superannuation trust (other than an amount to which subsection (2) applies or an amount * derived by the entity in the capacity of beneficiary of a trust) if:

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(a) it is derived from a * scheme the parties to which were not dealing with each other at * arm's length in relation to the scheme; and

(b) that amount is more than the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm's length in relation to the scheme.

2 An amount of * ordinary income or * statutory income is also non-arm's length income of the entity if it is:

(a) a * dividend paid to the entity by a * private company; or

(b) ordinary income or statutory income that is reasonably attributable to such a dividend;

unless the amount is consistent with an * arm's length dealing.

3 In deciding whether an amount is consistent with an * arm's length dealing under subsection (2), have regard to:

(a) the value of * shares in the company that are assets of the entity; and

(b) the cost to the entity of the shares on which the * dividend was paid; and

(c) the rate of that dividend; and

(d) whether the company has paid a dividend on other shares in the company and, if so, the rate of that dividend; and

(e) whether the company has issued any shares to the entity in satisfaction of a dividend paid by the company (or part of it) and, if so, the circumstances of the issue; and

(f) any other relevant matters.

Section 295-550(2)

83. The primary issue in this case is whether the dividends paid to Applicant by B Holdings, and the associated franking credits, were not amounts of non-arm's length income because the amount of the dividends was consistent with an arm's length dealing. Both parties accepted that the franking credits attached to the dividend paid to the Applicant were amounts of statutory income that were reasonably attributable to the dividend paid to the Applicant for the purposes of s 295-550(2)(b) of the 1997 Act. Neither party disputed that B Holdings Pty Ltd was a "private company" as defined in s 995-1 of the 1997 Act. A private company is defined to be a company that is not a "public company". A "public company" is defined in s 103A of the Income Tax Assessment Act 1936 ( ITAA 1936 ) to mean, relevantly, in the case of a company carried on for profit, a company, shares in which are listed on an official stock exchange.

Applicant's submissions

84. The Applicant submitted that:

(a) The amount of the dividend paid to the Applicant will be consistent with an arm's length dealing if the private company (in this case B Holdings) and the Applicant dealt at arm's length "in terms of payment of the dividend and franking of the dividend". This will be the case if the private company and the Applicant are in fact at arm's length.
(b) Parties at arm's length will have dealt with each other at arm's length if they act independently for their own best interests unless one submits to the will of the other or they collude to achieve a particular result.
(c) The subject of the inquiry is the dividend paid by B Holdings to the Applicant. Here, the amount of the dividend was consistent with an arm's length dealing because the shares held in the private company (B Holdings) were all fully paid ordinary shares of a single class and the dividends and the attached franking credits were paid in accordance with the shareholding percentages. The amount of the dividends and franking credits received by the Applicant were consistent with the Applicant's 20% interest in B Holdings. and was therefore consistent with an arm's length dealing.
(d) The dealings between the K and D parties were at arm's length. They were unrelated families and they acted in their own interests. Any income subsequently generated by BE Pty Ltd that is distributed through to the Applicant in accordance with the Applicant's fixed shareholding interest should "likewise remain consistent with an arm's length dealing".
(e) The factors in s 295-550(3) of the 1997 Act are directed at determining if the relative quantum of dividends paid by the

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private company to the complying superannuation fund relative to the dividends paid to other shareholders are consistent with an arm's length dealing, rather than with the absolute quantum of the dividends paid. The factors are directed at determining if "differential dividend payments" paid by the private company that were "favourable to the complying superannuation fund" are nonetheless consistent with an arm's length dealing or "are oppressive to other shareholders where interests are discretionary or partly paid, but not otherwise".
(f) The comparison of "cost" and "value" is a comparison to be made with other shares in the company. Factor (a), when read with factors (c) and (d), considers whether the difference in dividend rates between the shares are explicable on the basis that they are consistent with their relative values. Factor (b), when read with factors (c) and (d), considers whether the difference in dividend rates between the shares are explicable on the basis that they are consistent with their relative costs.

85. For the reasons that follow, the Applicant's contention that the s 295-550(2) is concerned only with the relative amount of the dividend paid on the B Holding shares held by the Applicant as compared to the amount of the dividend paid on the other shares in B Holdings is not accepted. The proposition is not consistent with the decision in
Darrelen Pty Ltd v FCT (2010) 183 FCR 237. Section 295-500(2) and the factors in s 295-550(3) are not limited to a consideration of whether the dividends paid on the shares held by the complying superannuation fund were paid at the same rate as dividends paid on other shares or whether differences in the rate of the dividend are explicable by differences in the terms of the shares, their costs or their market value, but can extend to a consideration of whether the amount of the dividend paid to the complying superannuation fund was sourced in a non-arm's length transaction. In other words, the section is as concerned with the explanation for the absolute quantum of the dividend paid to the complying superannuation fund as it is with the relative quantum of the dividend paid.

86. The subject of the decision in Darrelen was former s 273(2) in Part IX of the Income Tax Assessment Act 1936, the predecessor to s 295-550. The policy underlying s 273(2) in the 1936 Act was to deny the concessional taxation of income where the income had been unduly diverted from taxpayers not enjoying that concessional basis. See too:
Allen (Trustee), in the matter of Allen's Asphalt Staff Superannuation Fund v Commissioner of Taxation [2011] FCAFC 118 at [60]-[61].

87. The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Bill 2006 enacting s 295-550 stated that the rewritten provisions of Division 295 did not change the law as it currently operated under Part IX of the ITAA 1936 (at [3.14]) except that in Part IX of the ITAA 1936, the Commissioner had a discretion to decide that it was unreasonable that a dividend from a private company be treated as 'special income' (or 'non-arm's length income') where it was derived by a complying superannuation fund. This was replaced with an objective test that the amount be consistent with an 'arm's length dealing' [Schedule 1, item 1, subsections 295-545(2) and (3)].

88. The purpose of the section did not change with the enactment of s 295-550 nor was there any change to the factors to which regard was to be had. The replacement of the Commissioner's discretion with an objective test could affect the scope of an appeal to the Federal Court (as noted recently in
Harding v FCT [2019] FCAFC 29 at [21]-[22]) but did not otherwise affect the construction of the factors in s 295-545(3). The decision in Darrelen thus remains authoritative.

89. The Full Court in Darrelen held that dividends paid by a private company were "special" (or now, non-arm's length) income where the Fund had in an earlier year of income acquired its four shares in that company for a cost far less than their market value, notwithstanding that, in the year of income, the same dividend amount was paid on all 100 shares.

90. Based on the reasoning of the Full Court in Darrelen:

(a) Section 295-550(2) is not limited to an inquiry about the circumstances surrounding

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the payment of the dividend in question, but can extend to an inquiry about the circumstances surrounding the acquisition of the shares on which the dividend was paid. On the facts in Darrelen, in determining whether the amount of the dividend was consistent with an arm's length dealing, it was relevant to consider the circumstances in which the shares were acquired and whether the trustee of the Fund and the transferor or issuer of the shares were dealing with each other at arm's length with each other in relation to the Funds acquisition of the shares.
(b) It was not sufficient for a taxpayer to merely show that dividends are paid on all shares in the company, including those owned by the Fund, on a pari passu basis without preference of any kind, in order for the exception to s 295-550(2) to be engaged.
(c) Regard must be had all the factors in s 295-550(3), not just some of them. None of the matters in paras (a) to (f) inclusive is given precedence over the others. The reference to 'value' in s 295-550(3)(a) is a reference to market value. It is relevant to consider the market value of the shares at the time the shares were acquired by the Fund and thereafter.

91. Under s 295-550(2), a dividend paid to a complying superannuation fund by a private company is non-arm's length income of the complying superannuation fund unless the exception for an amount consistent with an arm's length dealing is engaged.

92. For the exception to be engaged, it is neither necessary nor sufficient that the entity (being the complying superannuation fund) and the private company be at arm's length. The exception requires "the amount" of the dividend to be consistent with an arm's length dealing. The amount may be consistent with an arm's length dealing irrespective of whether the private company and the complying superannuation fund are in fact at arm's length. Parties at arm's length may not necessarily deal with each other at arm's length.

93. The focus of s 295-550(2) is whether the amount of the dividend paid by the private company was consistent with an arm's length dealing. The meaning of the term arm's length is found in s 995-1. The definition requires that in determining whether parties deal at arm's length, consider any connection between them and other relevant circumstance. Parties may be connected otherwise than by being related to each other by blood or by marriage.

94. As the Full Court held in Darrelen, whether an amount is consistent with an arm's length dealing is to be determined having regard to all the factors in s 295-550. None has precedence over the other. It is therefore necessary to examine each of the factors in s 295-550(3).

95. Paragraph (a) requires regard to be had to "the value of shares in the company that are assets of the entity." As held by the Full Court in Darrelen, the reference to "value" is a reference to market value.

96. The relevant shares are the shares that are the assets of the complying superannuation fund. The shares that were the assets of the Applicant were the shares in B Holdings. Those shares were acquired by the Applicant at a time when B Holdings had no assets. The market value of the B Holdings shares at the time of their acquisition was no more than the nominal subscription price paid by the Applicant. If the inquiry were to end at that point, this this factor would not point against the amount of the dividend being consistent with an arm's length dealing.

97. However, the B Holdings shares were acquired by the Applicant on the premise that, and only because, B Holdings was to become the holder of the shares in BE Pty Ltd. B Holdings became the holder of the BE Pty Ltd shares the following day, by reason of a related party dealing between B Holdings and BE Pty Ltd. The Applicant acquired its shares in B Holdings as part of an arrangement whereby the value of the B Holdings shares was intended to reflect the value of the BE Pty Ltd shares. The arrangement was intended to confer a benefit on the Applicant because the Mr D was to become an employee of the B group. In the circumstances, the value of the shares in B Holdings cannot be entirely divorced from the value of the BE Pty Ltd shares and the conditions under which the BE Pty Ltd shares were acquired by B Holdings. If, by reason of the conditions of the acquisition of the BE Pty

ATC 8304

Ltd shares by B Holdings, there was a transfer of value to the B Holdings shares, this factor could point against the amount of the dividend being consistent with an arm's length dealing. The value of the shares in BE Pty Ltd is considered below.

98. Paragraph (b) requires regard to be had to the cost to the entity of the shares on which the dividend was paid. Because the shares in B Holdings were acquired by the Applicant prior to B Holdings acquiring any assets, the shares in B Holdings were acquired by the Applicant at their market value. Of itself, this factor does not point against the amount of the dividend not being consistent with an arm's length dealing but for reasons set out below, having regard to the totality of the circumstances, that is not the end of the inquiry.

99. Paragraph (c) requires regard to be had to the rate of the dividend. The dividends paid to the Applicant were paid on a pari passu basis reflecting the proportionate shareholding of the Applicant in B Holdings. Of itself, this factor does not suggest that the amount of the dividend was not consistent with an arm's length dealing.

100. Paragraph (d) requires regard to be had to whether the company has paid a dividend on other shares in the company and if so the rate of the dividend. B Holdings paid dividends on all its shares at the same rate. Of itself, this factor does not point against the amount of the dividend not being consistent with an arm's length dealing.

101. Paragraph (e) requires consideration of whether the company has issued any shares to the entity in satisfaction of a dividend. This factor is not applicable to the present case.

102. Paragraph (f) directs attention to "any other relevant matters". Having regard to the purpose of the section, it is relevant to have regard to the underlying transaction which gave rise to the relevant dividends and to the circumstances in which the complying superannuation fund acquired the shares on which the dividend is paid.

103. Here, although the dividends paid to the Applicant were paid by B Holdings, the source of those dividends were dividends paid to B Holdings by its subsidiary, BE Pty Ltd. B Holdings acquired the shares in BE Pty Ltd from Mr K, the controlling shareholder of B Holdings and BE Pty Ltd. That acquisition was not a transaction between arm's length parties. Nor is the Tribunal satisfied that it was a transaction which represented an arm's length dealing because it is not satisfied that the price paid by B Holdings for the shares in BE Pty Ltd constituted an arm's length or market price. The price paid by B Holdings for the BE Pty Ltd shares was determined on the basis of Mr K's view of the business having no goodwill or a value in excess of the net assets acquired by BE Pty Ltd from the trustee of his family trust, in circumstances where Mr K's own evidence was that he did not manage the business' finances and "was out of my depth on financial matters."^[44] Affidavit of Mr K at [26].

104. An arm's length or market price is "what a willing and knowledgeable, but not anxious purchaser would pay a willing and knowledgeable, but not anxious vendor for the assets in question":
International Petroleum Investment Company v Independent Public Business Corporation of Papua New Guinea [2015] NSWCA 363 at [2] (per Bathurst CJ), citing
Spencer and Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.

105. The High Court identified the matters to be taken into account in valuing shares in
Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd (Clifford's Case) [1947] HCA 10; (1947) 74 CLR 358 at 362:

"The main items to be taken into account in estimating the value of shares are the earning power of the company and the value of the capital assets in which the shareholder's money is invested. But a prudent purchaser does not buy shares in a company which is a going concern with a view to winding it up, so that the more important item is the determination of the probable profit which the company may be reasonably expected to make in the future, because dividends can only be paid out of profits and a prudent purchaser would be interested mainly in the future dividends which he could reasonably expect to receive on his investment. Further, a prudent purchaser would reasonably expect to receive dividends which

ATC 8305
would be commensurate with the risk, so that the more speculative the class of business in which the company is engaged the greater the rate of dividend he would reasonably require. In order to estimate the probable future profits of a company it is necessary to examine its past history, particularly the accounts of those years which are most likely to afford a guide for this purpose. In order to estimate the rate of dividend that a prudent purchaser could reasonably require on his investment it is necessary to examine the nature of the business and the risks involved and to seek the evidence of business men, particularly members of the stock exchange and experienced accountants, who can testify to the appropriate rate from the prices paid for shares in companies carrying on a similar business listed on the stock exchange or from private sales of shares in such companies or from their general business experience."

106. The Applicant's submissions concerning the value to be ascribed to the shares in BE Pty Ltd did not directly address the expected future profitability of the business. Instead, the submissions focussed on the net asset value of the business and relied upon the following transactions in support of the contention that the value of the shares was nominal and there was no value to be attributed to goodwill or other intangibles as at September 2011:

(a) The "sale" of 50% of the business to F Pty Ltd
(b) The subsequent termination of the partnership with F Pty Ltd
(c) Acquisition of the equity of the other three founder partners of Mr K

107. Each of these transactions was said by Mr D to be "at arm's length".

108. An arm's length relationship is that of strangers, or parties who are unaffected by existing mutual duties, liabilities, obligations, cross-ownership of assets, or identity of interests which might: (a) enable either party to influence or control the other; or (b) induce either party to serve that common interest in such a way as to modify the terms on which strangers would deal. The concept of an arm's length relationship is distinct from that of an arm's length dealing or transaction. Related parties may nevertheless engage in an arm's length dealing. They may engage in the disinterested bargaining characteristic of strangers, applying independent separate wills. The circumstances of the impugned transaction may be such that, despite the parties' connection or common interest, the interposition of some independent process (such as the sale of shares on the stock exchange) ensures that the transaction itself is arm's length, in the sense that it could equally have been concluded by unrelated parties, consulting their own self-interest and uninfluenced by any particular association or interest in common:
ACI Operations Pty Ltd v Berri Ltd (2005) 15 VR 312 at [223] -[226].

109. As the Full Court held in
FCT v Axa Asia Pacific Holdings Ltd (2010) 189 FCR 204, an assessment of whether parties were dealing at arm's length is a question of fact. What is required is that "parties to a transaction have acted severally and independently in forming their bargain":
Granby v FCT [1995] FCA 1217; 129 ALR 503 at 507. Put another way, it requires consideration of how "unrelated parties, each acting in his or her own best interest, would carry out a particular transaction":
Australian Trade Commission v WA Meat Exports Pty Ltd (1987) 75 ALR 287 at 291.

110. The Tribunal accepts that independent valuation evidence is not required in every case where the issue in question is the market value of property. Thus for example independent valuation evidence was not required to determine the market value of property the subject of a sale between independent parties:
FCT v Miley (2017) 106 ATR 779; [2017] FCA 1396. But that is not this case. For the reasons that follow, the Tribunal is not satisfied on the evidence before it of each of the transactions relied upon by the Applicant that those transactions demonstrate that the market value of the BE Pty Ltd shares as at September 2011 was nominal.

111. The formation of the partnership with FDO Pty Ltd occurred in March 2008, over three years before the transfer of the shares in BE Pty Ltd. The transaction appears to have occurred within 18 months of the establishment

ATC 8306

of the BE Pty Ltd business and was undertaken for the purpose of eliminating competition.

112. Mr D had no direct involvement in the negotiation of the transaction between F Pty Ltd and the BR partnership that resulted in the formation of the BE Partnership. No contemporaneous documentation was provided to the Tribunal in respect of the formation of the partnership between FDO Pty Ltd and the BR partners. Based on the financial statements for the year ended 30 June 2008, the formation of the partnership with FDO Pty Ltd did not appear to involve a sale of 50% of the net assets of the BR trust to the new partnership but rather was premised on each of the BR trust and FDO Pty Ltd contributing net assets.

113. The value at which the BR partners were willing to transfer the business to the new partnership reflected the fact that the BR partners were obtaining the benefit of the net assets to be contributed by FDO Pty Ltd and the benefit of eliminating a source of competition for their business. Because of the time at which the partnership with FDO Pty Ltd was formed and the circumstances of its formation, the Tribunal does not consider this transaction to be reliable evidence of the market value of the shares in BE Pty Ltd in September 2011.

114. The business carried on by BE Pty Ltd was the business formerly carried on by the BE partnership. The statement of financial position for the partnership between FDO Pty Ltd and the BR trust for the year ended 30 June 2008 discloses goodwill of the new partnership with a cost of $11,681. The partners profit distribution summary for the year ended 30 June 2008 disclose a capital contribution from FDO Pty Ltd of about $123,000 and a capital contribution from BR Trust of $214,000. The book value of the capital contributed by FDO Pty Ltd for its 50% share was thus less than the book value of the capital contributed by the BR partners, suggesting that FDO Pty Ltd was regarded as contributing value that was not reflected in the book value of the net assets of the partnership. These facts do not support a conclusion that there was no value to be attributed to goodwill or other intangibles.

115. As to the subsequent termination of the partnership with FDO Pty Ltd in April 2009, the terms of the unexecuted agreement providing for the transfer by FDO Pty Ltd of its interest in the partnership to BR Pty Ltd suggest that the terms on which the partnership was determined were related to the terms on which the partnership had been formed. The terms of the termination were thus the product of a pre-existing relationship between parties who had undertaken mutual duties and obligations, rather than between unconnected parties. In the absence of evidence of the terms of the partnership with FDO Pty Ltd, it cannot be concluded that the termination of the partnership was an arm's length dealing unaffected by the pre-existing relationship between the partners. Furthermore, the termination of that partnership occurred 2 years prior to the acquisition by B Holdings of the shares in BE Pty Ltd.

116. The acquisition by TK Investments Pty Ltd of the interests of the other partners in the BR Pty Ltd partnership in October 2010 also occurred in the context of a pre-existing partnership relationship in which the parties owed mutual liabilities and had obligations to each other. The terms of that partnership agreement were not in evidence. The buy-out occurred in circumstances where the relationship between the parties had broken down, Mr K had tendered his resignation and the retiring partners had realised that that if Mr K left, the business would fail. Mr K's evidence was that the payments made to the other partners reflected the efforts the other partners had put in to the business and one partner was paid more because it was difficult to negotiate with him given his mental illness. Based on the limited material before the Tribunal, because of their pre-existing relationship and the circumstances of the sale by the exiting partners, in the absence of independent valuation evidence, it is difficult to conclude that the termination payments reflected the expected future earnings of the business as assessed by independent parties, willing but not anxious to transact and unaffected by a pre-existing relationship.

117. Based on its trading history, the Tribunal finds that the business of BE Pty Ltd was one that produced "lumpy" cashflows and profits rather than a steady, consistent stream of earnings. The value of the shares in a company conducting such a business is a question for a

ATC 8307

valuer. The Tribunal accepts that the BE business was sporadic and its future profitability was never certain. The Tribunal does not accept that the only cash flows that are relevant in determining the value of a business are those that are certain or guaranteed. As the High Court stated in Clifford's Case, one looks to the probable profit which the company may be reasonably expected to make in the future.

118. The Tribunal has also had regard to the terms of the Shareholder's Agreement. Although the terms of the Agreement limit the amount that the Applicant was able to realise on a sale of the B Holdings shares by providing Mr K with the right to acquire those shares at their issue price plus any after tax distributed profits, the terms of the Agreement did not limit the right of the shareholder to enjoy future dividends. As the High Court stated in Clifford's Case, the prudent purchaser would be interested mainly in the future dividends which they could reasonably expect to receive on their investment.

119. In this case, the probable profit which BE Pty Ltd may be reasonably expected to make in the future needed to be determined in light of all the facts. The evidence was that at September 2011, Mr K intended to remain with the business. The business had a history of generating net cashflows, it was continuing as a going concern and whilst future cash flows may have been uncertain, it cannot be said that there was no expectation of any future cash flows at all in September 2011. It may be that the risk associated with future cash flows impacts the value of those cash flows but it does not follow that their value is necessarily nil or negligible.

120. Accordingly, the Tribunal does not accept that the Applicant has demonstrated that the market value of the shares in BE Pty Ltd which were acquired by B Holdings in September 2011 were worth no more than a nominal amount.

121. In considering "any other relevant matters', the Tribunal has had regard to the following:

(a) The fact that the dividends paid to the Applicant by B Holdings were entirely sourced from dividends paid to B Holdings by BE Pty Ltd.
(b) B Holding's shareholding in BE Pty Ltd had been acquired in a transaction between related parties who did not deal with each other at arm's length.
(c) Although the Applicant was not a party to the acquisition of the BE Pty Ltd shares by B Holdings, the acquisition of those shares occurred as part of an arrangement by which a benefit was intended to be conferred on Mr D, the member of the Applicant. The subscription for shares by Applicant in B Holdings was a matter was related to Mr D's engagement as an employee of the B group. The closely held nature of the B group, the terms of the shareholder agreement (which was said to reflect the terms agreed as at September 2011 and which emphasises the fundamental importance of the identity of the shareholders and their controllers and the reference to "must employ" in clause 12(g)) and Mr K's evidence of the reasons for allotting shares to Mr D's superannuation fund support a conclusion that subscription for shares by the Applicant in B Holdings was part of the same arrangement whereby Mr D became an employee of the B group. No other employee of the B Group was offered shares in B Holdings and the interest to be provided to the Applicant was not insignificant, representing 20% of the B group. The purpose of enabling the Applicant to acquire shares in Holdings was to provide Mr D with a benefit to incentivise him as an employee of BE Pty Ltd by enabling Mr D to enjoy an economic interest in the BE Pty Ltd business. That purpose could only be effected because B Holdings was to acquire the shares in BE Pty Ltd. The acquisition by the Applicant of the shares in B Holdings cannot be divorced from the acquisition by Holdings of the shares in BE Pty Ltd.

122. The Tribunal considers that the factor in s 295-550(3)(f) points to the amount of the dividends paid by B Holdings not being consistent with an arm's length dealing.

123. Overall, the Tribunal concludes that, on the facts in this case, the source of the dividends paid by B Holdings in the years in question cannot be divorced from a non-arm's length transaction being B Holdings acquisition

ATC 8308

of the shares in BE Pty Ltd where the purpose and effect of the arrangement was to divert income from Mr K (the previous owner of the BE Pty Ltd shares) to Mr D's superannuation fund, as part of an arrangement to confer a benefit on Mr D. The intent of the section is engaged because if the shares in BE Pty Ltd had been sold to B Holdings at their market value, the amount in fact paid by B Holdings would not have resulted in it acquiring all of the shares in BE Pty Ltd. The dividends on the BE Pty Ltd shares would have largely continued to accrue to the transferor, a non-concessional taxpayer. Similarly, had B Holdings acquired the shares in BE Pty Ltd prior to the Applicant acquiring the shares in B Holdings, the Applicant's acquisition of the shares in BE Pty Ltd for nominal value would not have been an acquisition for market value. So understood, by reason of a non-arm's length transaction on the acquisition of BE Pty Ltd shares by B Holdings, income has been diverted from a non-concessional taxpayer to the Applicant, through the Applicant's shareholding in B Holdings. Accordingly, in our view, the dividends paid by B Holdings to the Applicant are non-arm's length income.

Section 295-550(1)

124. The Commissioner contended that in the alternative, the dividends and franking credits derived by the Applicant were non-arm's length income by reason of s 295-550(1) of the 1997 Act. Given the conclusions reached in relation to s 295-550(2), the Tribunal does not consider it necessary to address s 295-550(1) but observes that it is difficult to conceive of circumstances where a dividend paid by a private company to a complying superannuation fund would not be non-arm's length income under s 295-550(2) yet constitute non-arm's length income for the purposes of s 295-550(1). Section 295-550(2) specifically addresses the situation in which a dividend is paid to a complying superannuation fund by a private company and unlike s 295-550(1) adopts the prima facie position that such income is "non-arm's length income" unless the amount of the dividend is consistent with an arm's length dealing, based on the factors set out in s 295-550(3). It is difficult to conceive of a situation in which a taxpayer is able to demonstrate that the prima facie assumption in s 295-550(2) is rebutted but at the same time fails to demonstrate that the amount of the dividend is not non-arm's length income for the purposes of s 295-550(1), which involves no prima facie assumption.

Contribution

125. The Applicant advanced an alternative contention that if the BE Pty Ltd shares had a market value on 9 September 2011 in excess of the nominal value ascribed to them, the transfer of those shares to B Holdings was made for the purpose of enhancing the value of the Applicant's 20% shareholding in B Holdings as an inducement to secure Mr D's services. Accordingly, the transfer of the BE shares was a "contribution" to the Applicant as the provider of superannuation to Mr D, relying upon Tax Ruling TR 2010/1 (in particular paragraphs 4,18,20 and 26 to 32 of that ruling). Contributions to a complying superannuation fund are required to be included in the assessable income of the fund. According to the Applicant, it followed that the subsequent dividends could not be non-arm's length income.

126. Based on the Tribunal's reasoning, the effect of the transfer of the BE Pty Ltd shares to B Holdings was to enhance the value of B Holdings, and as a consequence had the effect of enhancing the value of the Applicant's interest in B Holdings. The transfer of the BE Pty Ltd shares to B Holdings at nominal value shifted value from Mr K (as the previous owner of all of the BE Pty Ltd shares) to the an asset of the D Fund. In that sense, and based on the views expressed in TR 2010/1 there was a "contribution" by Mr K to the Applicant.

127. But it does not follow from anything in TR 2010/1 that the dividends subsequently paid on those shares were precluded from being non-arm's length income. TR 2010/1 does not address the application of s 295-550(2) and the Applicant cannot be taken to have relied upon the ruling in relation to the dividends paid to it by B Holdings. Section 295-550 does not contain an exclusion for dividends attributable to shares that were contributed to a complying superannuation fund. Furthermore, it is noted that the non-arm's length income provisions in subdivision 295-H of the 1997 Act concern the rate of taxation to be applied to

ATC 8309

the taxable income of the D Fund. Their operation is subsequent to the operation of those provisions of the Act which determine whether an amount is included in assessable income. Identifying an amount as statutory income does not address the issue of whether that amount of statutory income is non-arm's length income.

Penalty

128. The Commissioner assessed the Applicant for administrative penalties under Schedule 1 to the Taxation Administration Act 1953 (TAA ) on the basis that the Applicant had made a false or misleading statement which resulted in a shortfall amount, resulting from recklessness by the Applicant or its agent as to the operation of the law.

129. Although not entirely clear, the Tribunal understood that Applicant to have submitted that:

(a) the Applicant was not liable to a penalty because the Applicant or its agent took reasonable care (s 284-75(5)) and adopted a position that was reasonably arguable;
(b) alternatively, the Applicant was not liable to a penalty because it engaged a registered tax agent, gave the tax agent all relevant information and the tax agent neither intentionally disregarded the law nor acted recklessly (s 284-75(6));
(c) alternatively, any penalty should be remitted under s 284-225(1) by 20% because of the Applicant's "full and prompt" co-operation with ATO investigations and perfect compliance history.

130. The Applicant's objection did not reference s 298-20. Nor was any reference made to that section in the Applicant's SFIC or written submissions. Given s 14ZZK of the TAA, the Tribunal does not consider it appropriate to consider the application of s 298-20 in this case.

Base Penalty Amount

131. Under s 284-75 of Schedule 1 to the TAA, a taxpayer is liable to an administrative penalty if a taxpayer makes a statement to the Commissioner and the statement is false or misleading in a material particular. The Tribunal has concluded that the Applicant made a false or misleading statement by failing to include the dividends it received from B Holdings as non-arm's length income in the calculation of its taxable income.

132. The amount of the penalty is worked out under sections 284-85 and 284-90 by reference to the shortfall amount. Section 284-80 defines shortfall amount. Relevantly, it provides (in item 1 of the table):

You have a shortfall amount in this situation:

A tax-related liability of yours for an accounting period worked out on the basis of the statement is less than it would be if the statement were not false and misleading.

By failing to include the dividends it received from B Holdings as non-arm's length income in the calculation of its taxable income, the Applicant had a shortfall amount.

133. The Commissioner imposed penalties at a rate of 50% on the basis that the shortfall amount resulted from recklessness by the Applicant as to the operation of a taxation law. In this context, recklessness connotes "gross carelessness" to the extent of indifference to or disregard of a risk that would be foreseeable to a reasonable person. It requires knowledge of a real risk that material may be incorrect or gross indifference as to whether the material is true and correct:
BBK(Bris) Pty Ltd v FCT (2001) ATC 4111 at 4129. The test examines the actual conduct of the taxpayer, in contrast to the purely objective test applied in determining whether a matter is reasonably arguable.

134. The Tribunal is not satisfied that the conduct of the Applicant or its agents was reckless. The Applicant (through Mr D) adopted a view that the market value of the shares in BE Pty Ltd was no more than nominal based on net assets of the company and the fact that its business was dependent on a key individual. The view adopted was reasoned, albeit reasoning that the Tribunal does not accept as correct.

135. The Applicant engaged qualified tax agents to prepare its returns. The evidence before the Tribunal included "Tax Reconciliation Reports" for the D Superannuation Fund ^[45] Affidavit of DKD-29 (30 June 2013); DKD 30 (30 June 2014) for the 2013 and 2014 years of income which identified a line item for Non-Arm's Length Income. Although the amount assigned to that line item was

ATC 8310

nil, its presence indicates that the tax agents preparing the return were aware of the existence of the non-arm's length income provisions. Given Mr D's professional qualifications and experience, the Tribunal is not satisfied that the tax agents engaged by Mr D were reckless in preparing returns consistent with the views adopted by Mr D. The Tribunal is not satisfied that the Applicant and its agents were reckless as to the operation of the law.

136. The Tribunal however does not consider that the Applicant and its agents took reasonable care in preparing its return, in the absence of obtaining an independent valuation of the shares acquired by B Holdings in BE Pty Ltd. Although the price paid by the Applicant for the shares it acquired in B Holdings reflected their market value at the time of acquisition, the Applicant (through Mr D) was aware that the dividends received by it in each of the years of income were sourced from BE Pty Ltd and that B Holdings had acquired the shares in BE Pty Ltd from Mr K, a related party. The Applicant's tax agents ought to have similarly been aware. The Tribunal considers that reasonable care by the Applicant or its agents would have involved obtaining an independent valuation of the shares acquired by B Holdings in BE Pty Ltd.

137. The Applicant obtained advice from a reputable law firm on the regulatory consequences of its investment in B Holdings in circumstances where the advice was premised on an understanding that "after all the trading companies were registered they purchased businesses from third parties with money provided by loans made by the co-shareholder". The Applicant ought to have been aware that this understanding was not complete. The primary income generating business of the group was the business that had been conducted by BE Pty Ltd. The shares in BE Pty Ltd were not acquired from a third party but from the controlling shareholder. The business acquired by BE Pty Ltd was not acquired from an unrelated third party but had been acquired from the trustee of the co-shareholder's family trust. Given the assumptions on which it was based, the Tribunal is not satisfied that the advice from the law firm of itself demonstrates that the Applicant took reasonable care in the preparation of its tax return.

138. The fund's financial reports were audited by two SMSF auditors for compliance with accounting standards and for compliance with the requirements of the SIS Act and regulations, but the Tribunal was not provided with details of the information provided to the auditors by the Applicant in respect of the background to the acquisition of the shares by B Holdings in BE Pty Ltd. The fact that the financial reports were audited does not demonstrate that the Applicant and its agents took reasonable care in the preparation of its tax return.

139. Because the Tribunal has concluded that the Applicant and its agent failed to take reasonable care, s 284-75(5) of the TAA does not apply. Furthermore, whether or not the Applicant had a reasonably arguable position does not affect the imposition of a penalty for a failure to take reasonable care, although it is a matter to be considered in exercising the power to remit under s 298-20 of the TAA.

140. The Applicant engaged registered tax agents in the preparation of its income tax returns. This raises the application of sections 284-75(6) and (7) of the TAA which provide:

6 You are not liable to an administrative penalty under subsection (1) or (4) if:

(a) you engage a * registered tax agent or BAS agent; and

(b) you give the registered tax agent or BAS agent all relevant taxation information; and

(c) the registered tax agent or BAS agent makes the statement; and

(d) the false or misleading nature of the statement did not result from:

(i) intentional disregard by the registered tax agent or BAS agent of a * taxation law (other than the * Excise Acts); or

(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).

7 If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6)(b).

141. The Applicant's tax agents were firms that had been involved in the business of the B group. The Applicant's 2013 income

ATC 8311

tax return was prepared by Mr P, a partner from the same firm as Mr D and which had acted as advisor and tax agent for the BR partnership, prepared the tax returns and financial statements for the BE Partnership and whose firm address was the registered office of B Holdings in 2011. The 2014 and 2015 income tax returns were prepared by a Mr R from Simmons Partners, a firm with no apparent prior relationship to Mr D, but who had prepared the tax returns for Mr K and BE Pty Ltd.

142. The safe harbour provided by s 284-75 of the TAA depends upon the Applicant demonstrating that it provided the tax agent all relevant taxation information. Given the identity of the tax agents and the fact that, as firms, they had been intimately involved in the B group, and the fact that the Applicant provided the tax agents with supplementary records including the advice it had received from the law firm, the Tribunal concludes that the tax agents were provided with all relevant taxation information. Accordingly, the Tribunal concludes that the safe harbour provision applies.

143. Given the conclusions of the Tribunal it is not strictly necessary to consider the application of s 284-225(1) of the TAA. However, the Tribunal observes that section 284-225(1) does not adopt a test of co-operation but a test of voluntary disclosure in the following terms:

284-225 Reduction of base penalty amount if you voluntarily tell the Commissioner

1 The * base penalty amount for your * shortfall amount or * scheme shortfall amount, for part of it or for your false or misleading statement is reduced by 20% if:

(a) the Commissioner tells you that an examination is to be made of your affairs relating to a * taxation law for a relevant period; and

(b) after that time, you voluntarily tell the Commissioner, in the * approved form, about the shortfall, the part of it or the false or misleading nature of the statement; and

(c) telling the Commissioner can reasonably be estimated to have saved the Commissioner a significant amount of time or significant resources in the examination.

2 The * base penalty amount for your * shortfall amount or * scheme shortfall amount, for part of it or for your false or misleading statement is reduced under subsection (3), (4) or (4A) if you voluntarily tell the Commissioner, in the * approved form, about the shortfall amount, the part of it or the false or misleading nature of the statement before:

(a) the day the Commissioner tells you that an examination is to be made of your affairs relating to a * taxation law for a relevant period; or

(b) if the Commissioner makes a public statement requesting entities to make a voluntary disclosure by a particular earlier day about a * scheme or transaction that applies to your affairs--that earlier day.

3 The * base penalty amount for your * shortfall amount, or for part of it, is:

(a) reduced by 80% if the shortfall amount, or the part of it, is $1,000 or more; or

(b) reduced to nil if the shortfall amount, or the part of it, is less than $1,000.

4 The * base penalty amount for your * scheme shortfall amount, or for part of it, is reduced by 80%.

4A The * base penalty amount for your false or misleading statement that does not result in you having a * shortfall amount is reduced to nil.

5 If you voluntarily tell the Commissioner, in the * approved form, about your * shortfall amount or * scheme shortfall amount, part of it or the false or misleading nature of the statement after the Commissioner tells you that an examination is to be conducted of your affairs relating to a * taxation law for a relevant period, the Commissioner may treat you as having done so before being told about the examination if the Commissioner considers it appropriate to do so in the circumstances.

144. The Tribunal was not directed to the existence of an approved form. However, there is no evidence before the Tribunal that supports a conclusion that the Applicant voluntarily told the Commissioner about the shortfall, part of it or the false or misleading nature of the statement either prior to or after being informed

ATC 8312

that an examination of the Applicant's affairs was to commence. Whilst the Applicant's agent responded to the Commissioner's questions when put, the Applicant did not volunteer information unprompted, in advance of being requested and there is no basis for concluding that any disclosure by the taxpayer could reasonably be expected to have saved the Commissioner a significant amount of time or resources. The Tribunal does not consider either s 284-225(1), (2) or (5) of the TAA to apply.

Shortfall Interest

145. Although the Applicant also submitted that any shortfall interest should be further remitted, the submission was not developed either the Applicant's written submissions. On the basis of the material before it, the Commissioner having already made an allowance for delays occurring during the audit, the Tribunal does not consider there is a basis for a further reduction in the shortfall interest charge.

Footnotes

^[1] DKD-32.
^[2] DKD-35 at pp 502-517.
^[3] Clause 3 of the agreements referred to at footnote [2] above.
^[4] Affidavit of DKD-15, pp 219 – 221.
^[5] See Affidavit of DKD at [14].
^[6] See Affidavit of DKD at [18].
^[7] Section 37 T-Documents (“ T-Documents ”), T118.
^[8] Affidavit of DKD at [19].
^[9] Affidavit of Mr K at [28].
^[10] Affidavit of Mr K at [29].
^[11] Affidavit of Mr K at [26].
^[12] Affidavit of DKD at [21].
^[13] Affidavit of DKD-39, pp 561-568.
^[14] Affidavit of DKD at [24].
^[15] Affidavit of DKD at ]25].
^[16] Transcript at p 52.
^[17] Affidavit of DKD at [33].
^[18] T-Documents, T100 p 977.
^[19] T-Documents, T100 p 978.
^[20] This included BE Pty Ltd and BRE Pty Ltd
^[21] T-Documents, T107 pp 1013-1015.
^[22] Affidavit of DKD at [29].
^[23] Affidavit of DKD-37
^[24] Affidavit of DKD at [39].
^[25] Affidavit of DKD at [40].
^[26] Supplementary T-Documents, ST12 pp 38-40.
^[27] Supplementary T-Documents, ST14 pp 44-46.
^[28] Supplementary T-Documents, ST13 pp 41-43.
^[29] T-Documents, T40, pp 513 – 525.
^[30] T-Documents, T39, p509.
^[31] T-Documents, T42, p542.
^[32] T-Documents, T39, pp 506-507.
^[33] T-Documents, T39, p505.
^[34] T-Documents, T126, p1155,
^[35] Affidavit of DKD at [58].
^[36] Affidavit of DKD at [59].
^[37] Affidavit of DKD-39, pp 561 – 568.
^[38] Affidavit of DKD-40, pp 570 – 572.
^[39] Affidavit of DKD-40, p 571.
^[40] Affidavit of DKD at [22].
^[41] Affidavit of Mr K at [30].
^[42] Affidavit of Mr K at [30] and [37].
^[43] Transcript at p 45.
^[44] Affidavit of Mr K at [26].
^[45] Affidavit of DKD-29 (30 June 2013); DKD 30 (30 June 2014)

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