This judgment was the subject of a Special leave application.

Carter & Ors v FC of T

Judges:
Jagot J
Davies J
Thawley J

Court:
Federal Court of Australia, Full Court

MEDIA NEUTRAL CITATION: [2020] FCAFC 150

Judgment date: 10 September 2020

Jagot, Davies and Thawley JJ

OVERVIEW

1. On 23 December 2019, the Administrative Appeals Tribunal affirmed objection decisions of the Commissioner of Taxation relating to various assessments issued to the Trustee of the Whitby Trust and four of Mr Allen Caratti's adult children: Christina Caratti, Alisha Caratti, Nicole Caratti and Natalie Carter. The applicants each seek an extension of time in which to "appeal" to this Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ( AAT Act ). The Commissioner did not object to an extension of time being granted. The Court was satisfied it was appropriate to grant an extension, the appeal being arguable, there being no prejudice to the Commissioner and there being an adequate explanation for delay.

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The Tribunal's decision disposed of seven applications for review under Pt IVC of the Taxation Administration Act 1953 (Cth) ( TAA 1953 ). The applications were heard together, with evidence in each review being evidence in the other. The issues were defined by two sets of Statements of Facts, Issues and Contentions ( SFIC ), one set for the Trust and one set for all of the children.

3. The Trust challenged as excessive assessments in respect of the 2011 to 2013 years. In respect of these years, the Trust was issued assessments relating to default distributions made to Mr Caratti's fifth child, who was a minor at the time of the assessments, and was issued further assessments after Christina, Alisha, Nicole and Natalie had disclaimed ( First Disclaimers ) default distributions made to each of them by operation of cl 3.7 of the Whitby Trust Deed . The Commissioner accepted that the First Disclaimers were effective and withdrew assessments which had been issued to them. The Trust has not appealed the Tribunal's decision.

4. Christina, Alisha, Nicole and Natalie each challenged as excessive assessments for the 2014 year. In respect of the 2014 year, the children had again sought to disclaim default distributions made to them ( Second Disclaimers ). On this occasion, however, the Commissioner did not accept that the disclaimers were effective and did not withdraw the relevant assessments. On learning of the Commissioner's position, the children subsequently executed a further deeds of disclaimer seeking to disclaim the default distributions made to them in the 2014 year ( Third Disclaimers ).

5. The children's challenge to the 2014 assessments rested on two main contentions: first, that 100% of the income had been validly appointed to the Bernguard Trust such that they could not take in default under cl 3.7; and, secondly, that even if there were no valid appointment of income to the Bernguard Trust, they had each validly disclaimed the relevant distribution either by the Second Disclaimers or by the Third Disclaimers.

6. The Tribunal did not accept either contention and affirmed the objection decisions. Only Alisha, Nicole and Natalie have appealed; Christina has not.

7. There were three issues in the appeal. The first issue was whether there was a valid distribution of 100% of the Whitby Trust income to the Bernguard Trust in the year ended 30 June 2014. If there was, then the assessments issued to Alisha, Nicole and Natalie in respect of that year under s 97 of the Income Tax Assessment Act 1936 (Cth) ( ITAA 1936 ) were necessarily excessive because none of them could have received a distribution of net income as a default beneficiary. This issue was engaged by grounds 1 to 4 of the Draft Notice of Appeal .

8. The second issue concerns the effectiveness of the Second and Third Disclaimers:

(1) As mentioned, the First Disclaimers were entered into by each of Christina, Alisha, Nicole and Natalie in the context of assessments issued to them in relation to the 2011 to 2013 years. The Commissioner accepted that these disclaimers were effective to disclaim default distributions in those years. Having accepted the disclaimers as effective, and retrospective in operation, the Commissioner issued assessments to the Trust. The Trust has not appealed and the effectiveness of the First Disclaimers is not directly in issue in the appeal.
(2) The Second Disclaimers were entered into by each of Christina, Alisha, Nicole and Natalie in relation to the 2014 year. The Commissioner did not accept that these disclaimers were effective. The terms of the First Disclaimers and the Second Disclaimers were relevantly equivalent and the Commissioner's position was accordingly inconsistent. The Commissioner contended before the Tribunal that he was wrong to have accepted that the First Disclaimers were effective and retrospective in operation. The Second Disclaimers were said to be ineffective because they only purported to disclaim in relation to the 2014 year, rather than to disclaim any entitlement at all in any income year as a default beneficiary - cf:
Commissioner of Taxation v Ramsden [2005] FCAFC 39; (2005) 58 ATR 485 at [42].

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(3) The Third Disclaimers were made as a response to the position adopted by the Commissioner that the Second Disclaimers were ineffective. The Third Disclaimers were in broader terms than the First and Second Disclaimers. The Tribunal concluded that, whilst the Third Disclaimer may have been wide enough to disclaim the gift: (a) there was an implicit acceptance of the gift through a failure to disclaim it in its entirety at an earlier time; and (b) the Third Disclaimers were too late coming nearly 30 months after the applicants had knowledge of the gift.

9. In the context of the second issue, the applicants also contended that the Tribunal's construction of the disclaimers was impaired by its ability to assess the applicants' evidence by reason of the Tribunal's unexplained delay and its erroneous imputation to the applicants of the knowledge of the applicants' lawyer in executing the disclaimers. The second issue is engaged by grounds 5 to 11 of the Notice of Appeal.

10. The third issue only arises if the applicants succeed in establishing that there were effective disclaimers in relation to the 2014 year. The Commissioner contended that any disclaimer was irrelevant because it could not operate retrospectively. Section 97 of the ITAA 1936 operated to include a share in net income of the trust in the assessable income of a default beneficiary upon present entitlement and a subsequent disclaimer could have no relevant effect. In this regard, the Commissioner contended that the first instance decision in Ramsden was incorrect, noting that he had not challenged that aspect of the decision when he appealed Ramsden. This issue is engaged by the Commissioner's Notice of Contention.

11. For the reasons which follow:

(1) The Tribunal did nor err in concluding that there was no distribution to the Bernguard Trust in the 2014 year. It follows that, there being no other contended appointment of income, a default distribution was made by the Trust on 30 June 2014 to each of Christina, Alisha, Nicole and Natalie by operation of cl 3.7 of the Trust Deed.
(2) The Third Disclaimers were effective to disclaim the default distributions in the 2014 year. The Tribunal erred in concluding that the Third Disclaimers were ineffective because Christina, Alisha, Nicole and Natalie had implicitly accepted the gift or were too late to disclaim.
(3) The Third Disclaimers were not irrelevant for the purposes of s 97(1) of the ITAA 1936.

12. It follows that the appeal should be allowed, the decision of the Tribunal affirming the decisions under review should be set aside and in lieu thereof the objections of each of the applicants to the assessments for the 2014 income year should be allowed.

13. The facts are further addressed to the extent necessary in dealing with the three issues.

FIRST ISSUE

14. There are two components to the first issue.

(1) First, the Tribunal was not persuaded that the purported meeting of 30 June 2014 occurred or that there was a resolution made to distribute 100% of the Trust income to the Bernguard Trust ( Bernguard Resolution ):
The Trustee for the Whitby Trust and Commissioner of Taxation [2019] AATA 5637 at [103] (hereafter referred to as " T "). By grounds 1 and 2 of the Notice of Appeal, the applicants assert the Tribunal should have accepted that there was a meeting held and that the Bernguard Resolution was made.
(2) Secondly, the Tribunal concluded that, even if the minutes could be accepted as a record of a properly constituted meeting and a properly passed resolution, the validity of the purported distribution could not be accepted because the Trust Deed required the consent of the Guardian (Mr Caratti and Alisha Caratti acting jointly) of which there was no evidence: T[104] and [105]. The appellant attacked this conclusion by grounds 3 and 4 of the Notice of Appeal.

The meeting of 30 June 2014 and the Bernguard Resolution

15. In order to understand the reasons for the Tribunal's lack of persuasion

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that the Bernguard Resolution was made, it is necessary to understand the context. On 27 October 2015, assessments were issued for the income year ended 30 June 2014 to Christina, Natalie, Alisha and Nicole. On 20 December 2015, they each lodged objections to their respective assessments. The objections were in a substantively similar form. The principal ground of objection was that "the Taxpayer [had] disclaimed her interest in the Trust for the Relevant Period". There was no suggestion that the Trust income had been distributed pursuant to an exercise of the Trustee's discretion such that the children could not take in default. The Bernguard Resolution was not mentioned.

16. The first mention of a purported decision of the Trustee to appoint the Trust income in the 2014 year appeared in the children's joint SFIC dated 6 April 2017. In that document, the applicants asserted:

37 On 30 June 2014, the Trustee held a meeting, in its capacity as trustee for the Trust, and distributed any and all net income of the Trust for the year ended 30 June 2014 to Bernguard Developments Pty Ltd as trustee for the Bernguard Trust (" Bernguard ").

…

39 On or about 31 October 2016, the Trustee certified the distributions referred to at paragraphs 34 to 37 above pursuant to the power contained at clause 3.4 of the Trust Deed.

17. The reference in paragraph 39 of the SFIC to the Trustee certifying the distribution is a reference to cl 3.4 of the Trust Deed which provided that "a certificate by the Trustee as to any determination [made under cl 3.4] shall be prima facie evidence that the determination was made as and when set out in the certificate".

18. In his SFIC, the Commissioner stated:

2 The respondent relies on s 14ZZK of the Taxation Administration Act 1953 ( TAA 1953 ) and save for any facts expressly agreed or admitted in writing, puts the applicants to proof of all facts upon which they seek to rely to establish that the assessments the subject of this proceeding are excessive.

…

5 Unless expressly admitted, the respondent puts the applicants to proof of all facts set out in the applicants' Statement of Facts, Issues and Contentions (SFIC) dated 6 April 2017.

…

29 Pursuant to s 14ZZK of the TAA the burden of proving that each of the assessments is excessive and what the correct assessment should have been rests with the applicant.

30 The respondent contends that each of the assessments issued to the applicants for the 2014 income year is not excessive.

…

34 Each applicant is limited in her application to the grounds stated in her taxation objection unless the Tribunal otherwise orders under s 14ZZK(a) of the TAA 1953. As no applicant has made an application to extend her grounds of objection, the contentions made by paragraphs 37, 38, 39 and 42 of the applicants' SFIC, not being matters raised in each applicant's objection, cannot now be raised.

19. The significance of paragraph 34 of the Commissioner's SFIC is as follows. The Commissioner did not contend in his SFIC that the Bernguard Resolution had not been made. This was because the applicants were not entitled to raise, without leave, the contention that such a resolution had been made and the Commissioner's position was that such leave should not be granted. Leave was required because the existence of the Bernguard Resolution had not been a ground of objection - see: s 14ZZK(a) of the TAA 1953

20. At the hearing before the Tribunal, the Commissioner withdrew his objection to the applicants raising the contention. However, the Commissioner did not thereby accept that the Bernguard Resolution had in fact been made. As explained in more detail below, the context was such that it was obvious that the Commissioner's position was that there had been no meeting on 30 June 2014 and that the resolution had not in fact been made.

21. Mr Caratti's evidence as to the 30 June 2014 meeting and the Bernguard

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Resolution was limited. His evidence was filed in the reviews concerning the children and took the form of a witness statement attaching an affidavit which he had sworn on 31 October 2016 in proceedings commenced that day in the Supreme Court of Western Australia. In that affidavit he stated at [21]:

On 30 June 2014, the Trustee held a meeting, in its capacity as trustee for the Whitby Trust, and distributed any and all net income of the Whitby Trust for the year ended 30 June 2011 to the seventh defendant Bernguard Developments Pty Ltd as trustee for the Bernguard Trust …

22. Whilst this paragraph states a conclusion that a meeting was held by the Trustee on 30 June 2014 at which the Bernguard Resolution was made, Mr Caratti did not give evidence as to who was present at the asserted meeting or what was said at the meeting. Annexed to his affidavit were different versions of the "minutes of meeting". One version recorded that the meeting was held at 12 pm and lasted 10 minutes. Another version recorded that the meeting was held at 2 pm and lasted 15 minutes. The minutes did not indicate whether they were minutes of a meeting of a directors' or general meeting. The minutes did not record who was present at the meeting. Mr Caratti's signature appears on both minutes, as Chairperson. The constitution of the Trustee, Whitby Land Company Pty Ltd, provided that directors' meetings required a quorum of two: r 66. So too did general meetings of members: r 39(4).

23. Christina was also a director of Whitby Land. She did not give evidence that she, or anyone, attended the asserted meeting. Although Mr Caratti was not directly cross-examined about the meeting or directly challenged about it occurring, he gave evidence in cross-examination that the meeting did not take place on 30 June 2014 but would have taken place before that day.

24. Another document annexed to Mr Caratti's affidavit was a certificate of the Trustee purportedly issued pursuant to cl 3.4 of the Trust Deed. It was dated 31 October 2016. As mentioned, this was the day that the Whitby Trust commenced proceedings in the Supreme Court of Western Australia and very shortly before the Whitby Trust, Christina, Alisha, Natalie and Nicole lodged their applications for review in the Tribunal (11 November 2016). The certificate stated:

Pursuant to clause 3.4 of the Whitby Trust Deed dated 27 July 2005, the Trustee certifies that on 30 June 2014 100% of the net income of the Trust for the year ended 30 June 2014 was paid, applied or otherwise dealt with irrevocably for the benefit of the following Beneficiary:

• The trustee of the Bernguard Trust.

25. The applicants' attack on the Tribunal's lack of satisfaction as to the occurrence of the meeting and the making of the Bernguard Resolution involved two principal components. First, it was contended that Mr Caratti ought to have been cross-examined about the meeting on 30 June 2014 if it was to be put that the meeting did not occur. This was asserted to have been required by the rule in
Browne v Dunn (1893) 6 R 67. Secondly, it was contended that the Tribunal failed to apply s 1305 of the Corporations Act 2001 (Cth) ( Corporations Act ) so as to accept the minutes of the meeting as prima facie evidence of the matters stated in them.

26. The rule in Browne v Dunn can be seen as a rule of procedural fairness to a party:
Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 101 (Tamberlin J). It may be inappropriate, for example, to submit that a witness's version of events should not be accepted if the witness has not been challenged on his or her version of events in cross-examination and there has been no earlier notice that the version of events is disputed. Where, however, it is clear from the course of proceedings that the version of events is challenged, and recognising that each case turns on its facts, strict compliance with the rule is not always necessary.

27. In the circumstances of this case, procedural fairness to the applicants did not require Mr Caratti to be cross-examined about the asserted meeting on 30 June 2014. The Commissioner had put the applicants to proof of all of the matters asserted in their joint SFIC.

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The applicants had first asserted the existence of the resolution in their joint SFIC rather than during the course of objections. It must have been obvious to the applicants that the Commissioner did not accept that the 30 June 2014 meeting occurred or that the Bernguard Resolution had been made. The Commissioner challenged equivalent meetings and resolutions in the context of the 2011 to 2013 years. Whilst these meetings and resolutions related to the Trustee's proceedings rather than the applicants' proceedings, all of the proceedings were heard together with evidence in once being evidence in the other, and the Trustee and the applicants were represented by the same solicitors. The applicants put on evidence from Mr Caratti in their case.

28. The rule in Browne v Dunn can also be seen as one of fairness to a witness. Fairness to Mr Caratti (as opposed to procedural fairness to the applicants) did not require that Mr Caratti be specifically challenged about the asserted meeting before submitting that the meeting had not occurred. Mr Caratti was a director of Whitby Land and must have known, for the reasons given above, that the Commissioner did not accept that the meeting had occurred. To the extent that a finding that the meeting did not occur reflected on Mr Caratti's credibility, Mr Caratti was on notice that his credibility was in issue. As the Tribunal acknowledged at [37], the Commissioner directly challenged Mr Caratti's credibility, having submitted that Mr Caratti was "a person who [was] willing to fabricate documents if it suits his purposes … forge signatures … instruct solicitors to make false assertions … give false names … [and] give false addresses to the police". It was repeatedly put to Mr Caratti that he had engaged in dishonest conduct, including that he had altered company documents and forged other peoples' signatures and committed criminal offences involving dishonesty. Mr Caratti admitted some of these matters.

29. In any event, notwithstanding the evidence which had been given, the Tribunal did not make an adverse credibility finding. It was submitted for the applicants that there was a tension between, on the one hand, the Tribunal's statement that it could resolve the issues without resort to credit findings and, on the other, its conclusion that the meeting of 30 June 2014 did not occur. There is, however, no real tension. The Tribunal stated at [37], [38] and [103]:

[37] The Commissioner sought to discredit Mr Caratti by reference to other occasions when he had either been found to have acted or admitted he had acted dishonestly and pressed the Tribunal not to accept Mr Caratti's evidence.

[38] Noting that just because a person may have been less than honest on past occasions does not mean that they are always less than honest, in the present matter it is not necessary to make a finding as to whether Mr Caratti is to be believed or not. This matter can be resolved without recourse to those sorts of conclusions on the basis of the evidence led and the absence of evidence led that is called for in the circumstances of the present applications.

[103] … In light of the evidence led, in the setting in which it was led, the Tribunal cannot conclude that there were meetings purporting to distribute the income of the Whitby Trust for any of the 2001 through 2014 Years.

30. The Tribunal's observation at [38], read with its conclusion at [103], indicates that the Tribunal did not have an actual persuasion that the meeting occurred because the evidence which was led was insufficient when assessed together with the absence of evidence which was in the capacity of the applicants to lead but which was not led. The Tribunal was left without an actual persuasion that the meeting had occurred and its lack of persuasion existed without the necessity to make a positive adverse credibility finding.

31. As mentioned, the applicants' second line of attack was that the Tribunal failed to apply s 1305 of the Corporations Act to the minutes of meeting of 30 June 2014. Before the Tribunal, the applicants had relied upon s 251A of the Corporations Act. Reliance on s 251A was abandoned in oral submissions on this appeal. Although it does not appear that s 1305 of the Corporations Act was relied upon by the applicants before the Tribunal, the Tribunal stated that it took into account "presumptions afforded to documents signed by chairs of meetings", which was probably a reference

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to s 251A and may also have been a reference to s 1305: T[103].

32. Section 1305 of the Corporations Act provides:

Admissibility of books in evidence

(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.

(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).

33. The word "books" is defined by s 9 of the Corporations Act to include "financial records", which in turn is defined by s 9 in the following way:

financial records includes:

(a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and

(b) documents of prime entry; and

(c) working papers and other documents needed to explain:

(i) the methods by which financial statements are made up; and

(ii) adjustments to be made in preparing financial statements.

34. Section 286 of the Corporations Act sets out what financial records a company must keep (note excluded):

(1) A company, registered scheme or disclosing entity must keep written financial records that:

(a) correctly record and explain its transactions and financial position and performance; and

(b) would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

35. Assuming that the minutes of meeting fell within the scope of s 1305 of the Corporations Act, the minutes constitute "prima facie evidence" of any matter stated in them. To state the obvious, the minutes are not evidence of matters not stated in them. For example, the minutes of meeting are not prima facie evidence that a quorum was present or that the resolution was validly passed. (Other provisions, such as s 1322(2) of the Corporations Act, might cure irregularities, but that is a different point.)

36. Section 1305 was addressed in some detail by Austin J in
Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 236 FLR 1 at [395] to [398]:

[395] The defendants referred to the definition of the words "prima facie" in the Macquarie Dictionary (2nd revised ed), as meaning "at first appearance; at first view, before investigation". They compared that with the definition of "prima facie evidence" as "evidence sufficient to establish a fact, or to raise a presumption of fact, unless rebutted". They submitted that the former meaning is the one intended in s 1305, and that the words "prima facie" are not used in the sense that, absent some satisfactory contrary evidence on the part of the defendants, the matters said to be recorded in the books have been conclusively proved.

[396] In my view the true meaning of the words "prima facie" lies between the alternatives identified in the defendants' submission. The statement in s 1305(1) that the company's books are prima facie evidence of a matter stated or recorded in them does more than merely to convey that they are the starting point to proof or a "first view". All other things being equal, the fact that a matter is stated in a book kept by a company is sufficient to prove that matter in civil proceedings. That does not reverse the onus of proof in the proceedings in any general way, but it means that the tendering of the book is evidence of the matter recorded in it, and that matter will be thereby proven unless other evidence convinces the tribunal of fact to the contrary, on the balance of probabilities.

[397] Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books

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in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact (Malek HM, Auburn J, Bagshaw R, Phipson on Evidence (16th ed, Sweet and Maxwell, 2005), at [7-17]).

[398] In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.

37. Justice Austin referred to the explanatory memorandum to the Companies Bill 1981 (Cth), which introduced the provision, and said:

[400] Therefore s 1305(1) allows a company's books to be introduced into evidence as they are, without any "authenticating" evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is "recorded" in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.

38. The Tribunal referred to Mr Caratti's failure to give evidence of who attended the purported meetings and the absence of any evidence from Christina (a director of Whitby Land) as to meetings of the Trustee: [98] and [99]. The Tribunal stated at [101] and [102]:

[101] Against a backdrop of the Commissioner not being satisfied that meetings had occurred as alleged, this absence of evidence is telling. The objection decision [concerning the Whitby Trust] plainly put the Applicant on notice that the Commissioner did not accept that the documents bearing the date of 30 June in each year had the effect they purported to have, and one of the reasons the Commissioner had formed the view that he had was that the documents did not detail who was in attendance at the meetings. In his objection decision, the Commissioner said:

The Minutes dated 30 June 2011, 30 June 2012, 30 June 2013, and 5 August 2014 do not record the names of the attendees or proxies present. Therefore we are unable to confirm whether a quorum was present. As such we were unable to verily the validity of the resolutions provided solely on the basis of the recorded Minutes.

[102] In his SFIC, the Commissioner said, among other things:

The applicant contends in its SFIC that the assessments are excessive as the applicant "validly distributed the net distributable income of the Trust for each of the relevant income years". The respondent puts the applicant to proof of the facts supporting those contentions. In particular, to the extent that the applicant contends that the purported distributions constituted a valid determination to pay, apply or set aside all or part of the net income of the Trust within the meaning of clause 3.1 of the Trust Deed, the applicant is put to proof on that issue.

39. As noted earlier, the reason the Commissioner had not made the equivalent statements in his objection decision concerning the applicants and the 30 June 2014 minutes was that the existence of those minutes had not

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been asserted at the time of the applicants' objections. The existence of the 30 June 2014 minutes was only first asserted, in relation to the assessments which were the subject of these proceedings, after the proceedings had been commenced in the Tribunal. That fact was a circumstance capable of affecting the prima facie position established by s 1305, assuming s 1305 applied.

40. Having referred to the matters it referred to from [98] to [102], the Tribunal stated at [103]:

In these circumstances, any presumptions afforded to documents signed by chairs of meetings do not assist. In light of the evidence led, in the setting in which it was led, the Tribunal cannot conclude that there were meetings purporting to distribute the income of the Whitby Trust for any of the 2001 through 2014 Years.

41. The circumstances referred to by the Tribunal amply justified its lack of persuasion that a meeting had in fact occurred. It is doubtful that the Tribunal was bound to apply s 1305 of the Corporations Act particularly in circumstances where the issue was not directly raised - cf: s 33(1)(c) of the AAT Act. That question does not need to be decided because, if the Tribunal did not apply s 1305, it applied reasoning which was not shown to have any different effect.

42. It might also be observed that, although the Tribunal did not refer to it, the fact that there were two different versions of the 30 June 2014 minutes also gives rise to significant doubt of a kind mentioned in Rich at [398]. Both sets of minutes could not have been correct, prima facie or otherwise.

43. The applicants have not established that the Tribunal erred in not being satisfied that the 30 June 2014 meeting occurred or that the Bernguard Resolution was in fact made.

The Guardian's consent

44. It follows from the conclusion just reached, that it is not necessary to decide whether the Tribunal erred in concluding that there was no valid distribution because the terms of the Trust Deed were not observed in that the consent of the Guardian to the distribution was not obtained - see: T[104] and following. Nevertheless, the issue is addressed briefly.

45. The powers conferred upon a Guardian may be fiduciary or personal, and where a Guardian holds numerous powers, may be a mix of both:
Blenkinsop v Herbert [2017] WASCA 87; 51 WAR 264 at [120]-[121], Tucker L, Le Poidevin N, Brightwell J, Lewin on Trusts (20th ed, Sweet & Maxwell, 2020) at [28-048]. Whether the powers are fiduciary or personal or a mix of both is a matter of construction of the trust deed: Blenkinsop at [105]-[111], [138]. Where the Guardian is a beneficiary, this tends against a construction that the position of Guardian is a fiduciary one: Blenkinsop at [129].

46. Alisha Caratti was named, jointly with Mr Caratti, as Guardian in the Trust Deed. She first became aware of the Trust in April 2014 and signed the First Disclaimer on 4 June 2014, after having received legal advice. It was accepted before the Tribunal that, at least before April 2014, Alisha Caratti had not acted as Guardian and did not know that the Trust Deed named her as Guardian jointly with Mr Caratti.

47. The applicants submitted that, because Alisha Caratti had never accepted the office of Guardian, she was not in office as Guardian and did not assume the role and, therefore, that her consent to the distribution was not required. The applicants relied on the decisions of Ginnane J in
Orlanski v Spiegel [2015] VSC 662 ( Orlanski (No 1) ) and
Orlanski v Spiegel (No 2) [2015] VSC 709 ( Orlanski (No 2) ). In Orlanski (No 1) and Orlanski (No 2), the relevant Trust Deed required the consent of three joint Guardians for the trustee validly to exercise certain powers. One of the joint Guardians, Ms Eschell, had not provided consent to the relevant, or any, exercise of power. In Orlanski (No 1) at [87] to [94], Ginnane J was not prepared to conclude that Ms Eschell was not in office at the relevant time, but provided the parties an opportunity to provide further evidence on the issue.

48. Ms Eschell subsequently gave evidence by affidavit that she had never become a Guardian: Orlanski (No 2) at [2]. The parties did not dispute this evidence. Ginnane J was satisfied that Ms Eschell had never assumed the position of Guardian and held that her consent was

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not required for the exercise of trust powers to be valid: at [2]. Although it is not entirely clear, having regard to the reasoning in Orlanski (No 1) at [87] to [90], his Honour should be taken as so concluding on the basis that the office was fiduciary (although Ms Eschell was a beneficiary) and Ms Eschell had not accepted the office and, accordingly, was not in office. Ginnane J stated in Orlanski (No 1) at [89] and [90]:

Lewin on Trusts states under the heading 'Acceptance and Disclaimer of Trusts':

Right to disclaim

No one can be compelled to accept a trust. Thus the intended trustee can disclaim the office as a whole at any time before acceptance, but not afterwards.

And Lewin on Trusts further states, that disclaimer can occur by deed, by writing under hand, by a defence, at the bar of the court or by an oral refusal to act. A disclaimer can also be implied from conduct inconsistent with acceptance. I apply those principles to the office of Guardian under a trust.

(Citations omitted.)

49. The office of Guardian might not, however, be fiduciary. In the context of "protectors", a term synonymous with Guardians (Blenkinsop at [70]), Mark Hubbard in Protectors of Trusts (Oxford University Press, 2013) states at 33:

It is likely to be necessary to ensure that a protector has accepted appointment, both from a practical point of view but also, at least where the protector is to hold fiduciary powers, to give legal effect to the appointment …

A protector appointed and given a personal power may be in a different position. A donee of such powers may well hold them unless he can and does release them. If this is so, no positive act of acceptance by such a protector may be required, although the trust instrument may (and probably should) make provision for acceptance as a condition of appointment, and hence as a condition to the donation of the powers in question.

50. On the proper construction of the Whitby Trust Deed:

(1) the powers of the Guardian of present relevance were personal, not fiduciary; and
(2) the position of Guardian was personal not fiduciary.

This is because Mr Caratti and Alisha Caratti, as joint Guardians, could have acted in their personal interests in the exercise of many powers, including in deciding whether to give consent to a proposed distribution where that consent was required.

51. The better view is that Alisha Caratti was validly appointed as joint Guardian and held this personal office despite not knowing of the appointment. She could have disclaimed the appointment upon becoming aware of the appointment or released the powers, but until that time the office existed. If the Trustee wished to make a valid distribution in circumstances where the consent of the Guardian (being a position held jointly by Mr Caratti and Alisha Caratti) was required, then the Trustee had to obtain the consent of the (joint) Guardian which inevitably would have brought the existence of the office to Alisha Caratti's attention.

52. The consent of the joint Guardians was required as a condition precedent to a valid distribution to Bernguard under cl 3.1(1) of the Trust Deed. The power to make a distribution under cl 3.1(1) was a "Reserved Power" under cl 16.8(3). The parties agreed that the Guardian's consent was a mandatory requirement by reason of cl (f) of the definition of "General Beneficiaries".

53. Where a trust deed requires the consent of a named individual for the trustee to exercise a power (such as a power of distribution), a purported exercise of the power without consent is void:
Bateman v Davis (1818) 3 Madd 98; see also:
Re Forster's Settlement [1942] Ch 199;
Re the Hare Trust (2001) 4 ITELR 288; Lewin on Trusts at [28-036]; Thomas G, Thomas on Powers (2nd ed, Oxford University Press, 2012) at [7.111]. In Bateman, the trustees sold trust stock and paid the proceeds of the sale to the plaintiff's husband. The trust settlement gave the trustees the power to make such an advancement with the plaintiff's consent. The plaintiff's consent was not obtained prior to the sale and distribution. The Court held that, as the plaintiff's consent was not obtained before the advancement, the purported advancement was void.

54. By failing to obtain the consent of Alisha Caratti, as was required by the Trust Deed, the purported distribution to Bernguard was invalid. Further, Mr Caratti did not give evidence that he consented to the distribution as joint Guardian. That consent should not be inferred from his signature on minutes of a meeting in the circumstances outlined above, particularly when he could have, but did not, give evidence on the topic.

55. If, contrary to the conclusion reached, Alisha Caratti was not a Guardian because she did not know of, or accept, the appointment, the distribution to Bernguard was in any event invalid. The office of Guardian was, in the first instance, a joint office to be held by both Mr Caratti and Alisha Caratti. If Alisha Caratti never validly assumed the office of Guardian, the office of Guardian as contemplated by the Trust Deed was never filled. The Trust Deed provided that "[w]here a Guardian is described in the Reference Schedule but there is no Guardian in office, the Trustee shall not exercise the Reserved Powers": cl 16.5. The reference to "no Guardian" is to be read in light of the definition of "Guardian" which was:

Caratti and Alisha Beth Caratti … jointly (during their lives and the survivor of them during his or her life) or any person appointed by them jointly or by the survivor of them or appointed or determined pursuant [to] clause 13, any successive appointment may be made by deed or will, and may:

(a) be revocable or irrevocable;

(b) be subject to a contingency or not; and

(c) take effect at any time.

56. The first Guardian was Mr Caratti and Alisha Caratti jointly. If Alisha Caratti did not assume her position as Guardian there was relevantly "no Guardian" in office even if, as seems to be accepted, Mr Caratti accepted his appointment to the joint office. If, as in this case, there was "no Guardian" in office then the distribution purportedly made by the Trustee was invalid because the Trustee was prohibited by cl 16.5 from exercising the Reserved Powers.

SECOND ISSUE

Terms of and context in which disclaimers were made

57. The Whitby Trust was settled on 27 July 2005.

58. Under the Trust Deed the Primary Beneficiaries are the children of Mr Caratti. The General Beneficiaries include the Primary Beneficiaries, the children and remoter issue of the Primary Beneficiaries, the spouse of any of the Primary Beneficiaries and of their children or remoter issue, and Mr Caratti. Beneficiary means any of the General Beneficiaries.

59. Clause 3.1 of the Trust Deed provides that:

At any time before the expiration of any Accounting Period, the Trustee may, with respect to all or any part of the net income of the Trust Fund for that Accounting Period, determine:

(1) to pay, apply or set aside all or any part of the income to or for any one or more of the Beneficiaries living or existing at the time of the determination; or

(2) to accumulate all or any part of the income.

60. By cl 3.7:

If in relation to any Accounting Period, the Trustee has made no effective determination pursuant to the preceding provisions of this clause in respect to any part of the income of that Accounting Period immediately prior to the end of the last day of that Accounting Period, then the Trustee shall hold that income in trust successively for the persons who are living or existing on the last day of that Accounting Period and who are successively described in clauses 4.1 to 4.5 (inclusive) as though that last day of the relevant Accounting Period were the Vesting Day.

61. On 17 April 2014 the Commissioner issued amended assessments of income tax to each of the applicants for the 2011 to 2013 tax years.

62. On 4 June 2014 Alisha Caratti and Nicole Caratti executed a deed of disclaimer.

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On 5 June 2014 Natalie Carter executed a deed of disclaimer. The First Disclaimers each contained recitals asserting to substantially the same effect as the following:

B. The Commissioner of Taxation has assessed me to income tax liabilities for the years ending 30 June 2011 to 30 June 2013, because he asserts I was entitled to income of the Trust in those years.

C. On or about 28 April 2014 I was told about these assessments. I was unaware before this time that I was, or might be, entitled to the benefits and burdens of the income for the years ending 30 June 201l to 30 June 2013 as asserted by the Commissioner.

D. I do not desire to receive any of the benefits and burdens of any income of the Trust for the years ending 30 June 2011 to 30 June 2013.

E. I have not accepted any income of the Trust for the years ending 30 June 2011 to 30June 2013.

F. I desire to disclaim all right title and interest under the Trust I might otherwise have to all income for the years ending 30 June 2011 to 30 June 2013.

63. The operative provisions of the First Disclaimers were in these terms:

1. I hereby disclaim absolutely and irrevocably any and all of my right title and interest to or in the income, or any part of the income, of the Trust for each of the years ending 30 June 2011 to 30 June 2013.

2. Without limiting the generality of the disclaimer in paragraph 1, I disclaim any entitlement to any income which might otherwise have accrued under clause 3. 7 of the Trust Deed.

64. Subsequently, on 26 August, 23 October and 28 November 2014 the Commissioner allowed objections of each of Natalie Carter, Alisha Caratti and Nicole Caratti respectively to the amended assessments of income tax issued for the 2011 to 2013 years. In so doing, the Commissioner accepted that the First Disclaimers were effective to disclaim any gift to them under the Trust Deed.

65. On 27 October 2015, the Commissioner issued amended assessments of income tax to each of the applicants for the 2014 income year.

66. On 3 November 2015, Natalie Carter executed a deed of disclaimer. On 4 November 2015 Alisha Caratti and Nicole Caratti executed deeds of disclaimer. The terms of the Second Disclaimers were equivalent to the terms of the First Disclaimers, being those which the Commissioner had accepted as effective to disclaim any gift under the Trust Deed. Thus the Second Disclaimers contained recitals to substantially the same effect as the following:

B. The Commissioner of Taxation has assessed me to income tax liabilities for the year ending 30 June 2014, because he asserts I was entitled to income of the Trust in this year.

C. On or about 28 October 2015 I was told about this assessment. I was unaware before this time that I was, or might be, entitled to the benefits and burdens of the income for the year ending 30 June 2014 as asserted by the Commissioner.

D. I do not desire to receive any of the benefits and burdens of any income of the Trust for the year ending 30 June 2014.

E. I have not accepted any income of the Trust for the year ending 30 June 2014.

F. I desire to disclaim all right title and interest under the Trust I might otherwise have to all income for the year ending 30 June 2014.

67. The operative provisions of the Second Disclaimers were in these terms:

1. I hereby disclaim absolutely and irrevocably any and all of my right title and interest to or in the income, or any part of the income, of the Trust for the year ending 30 June 2014.

2. Without limiting the generality of the disclaimer in paragraph 1, I disclaim any entitlement to any income which might otherwise have accrued under clause 3.7 of the Trust Deed.

68. On 20 December 2015 each of the applicants objected to the amended assessments of income tax issued to her for the 2014 income year on the basis that the Second Disclaimers

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were effective to disclaim any gift to them under the Trust Deed.

69. On 9 and 23 September 2016 respectively the Commissioner disallowed the objections to the amended assessments for the 2014 income year.

70. On 30 September 2016 each of the applicants executed a deed of disclaimer. The recitals to these Third Disclaimers were to substantially the same effect as the following:

B. I have never been appointed any income by the trustee for any year. I have never read the Trust deed. I have never received any income from the Trust in any year.

C. The Commissioner of Taxation (ATO) assessed me to income tax liabilities for the year ending 30 June 2011 to 30 June 2013, because he asserted I was presently entitled to the distributable income of the Trust as at 30 June in those years.

D. On 4 June 2014, I intended to disclaim, and upon execution of a deed of disclaimer, believed that I had disclaimed, all my interests in income under the Trust, including my rights under clause 3.7 of the Trust deed, that I held before the commencement of the 2011 to 2013 years which might have given rise to the ATO's assertions. .

E. On or about 23 October 2014, the ATO accepted that as a result of my disclaimer I was not presently entitled to the distributable income of the Trust for the 2011 to 2013 years of income.

F. The ATO assessed me to an income tax liability for the year ending 30 June 2014, because the ATO asserted I was presently entitled to income of the Trust for that year.

G. The trustee's solicitors told me that I was not presently entitled under the Trust deed to any income and recommended I execute another disclaimer to be forwarded to the ATO as the simplest way to deal with the asserted tax liability for the 2014 year. On 4 November 2015, I executed another disclaimer in the form they provided to me.

H. On 22 September 2016, I was informed by my solicitors that the ATO asserted that I still owned rights to income that produced a present entitlement to a share of the income of the Trust for the 2014 year.

I. I did not intend, when I was signing the deeds of disclaimer, to retain ownership of any right to income that would or could give rise to present entitlement to actual income tor those years that the ATO asserted. I intended to disclaim ownership of all such rights.

J. Having taken advice, l believe that I do not own any rights to income under the Trust deed, under clause 3.7 or any other clause. I am informed also that the trustee does not believe I own any rights to income.

K. I desire to disclaim all right title and interest under the Trust that I still own (if any), including any rights under clause 3. 7 of the Trust Deed, which gave rise to the asserted present entitlement to the income for the 2011 to 2014 years and, for the avoidance of doubt, whether or not those rights might also give rise to a present entitlement to a share of the income of the Trust at 30 June of any other year.

71. The operative provisions of the Third Disclaimers were to the following effect:

1. I hereby disclaim absolutely and irrevocably any and all of my right title and interest (whether vested or contingent) conferred by the Trust deed to or in the income, or any part of the income, including without limitation all those rights to income under the Trust deed I owned before the commencement of the income year commencing 1 July 2010, which gave rise to an alleged present entitlement to a share of the income of the Trust for each of the years ending 30 June 2011 to 30 June 2014 (and whether or not those disclaimed rights might also give rise to a present entitlement to a share of the income of the Trust in any other years).

2. Without limiting the generality of the disclaimer in paragraph 1, I disclaim absolutely and irrevocably any and all of my right title and interest conferred by clause 3. 7 of the Trust deed.

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The Tribunal's decision

72. The Tribunal summarised the relevant principles applicable to the disclaimer of gifts in orthodox terms. Accordingly, the Tribunal recorded at [128] that:

(a) until disclaimed, a beneficiary's entitlement to income under a trust remains effective and attracts the operation of s 97 of the 1936 Assessment Act from the moment it arises even if the beneficiary is unaware of it: [Ramsden at [30]];

(b) an effective disclaimer of a gift or an entitlement:

(i) operates by way of avoidance, not disposition, [Ramsden at [45]] and

(ii) defeats the donor's intention to give the relevant property to the donee, or create an interest in that property in favour of the donee, on the terms of the donor intended: [Ramsden at [45]];

(c) because of (b), a beneficiary may disclaim an entitlement on becoming aware of it, with the effect that the disclaimer operates retrospectively as if the entitlement never arose, and not as an acceptance and disposition at the time of the disclaimer: [Ramsden at [30]];

(d) there must be a complete rejection of the gift or entitlement for the disclaimer to be effective because a qualified disclaimer may be seen as or constitute a form of acceptance of or assent to the gift or entitlement, [Ramsden at [31]] and in this regard it becomes necessary as a matter of construction to identify what the relevant gift is [Ramsden at [31]];

(e) a periodical (usually annual) appointment or distribution of income or capital from a discretionary trust by reason of exercise of discretionary powers to do so is a stand-alone gift, or creation of an entitlement, when the power is exercised [Ramsden at [35] and [36]];

(f) each appointment or distribution being an independent gift or creation of an entitlement, an object of a discretionary trust is entitled to accept or reject a discretionary appointment or distribution of either income or capital, and may accept one or more and disclaim others [Ramsden at [36]];

(g) an entitlement as a taker in default of appointment is a vested interest liable to be divested by exercise of a discretion, and is a gift or entitlement that arises by operation of the terms of the trust separate from any gift or entitlement that might arise upon exercise of a discretionary power of appointment or discretionary power to distribute [Ramsden at [37]];

(h) an entitlement of a taker in default of appointment can also be disclaimed [Ramsden at [40] and [61]];

(i) one gift or entitlement having the same general origin, in the sense of coming from the same trust estate, can be retained and another disclaimed, and the fact of retention of an earlier one does not automatically prevent future disclaimers of later gifts or entitlements [Ramsden at [37]]. However, the retention of one type of gift or entitlement may have an impact on assertions as to knowledge of the relevant trust and entitlements, and whether there has been a delay in disclaiming that prevents a subsequent disclaimer operating to avoid the gift or entitlement [Ramsden at [37]]. It follows that disclaimer of one gift or entitlement would similarly not automatically prevent a future disclaimer of a different gift or entitlement, but would have the same effect on assessment of relevant knowledge going to whether there has been delay and whether a subsequent disclaimer operates to avoid the gift or entitlement;

(j) to disclaim a gift or entitlement as a taker in default of appointment, it is necessary to disclaim the entirety of the gift or entitlement, namely the gift or entitlement created by the terms of the trust, and not the annual manifestation of it arising upon a failure to appoint elsewhere. An attempt to disclaim year by year without disclaiming the gift or entitlement in a manner that disclaims it entirely and permanently is ineffective [Ramsden at [42]];

(k) a beneficiary loses the right to disclaim the gift or entitlement if it is accepted [Ramsden at [51] and [52]];

(l) a gift or entitlement can be accepted by overt conduct [Ramsden at [53]]; and

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(m) failure to disclaim within a reasonable period of becoming aware of a gift or entitlement can, having regard to the circumstances of the case, be treated as tacit or inferred acceptance of the gift or entitlement [Ramsden at [53] and [55],
Lewski v Commissioner of Taxation (2017) 254 FCR 14 at [141]]. It is necessary to look at all of the circumstances and the time that has elapsed to see whether acceptance of the gift or entitlement should be inferred from the absence of dissent [Ramsden at [55]]; and

(n) a beneficiary of a gift is fixed with knowledge of the gift and its basis vicariously on the basis that the knowledge of an adviser, which may be the only source or repository of relevant knowledge [Ramsden at [59]].

73. At [129] the Tribunal correctly noted that the Primary Beneficiaries of the Whitby Trust had two pathways by which they could be distributed trust income - as discretionary objects in respect of whom the trustee might distribute shares of annual income under cl 3.1 and as default beneficiaries through the operation of cl 3.7. As discretionary objects each distribution is a separate gift capable of being disclaimed year by year. As default beneficiaries they are donees with a vested entitlement liable to be divested and there is a single gift able to be disclaimed within a reasonable time of becoming aware of it.

74. According to the Tribunal at [129[h]]:

it is quite apparent that the terms of the first two disclaimer documents purported to disclaim the annual entitlement to income upon which the assessments received from the Commissioner were based, and they did not purport to disclaim anything more.

75. The Tribunal continued in these terms:

[130] In circumstances where the evidence from Christina, Alicia [sic], Natalie and Nicole regarding the advice that was given is unclear, the proper conclusion to reach is that the four of them did not realise or understand what was happening and were taking actions upon advice. The terms of the documents being as clear as they are, the proper conclusion to reach is that the documents do not reflect a disclaimer to the extent now asserted and that those documents probably reflected the advice given from the lawyer at the time and there is no material before the Tribunal on which any other conclusion could be reached.

[131] The Primary Beneficiaries were aware of their entitlements as default of appointment beneficiaries and by executing the First and/or Second Disclaimers failed to disclaim all of those entitlements within a reasonable time, or at all, with the effect that the disclaimers were ineffective.

[132] The Third Disclaimers may have been wide enough on their terms to have been effective. However, they were executed as third attempts to disclaim. Two problems for the Applicants arise as a consequence. First, there has been an implicit acceptance of the gift arising out of clause 3.7 of the Trust Deed through a failure to disclaim it in its entirety and once there is acceptance there cannot be later disclaimer that operates by way of avoidance with retrospective effect. There may be abandonment with prospective effect that that [sic] does not assist the Applicants. Second, there has been delay from the time of initial awareness of the entitlement that precludes later disclaimer that operates by way of avoidance with retrospective effect.

[133] Contrary to the Applicants contentions and submissions, the present matter is squarely dealt with by the Ramsden principles which dictate the outcome.

The problem with the Tribunal's reasoning

76. The Tribunal proceeded on the assumption that the Third Disclaimers were sufficiently broad in their terms to have been effective to disclaim the entirety of the applicants' interests under cl 3.7 of the Trust Deed. The Commissioner has not submitted to the contrary. The Commissioner's tacit acceptance of the fact that the drafting of the Third Disclaimers was sufficiently broad to disclaim the entirety of the applicants' interest under cl 3.7 of the Trust Deed is sound. In contrast to the first two disclaimers, the Third Disclaimers expressly disclaimed "absolutely and irrevocably any and all of my right title and interest (whether vested or contingent) conferred by the Trust deed to

ATC 23436

or in the income, or any part of the income…" including "all of my right title and interest conferred by clause 3.7 of the Trust deed".

77. The issue before the Tribunal, with which it dealt at [132] and [133] of its reasons, was whether the gifts of income had been implicitly accepted by the applicants in all of the circumstances including the execution of the First and Second Disclaimers. The Commissioner submitted that:

29.1. the proposition now put, that the third disclaimers were effective because the applicants did not understand the effect of the first and second disclaimers so that they cannot be said to have accepted the clause 3.7 gift by reason of this lack of understanding, would need to have been raised in the objections in December 2015;

29.2. alternatively, the applicants could have sought leave to raise the issue in the AAT, which they did not;

29.3. in either event, in order for the AAT to have considered the proposition it would have needed evidence of the lack of understanding, including evidence from the solicitors as to what advice was given at the time of the drafting of the first and second disclaimers;

29.4. no evidence was led, either from the applicants or their solicitors, as to the content of the advice or their understanding of the disclaimers so as to lay any foundation for the proposition now being put; and

29.5. this Court cannot, in the context of a section 44 appeal, and in the absence of evidence, make any factual findings to underpin a conclusion that the third disclaimers were effective because of any lack of understanding of the effect of the first and second disclaimers.

78. As the applicants submitted, however, it is apparent from [130] to [133] of the Tribunal's reasons that the applicants raised the effectiveness of the Third Disclaimers and the Tribunal considered and dealt with the issue, thereby implicitly granting the applicants leave to do so under s 14ZZK(a) of the TAA 1953. Further, each applicant gave evidence of her understanding of the First and Second Disclaimers in their witness statements and orally to the effect that she intended to disclaim absolutely any entitlement to benefit under the Trust. On the Tribunal's construction of the First and Second Disclaimers at [129(h)] each applicant's understanding of the effect of the First and Second Disclaimers was wrong. It is not open to the Commissioner to put the submissions as summarised above in the face of the Tribunal's reasoning at [130]-[133]. The Commissioner filed no cross-appeal or notice of contention with respect to those conclusions. As such, they stand. In particular, it must be accepted that each of the applicants acted on the basis of advice. From their evidence it is apparent that, in so doing, each applicant (wrongly) believed that they were disclaiming the entirety of their interest in the Trust. For example, Nicole said she signed the First Disclaimer "because [she] wanted to make it clear that [she] had no claim over any of the distributions from the Whitby Trust". She signed the Second Disclaimer because her "intention was to confirm that [she] had no claim over any of the money from the Whitby Trust" and "thought [she] had done this already". She signed the Third Disclaimer, again, to "confirm that [she] had no claim to money from the Whitby Trust at all".

79. These statements of intention cannot fairly be described as self-serving. They are, rather, consistent with the terms of the First and Second Disclaimers. While we agree with the Tribunal that the Second Disclaimers (and thus the first also, which the Commissioner nevertheless accepted to be effective) did not reject the entirety of the gift under cl 3.7 and were thus ineffective for this reason (see further below), nothing in the terms of the First and Second Disclaimers supports the inference that the applicants intended to retain any part of the gift to them under cl 3.7.

80. Where, as in the present case, there has not been express acceptance of a gift, implicit or tacit acceptance is a matter of inference and presumption on the particular facts:
JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 at 930-931. Thus, the Full Court decided Ramsden on the basis of inferences drawn from the surrounding circumstances as is apparent from [62] of the Full Court's reasons where this was said:

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The period between September 2000, or April 2001 and 8 October 2003 was well in excess of a reasonable period. The failure of the respondents to disclaim their entitlements under cl 3(e) until the day before the trial justifies an inference that they were reluctant to disclaim those entitlements. The limited and ineffectual disclaimers which the respondents assert that they made in April 2002, and again on 2 October 2003 (with the possible exception of Philip Hart) are consistent with an intention not to disclaim their entire interests in the Trust income and, therefore, are also consistent with tacit acceptance of those interests.

81. This accords with the Full Court's earlier observation in Ramsden at [31] that:

To be effective, a disclaimer must constitute an absolute rejection of the gift, as a qualified disclaimer may constitute a form of assent to the gift.

82. As a qualified disclaimer may constitute implied consent to a gift, it was not the case, as the Tribunal would have it at [133], that "the present matter is squarely dealt with by the Ramsden principles which dictate the outcome". To the contrary, the Tribunal had to decide based on all of the available material whether it should be inferred that by their conduct in executing the First and Second Disclaimers before executing the Third Disclaimers, the applicants had tacitly accepted the gift. The Tribunal failed to discharge this part of its statutory function because it operated on an unstated erroneous premise that an ineffective disclaimer of a gift, as a matter of principle, necessarily involved a tacit acceptance of the gift, rather than determining that issue by reference to all relevant facts and circumstances.

83. In
Tantau v MacFarlane [2010] NSWSC 224 Ward J (as she then was) said:

(1) a donee is not bound by a disclaimer if it is shown that the disclaimer was made without full knowledge and thus was ineffective: [108]; and
(2) if what is required for an effective disclaimer or acceptance, amongst other things, is that such disclaimer or acceptance is made with full knowledge of (and, in the case of acceptance, intention to accept) the terms of the gift then logically (at least in the absence of third party rights being affected) there would seem to be no reason in principle not to permit the retraction of a disclaimer or acceptance made without full knowledge of (and, in the case of acceptance, an intention to accept) all the circumstances, terms and conditions of the gift: [109].

84. In
Smeaton Grange Holdings Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1594; 104 ATR 58 at [85]-[86] a failure to disclaim a gift was not taken as a tacit acceptance of the gift. White J said:

[85] … the question is whether Michael Gerace had tacitly accepted the presumed conferral on him of the rights of a discretionary object of the Gerace Family Trust so that it was too late for him to disclaim. In
Naas v Westminster Bank Limited [1940] AC 366 Lord Wright described a disclaimer of a deed as being a solemn irrevocable act to be fully proved by the party alleging it who must establish that the disclaimer was made with full knowledge and with full intention (at 400). In
Tantau v MacFarlane [2010] NSWSC 224 Ward J said that the same principle applied in deciding whether a gift had been accepted so as to preclude a subsequent disclaimer…

[86] I agree with this reasoning. In this case, as distinct from
Tantau v MacFarlane [2010] NSWSC 224, the donee had full knowledge of the relevant circumstances of the gift. But I cannot infer from Michael Gerace's failure to disclaim his position as a discretionary object that he thereby intended to accept his rights as a discretionary object. I do not think he turned his mind to that question. There is no evidence that Ifould Holdings ever made a decision to distribute income or capital of the Gerace Family Trust to Michael Gerace. He did not have to turn his mind as to whether or not he would accept or reject a gift of income or capital. Even more so, there was no occasion for him to consider whether he should or should not agree to being a discretionary object of the Gerace Family Trust.

85.

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Accordingly, it was not open to the Tribunal to determine the question of the applicants' having implicitly accepted the gifts as one of principle dictated by the outcome in Ramsden. To do so involved an error of law on the Tribunal's part.

86. Contrary to the Commissioner's submissions the available material before the Tribunal enabled and, indeed, required it to determine by a process of inferential reasoning from the whole of the material whether the conduct of the applicants amounted to a tacit acceptance of the gifts in the 2014 income year. Further contrary to the Commissioner's submissions, s 44(7) of the AAT Act enables this Court to make findings of fact in the following circumstances:

(a) the findings of fact are not inconsistent with findings of fact made by the Tribunal (other than findings made by the Tribunal as the result of an error of law); and
(b) it appears to the Court that it is convenient for the Court to make the findings of fact, having regard to:
- (i) the extent (if any) to which it is necessary for facts to be found; and
- (ii) the means by which those facts might be established; and
- (iii) the expeditious and efficient resolution of the whole of the matter to which the proceeding before the Tribunal relates; and
- (iv) the relative expense to the parties of the Court, rather than the Tribunal, making the findings of fact; and
- (v) the relative delay to the parties of the Court, rather than the Tribunal, making the findings of fact; and
- (vi) whether any of the parties considers that it is appropriate for the Court, rather than the Tribunal, to make the findings of fact; and
- (vii) such other matters (if any) as the Court considers relevant.

87. These provisions are consistent with the fact that an appeal under s 44(1) of the AAT Act can involve a mixed question of fact and law:
Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315.

88. As the applicants submitted, the relevant circumstances are as follows:

(1) if the First and Second Disclaimers are ineffective, it may be inferred from the evidence that they were drafted on the assumption that the applicants could disclaim their interests in the income of the Trust for particular years;
(2) it may equally be inferred that it was not the intention of the applicants to execute legally ineffective documents. Rather, the intention was to remove any liability of the applicants to assessment of income tax for the relevant years;
(3) the applicants, accordingly, misunderstood the effect of the First and Second Disclaimers, but did not intend by executing those documents to accept the default income distributions in the relevant years;
(4) to the contrary, it is plain from the terms of the First and Second Disclaimers that they did not intend to accept any interest for the 2011 to 2014 income years; and
(5) consequently, any purported acceptance by the applicants of any Trust income occurred without full knowledge and intention of the applicants and was thereby ineffective to constitute an acceptance of the income for the 2014 income year.

89. The Tribunal's reasoning with respect to delay precluding disclaimer of the income for the 2014 income year involves a mere assertion at [132]. Again, however, the assertion is to the effect that delay necessarily meant that the income could not be effectively disclaimed when the relevant issue is "whether in all the circumstances acceptance of the gift should be inferred from the absence of dissent from the donee, and the passage of time": Ramsden at [55]. That is, delay must be considered in the context of all of the relevant circumstances. There is no principle, as the Tribunal appeared to assume, that a delay in disclaiming necessarily involves a tacit acceptance of a gift.

90. As the applicants submitted the evidence which had to be considered by the Tribunal included the following facts:

(1) the applicants executed the First Disclaimers within two months of the

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Commissioner's assessments to them for the 2011 to 2013 income years;
(2) the Commissioner accepted these disclaimers as efficacious and withdrew the assessments;
(3) the applicants executed the Second Disclaimers within just over a week of receipt of the assessments for the 2014 income year;
(4) the Commissioner rejected the efficacy of the Second Disclaimers in his objection decisions; and
(5) the applicants executed the Third Disclaimers within 8 days of being informed of the Commissioner's decision.

91. It may be accepted, as the Commissioner would have it, that at the time of the execution of the First Disclaimers the applicants are fixed with knowledge of the existence of cl 3.7 of the Trust Deed. That does not mean, however, that they executed the First and Second Disclaimers with full knowledge of how to give effect to their intention of disclaiming any interest in the income from the Trust. Nor does it mean that from the terms of the First and Second Disclaimers it can be inferred that the applicants intended to disclaim only the income from the Trust for the 2011-2014 income years but retain to themselves the right to accept income from the Trust in subsequent years. Such an intention is inconsistent with the unchallenged evidence of the applicants about their understanding of the First and Second Disclaimers. We do not accept that evidence from the applicant's lawyer was necessary for the applicants to sustain their contention that they disclaimed the gift, in effect, immediately on understanding that the nature of the gift was such that it could not be disclaimed in relation to any particular year but had to be disclaimed in its entirety. And if the Commissioner is right about the fact that the knowledge of the applicants' lawyers must be imputed to the applicants, the best evidence of that knowledge is the terms of the First and Second Disclaimers. From the First and Second Disclaimers it is apparent that the applicants' lawyers (wrongly) believed that the Trust income for a particular year could be disclaimed. However, no inference can be drawn therefrom that the applicants' lawyers intended to reserve to the applicants any right to retain income from the Trust in any other year.

92. On these facts, there was only one conclusion reasonably open to the Tribunal. The applicants' conduct was consistently directed towards one end - to reject any right to any income from the Trust. In circumstances where the Commissioner had accepted the efficacy of the First Disclaimers it is unsurprising that the Second Disclaimers were executed in equivalent terms to disclaim the right to any income for the 2014 income year. Further, when the Commissioner rejected the efficacy of the Second Disclaimers, the applicants promptly executed their Third Disclaimers, as they put it, to confirm the positon they (wrongly) believed they had already made clear - their intention not to accept any income from the Trust. In other words, the only inference reasonably open on the facts before the Tribunal was that immediately upon gaining full knowledge of the nature of their interests (by the Commissioner's notification of the rejection of the Second Disclaimers) the applicants effectively disclaimed their interests. In all of these circumstances we do not consider it was reasonably open to the Tribunal to affix to the applicants implicit or tacit acceptance of the income of the Trust for the 2014 income year, including by reason of delay. The time between the First and Third Disclaimers has to be considered as but one circumstance in the overall circumstances. When that is done, on the uncontested facts before and as found by the Tribunal, we consider that the only conclusion reasonably open was that the applicants had not lost their right to disclaim any income from the Trust. Accordingly, the Third Disclaimers were effective. The Tribunal thus erred in law in deciding to affirm the Commissioner's objection decisions under review.

93. This being so, subject to the third issue discussed below, the appropriate orders to make are that the appeal be allowed, the decision of the Tribunal affirming the decisions under review be set aside and in lieu thereof the objections of each of the applicants to the assessment for the 2014 income year be allowed.

94.

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Further, this being so, it is strictly unnecessary to deal with that part of the appeal in which the applicants contended that the Second Disclaimers were effective. Insofar as its application to the Second Disclaimers are concerned, we do not consider Ramsden to be either distinguishable or plainly wrong.

95. First, in our view, the Tribunal was right at [129(h)] when it concluded that it was apparent that the Second Disclaimers disclaimed the annual entitlement to income upon which the assessments received from the Commissioner were based and did not purport to disclaim anything more. We are unable to construe cl 2 of the Second Disclaimers, read in the context of the Trust Deed as a whole, as operating to disclaim any income whatsoever under cl 3.7 of the Trust Deed.

96. Second, we are not persuaded that the grounds on which the applicants sought to distinguish Ramsden are sustainable. We do not see how the status of the gift as vested or contingent affects the identification of the relevant gift under the Trust Deed. As the Commissioner explained, the Trust Deed contemplates two gifts to the applicants - the cl 3.7 gift which encompasses all income years if there is no determination under cl 3.1(1) and the cl 3.1(1) gift which is contingent on a determination being made in any particular year. The fact that in Ramsden the beneficiaries were named and in the present case constitute a class does not involve any material distinction.

97. Third, we do not consider the statement in Ramsden at [42] to be plainly wrong. At [42] the Full Court said:

The subject matter of a cl 3(e) gift is income arising in each accounting period not the subject of a cl 3(b) appointment. To be effective, a disclaimer must extend to the whole of that subject matter, hence a disclaimer confined to one only of those accounting periods is necessarily ineffective.

98. The applicants' contrary characterisation of the Trust Deed is not persuasive. The applicants contended that if the applicants' interests as takers in default of determination were vested interests then each such entitlement was only an interest in the income of the Trust for a given income year. That is, for each income year each applicant had a vested interest in the income for that year capable of being divested and that vested interest was separate from the applicants' vested interests in the income for each other income year. However, as identified in Ramsden at [42] the gift under cl 3.7 is income arising in each income year in which there is not a determination. That is not a gift of income in any given income year. As explained in Ramsden at [57] the gift under cl 3.7 was made by virtue of execution of the Trust Deed on 27 July 2005. By virtue of cl 3.7 the applicants were given a vested interest in the income of the Trust for the duration of the Trust, albeit that interest was liable to be divested for any particular income year by a determination under cl 3.1. The applicants have not established that this characterisation of the Trust Deed, consistent with the reasoning in Ramsden, is plainly wrong. On this basis to be effective a disclaimer had to disclaim the applicants' rights as taker in default. As discussed above, this was what was disclaimed in the Third Disclaimers.

Delay in Tribunal's decision

99. It follows from the foregoing that it is not necessary to consider the applicants' submissions concerning the delay of the Tribunal in making or publishing reasons for its decision.

THIRD ISSUE

100. The Commissioner, by notice of contention, contended that the decision of the Tribunal should be affirmed on the ground that the Second and Third Disclaimers did not have retrospective operation for the purposes of s 97 of the ITAA 1936.

101. Section 97(1) relevantly provides:

… where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate:

(a) the assessable income of the beneficiary shall include:

(i) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and

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(ii) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia;

…

(Underlining added for emphasis.)

102. It was contended by the Commissioner that s 97 of the ITAA 1936 operates to include a share of the net income of the trust estate in the assessable income of a beneficiary upon the present entitlement of the beneficiary arising, so that once the present entitlement has come into existence, the section applies on its terms and a subsequent disclaimer of that present entitlement in a later income year after the beneficiary's income has been assessed cannot have any effect for tax purposes by reason that a present entitlement is to be ascertained "as at the time when the interest was derived, that is to say, during the tax years", citing
Harmer v Commissioner of Taxation [1991] HCA 51; 173 CLR 264 at 271. The Commissioner submitted that while the consequence of a valid disclaimer is that the beneficiary becomes disentitled, in the working out of legal rights the law does not disregard the fact that the beneficiary actually had the interest until it was disclaimed. Reference was made to
Re Stratton's Disclaimer; Stratton v Inland Revenue Commissioners [1958] Ch 42 at 54, where Jenkins LJ (Sellers LJ agreeing at 60 and Roxburgh J agreeing at 60) said in relation to a disclaimed bequest:

If he disclaims, then he avoids the gift… but that does not alter the fact that down to the moment of disclaimer he did have the right and would still have had it if he had not disclaimed -

and also to JW Broomhead at 930 where McGarvie J said:

During the period that the donee remains entitled to disclaim, the gift is treated as vested in the donee subject to repudiation:
Standing v Bowring [(1885) 31 Ch. D. 282]. See generally Halsbury's Laws of England, 4th ed., vol. 20, pp. 28-9, paras 47-8 and the note by M.C. Cullity in (1978) 56 Canadian Bar Review 317.

103. Thus, it was argued, even if valid, the Second and Third Disclaimers did not change the fact that the applicants were on 30 June 2014 presently entitled to income; or the consequence that, pursuant to s 97(1) of the ITAA 1936, the net income of the Trust estate was properly included in the applicants' assessable incomes for that year of income.

104. The Commissioner's contention finds support in the decision of the NSW Court of Appeal in Smeaton Grange Holdings. In issue in that case was whether the disclaimer by a beneficiary of his right as a discretionary object of a discretionary trust with effect from the time the trust was settled was effective to prevent the operation of the grouping provisions of the Payroll Tax Act 2007 (NSW) ( Payroll Tax Act ) on their terms. Under those provisions, if two or more businesses are grouped for payroll tax purposes and a member of the group fails to pay an amount of payroll tax, every member of the group is jointly and severally liable to pay that amount: s 81 of the Payroll Tax Act. Two or more businesses are grouped for payroll tax purposes if a person or set of persons has a "controlling interest" in each: s 72(1) of the Payroll Tax Act. In the case of a business carried on under a trust, a person or set of persons has a "controlling interest" if the person or set of persons is "the beneficiary in respect of more than 50% of the value of the interests in the… trust": s 72(2)(g) of the Payroll Tax Act. Section 72(6) provides that "[a] person who may benefit from a discretionary trust as a result of the trustee or another person, or the trustee and another person, exercising or failing to exercise a power or discretion, is taken, for the purposes of this Part, to be a beneficiary in respect of more than 50% of the value of the interests in the trust". The Chief Commissioner submitted that the Payroll Tax Act required that the inquiry directed by s 72(6) be as to the facts as they existed at the time the liability arose. The NSW Court of Appeal accepted that contention based on an interpretation of the grouping provisions, holding that those provisions required the determination of group membership in

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accordance with s 72 to be undertaken by reference to the legal relationships as they existed at the time the liability to payroll tax arose, and a subsequent alteration of those relationships by the unilateral act of a discretionary object could not change the operation of the legislation: [143], [146] per Sackville AJA. Sackville AJA (with whom Gleeson and Leeming JJA agreed) stated at [104]:

Taxation legislation must be construed having regard to general legal principles, not least because the statutory language often incorporates well recognised general law concepts. But that proposition does not relieve the parties or the Court from construing the legislation in accordance with the usual principles of statutory interpretation. The statutory language may or may not evince an intention to impose taxation or associated liabilities in a manner wholly consistent with the rights and obligations of the relevant parties as between themselves. Similarly, legislation may or may not use language in precisely the same way as established general law principles.

In a separate judgment Leeming JA similarly said at [15]-[16], [21]-[22]:

If the question is not merely whether the retrospective operation of a legal principle affects a third party, but whether it undercuts the impact of a taxing act, and especially if it undercuts provisions of a taxing act designed to protect the revenue in the event of default by the primary taxpayer, then separate attention must be given, and at the outset, to statute. The approach adopted by both parties of directing and in large measure confining attention to the position at general law was, with respect, inapt.

I agree with Sackville AJA that the answer to the question as to whether a discretionary object can disclaim, and if so with retrospective effect, will not affect the outcome of this appeal.

…

But all of the foregoing is subject to the operation of statute. As Sackville AJA has explained in more detail, the statutory provisions of present concern are drafted broadly and with a view to protecting the revenue where the primary taxpayer has failed to remit payroll tax. The status of being a member of a group is something which the respondents accepted gave rise, by dint of statute and statute alone, to the potential of liability pursuant to s 81 when another member of the group failed to pay an amount that it was required to pay under the Act in respect of any period. The language of s 81(1) is expressly temporal ("in any period")…

The difficulty faced by the respondents' submissions is that there is no sound basis to construe the liability directly imposed by s 81(1) upon all members of the group as being in some way ambulatory such that it fluctuated from time to time depending upon the composition of that group and respected the retrospective alteration of group membership following a disclaimer. There is no textual basis for such a construction. I am conscious that it is wrong to construe every provision of a taxing statute so as to advance the purpose of raising revenue:
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27; [2009] HCA 41 at [51]. But I do consider that it is appropriate to have regard to the narrower purpose of protecting the revenue in circumstances when the primary taxpayer is in default, which purpose would be subverted if the statute on its proper construction was susceptible to the unilateral retrospective disclaimer by a discretionary object.

105. The Commissioner similarly argued that the general law consequence of a retrospective disclaimer is not binding as against the Commissioner by reason that present entitlement for the purposes of s 97 is temporal to the particular income year in which the present entitlement arises, as the allocation of the net income of a trust estate for the particular income year is based upon that

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entitlement to income at year end so that returns may be lodged and tax assessed within the statutory time limits.

106. The applicants argued that Smeaton Grange Holdings is distinguishable because it concerned a different taxing statute and a legislative scheme for the imposition of joint and several liability on all members of a group for the payroll tax that a member of that group is required to pay under the Payroll Tax Act in respect of a period but fails to pay. We accept that submission. As the reasons of Sackville AJA make clear, the particular legislative provisions were central to the decision of the Court. Sackville AJA reasoned at [135]-[144] as follows:

The legislation clearly envisages that a group may come into existence and that it can also cease to exist. In addition, the legislation contemplates that the composition of a group can change from time to time. Section 82(3) of the Payroll Tax Act, for example, expressly contemplates that an employer may be liable for payroll tax as an individual employer and a group employer for different periods in the same financial year. Section 86(4) of the Payroll Tax Act provides that the Chief Commissioner may cancel the registration of a person as an employer if the person ceases to be liable to pay wages as described in s 86(1). One way in which an employer may cease to be liable to pay wages in any given month is if the employer is no longer a member of a group and its wages bill is below the threshold. Section 84(1) addresses the case of an employer who "changes their circumstances" during a financial year. A change of circumstances occurs, for example, when an employer becomes a group employer (following a period as an individual employer) or ceases to be a group employer (and becomes an individual employer) (s 84(2)).

The grouping provisions of s 72 of the Payroll Tax Act are expressed in the present tense. The key provision is s 72(1) which states that if a person or persons has a controlling interest in each of two businesses, the persons who carry on those businesses (in this instance, Tri-City Trucks and Smeaton) constitute a group. Section 72 does not expressly specify the time at which the question posed by s 72(1) must be answered. However, the fact that the legislation contemplates that the existence and composition of a group can change from time to time indicates that s 72 is intended to be applied to circumstances as they exist during particular periods, such as a given month or a given financial year.

To put the matter another way, the language of s 72(1) of the Payroll Tax Act suggests that it is directed to a period or periods when the existence and composition of a group has to be ascertained for one or both of the following purposes:

(i) to calculate the amount of payroll tax (if any) an employer is liable to pay in respect of the relevant period or periods; and

(ii) to determine whether any other entities are members of the same group as the employer during the relevant period or periods and are, therefore, jointly and severally liable to pay to the Chief Commissioner the amounts of payroll tax unpaid by the employer in respect of the relevant period or periods.

This construction of the language of s 72 strongly implies that the existence and composition of a group must be determined according to the circumstances as they exist during the relevant period or periods. However, it is necessary to consider whether this construction is consistent with the purpose of the legislation, as derived from its text and structure.

The fundamental purpose of the Payroll Tax Act is to impose payroll tax at specified rates on employers by reference to "taxable wages" (ss 6, 7, 8). An ancillary purpose is to ensure that tax due is collected by making members of a "group" jointly and severally liable for unpaid payroll tax due by an employer within the same group (s 81).

The legislation evinces an intention that the employer must pay all payroll tax due in respect of a financial year within 21 days of the end of the year. That intention would no doubt be expressed more clearly if Part 6 of the Payroll Tax Act did not condition the

ATC 23444
determination of the "correct amount of payroll tax" on the lodgement of returns by the employer during the relevant financial year. Nonetheless, as Mr Young accepted, the effect of s 9 of the Payroll Tax Act was to oblige Tri-City Trucks to pay the full amount of payroll tax for which it was liable in respect of each financial year no later than 21 days after the end of the financial year.

As has been noted, the joint and several liability of a member of the same group as the employer arises as soon as the employer fails to pay the payroll tax due by it to the Chief Commissioner (s 81). Smeaton (assuming it to be part of the same group as Tri-City Trucks) became liable to pay to the Chief Commissioner the amounts of payroll tax due by Tri-City Trucks in respect of each financial year at the expiration of 21 days from the end of that financial year.

The Payroll Tax Act provides for only one circumstance in which the liability of a group member to pay payroll tax can be altered "retrospectively". If the Chief Commissioner determines pursuant to s 79 that a person should not be a member of a group, for example, because that person's business is not connected with that of the employer, the determination can be made to operate from an earlier date.

Subject to this exception, the legislative scheme can only be given effect if the existence and composition of any group of which the employer forms part can be determined at the same time as the employer becomes liable to pay payroll tax to the Chief Commissioner. It is at that point, if the employer does not discharge its liability, that group members become jointly and severally liable to pay the Chief Commissioner the amount of payroll tax the employer has failed to pay. It is also at that point that the Chief Commissioner can enforce the group members' liability. The legislative scheme would be unworkable unless the determination of group membership in accordance with s 72 of the Payroll Tax Act can be undertaken by reference to the legal relationships as they exist between the relevant parties at the time the employer's liability to pay payroll tax arises. That determination must be made on the basis of the facts as they exist at the relevant time.

As has been seen, the legislation recognises that the existence and composition of a group may change during a given financial year. This means that s 72 of the Payroll Tax Act may have to be applied at various times during a given financial year according to the legal relationships in force and the circumstances at the particular time…

(Footnotes omitted; emphasis in original.)

As those paragraphs show, and as Sackville AJA expressly stated at [147], the conclusion that the disclaimer did not retrospectively "expunge" Smeaton's liability to pay payroll tax rested on a construction of the Payroll Tax Act.

107. Section 97 of the ITAA 1936, with which we are concerned, is one of the central provisions of Div 6 of the ITAA 1936. Division 6 contains the basic scheme for the taxation of trust income. In broad compass, that scheme provides for a beneficiary presently entitled to a share of the distributable income of a trust to be assessed on the taxable income of the trust in proportion to that beneficiary's entitlement and for the trustee to be assessed on the taxable income of a trust where there is no beneficiary is presently entitled.

108. There are two points to make about s 97 before turning to the specific issue. The first point is the words "present entitlement" in s 97 have their general trust law meaning:
Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481 at 505 [37], 506 [39]; cf Smeaton Grange Holdings [106]-[108] per Sackville AJA. As the High Court said in Bamford at 506 [39], the phrase "presently entitled to a share of the income" in s 97 directs attention to the processes in trust administration by which the share is identified and entitlement established. The second point is that s 97 is concerned with a present entitlement to distributable income of the trust. A beneficiary of a trust is taxable on a proportionate share of the net (taxable) income of the trust only if that beneficiary has a present entitlement: Bamford.

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In Bamford at 505 [37], the High Court referred with approval to the passage in Harmer at 271, where it was accepted that a beneficiary would be "presently entitled" if, and only if:

(a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment.

The critical point is that the legislative scheme only imposes the liability to tax upon the beneficiary if the beneficiary is presently entitled in that sense to the income of the trust. That is, it is because that beneficiary has a present entitlement to the distribution of the trust income that the liability to pay tax on a proportionate share of the taxable income of the trust is imposed on the beneficiary under s 97 of the ITAA 1936.

109. As a matter of general law, an effective disclaimer of a present entitlement operates by way of avoidance, rather than by way of disposition:
Re Paradise Motor Co Ltd [1968] 2 All ER 625. That is to say, the effect of a disclaimer is to reject the entitlement to the distribution of income. Hence, to be effective, the disclaimer must be made before accepting the interest. Once the interest has been accepted, the right to disclaim is lost: Ramsden at [51]. But, relevantly, where the entitlement is disclaimed, the consequence is that s 97 is not engaged because the application of that section fixes the liability on the beneficiary only in the case where the beneficiary has a present entitlement to income under a trust. Until disclaimer, a beneficiary's entitlement to income under a trust is operative for the purposes of s 97 of the ITAA 1936 from the moment it arises (Ramsden at [30]) but upon disclaimer, the general law extinguishes the entitlement to trust income ab initio. The disclaimer is determinative as against the Commissioner in the application of s 97 to the beneficiary as the effect of a disclaimer is that the beneficiary must be treated as never entitled to the income for the purposes of s 97 in respect of the relevant income year.

110. Moreover, there is nothing in the legislative scheme to indicate that a beneficiary's liability under s 97 of the ITAA 1936 "is to be determined once and for all by reference to the legal relationships then in existence" in the income year in question: cf Smeaton Grange Holdings at [146] per Sackville AJA. As stated, the operation of s 97 depends on a present entitlement to trust income with the result that the liability for tax on the taxable income of the trust falls upon the beneficiary in the same proportion as that beneficiary's share of the income of the trust. A disclaimer does not "change the operation of the legislation": cf Smeaton at [146] per Sackville AJA. Rather, the tax consequences of the disclaimer are determined by the reference to the general law:
Commissioner of Taxation v Thomas [2018] HCA 31; 264 CLR 382 at 407-8 [54] per Kiefel CJ, Bell, Keane, Nettle, Gordon and Edelman JJ; 417 [93] per Gageler J.

111. Accordingly, the Commissioner's notice of contention should be dismissed.

CONCLUSION

112. The appeal should be allowed.

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Tribunal dated 23 December 2019 affirming the decisions under review be set aside, and in lieu thereof the objections of each of the applicants to the assessments for the 2014 income year be allowed.

3. The respondent pay the applicants' costs of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

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