Case W95

Members:
GL McDonald DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 15 September 1989.

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G.L. McDonald (Deputy President)

The facts of this matter are not in dispute. The ``R'' farm family trust (``the trust'') was established by a deed of settlement dated 13 January 1981.

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ATC 796

The joint trustees are the applicant and his wife, and the specified beneficiaries are the applicant, his wife and the children of their marriage.

The trust carried on a business of primary production between 1981 and 1987 resulting in a loss for each of the years ending 30 June 1981, 1982, 1984 and 1985 and, after allowance of losses under sec. 80AA of the Income Tax Assessment Act 1936 (``the Act''), in a net income for each of the years ending 30 June 1983, 1986 ($21,696) and 1987 ($26,662). Notwithstanding the fact that losses were returned in each of the years ending 1984 and 1985 the trustees, on 28 June 1984 and 20 June 1985 passed resolutions applying the income of the trust estate for the benefit of the applicant and his wife equally. At the time the resolutions were passed it was not known whether there would be a loss incurred or a net income returned for each of the years. As it transpired there was no net income in accordance with sec. 95(1) of the Act available for distribution for either of the years mentioned and, accordingly, no income was distributed.

For the years ending 30 June 1982 to 1987 the applicant's taxable income or loss is as follows:

                          1982   1983   1984   1985    1986    1987
Interest                  (252)   (76)   Nil     86     349     145
Distribution from trust
  estate                   Nil    380    Nil    Nil  10,248  12,731
                          ----    ---    ---    ---  ------  ------
Taxable income/loss       (252)   304    Nil     86  10,597  12,876
          

The applicant lodged a notice of objection against the assessment for each of the years ending 30 June 1986 and 30 June 1987, claiming that, under the averaging provisions of Div. 16 of Pt III of the Act, he should be allowed a rebate of tax of $1,500.50 and $1,966.06 respectively.

The applicant argues that he is deemed to be carrying on the business of primary production under sec. 157(3) of the Act which reads as follows:

``157(3) Subject to sub-section (3A), for the purposes only of determining whether a person is carrying on a business of primary production, the beneficiary in a trust estate shall, to the extent to which he is presently entitled to the income or part of the income of that estate, be deemed to be carrying on the business carried on by the trustees of the estate which produces that income.''

It is accepted that the respondent does not rely on subsec. (3A) to deny the operation of subsec. (3).

It is the respondent's contention that in the years 1981, 1982, 1984 and 1985, being those years in which the trust incurred a loss, the applicant could not be deemed to be carrying on a business of primary production because, there being no net income, he was not in the words of sec. 157(3) ``... presently entitled to the income... of [the] estate''.

That being the case, the resolutions passed by the trustees on 28 June 1984 and 28 June 1985 were in anticipation of the trust deriving net income and since this did not eventuate the resolutions were ineffective.

The respondent further contends that between the years 1981 and 1985, 1983 being the only year in which the trust derived a net income and since, under sec. 158 of the Act, there must be at least two average years before a rebate can be applied the respondent does not qualify for a rebate for the year ending 30 June 1986.

As for the year ending 30 June 1987, the respondent maintains that since 1983 and 1986 are the only two average years, the applicant is only entitled to a rebate of $131.88 as against

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ATC 797

$1,966.06 as claimed. The Commissioner has already repaid to the applicant the sum of $131.88.

The main issue before this Tribunal is therefore the meaning of the phrase ``presently entitled'' as appearing in sec. 157(3) of the Act.

It is the applicant's submission that when the trustees passed the respective resolutions at the end of June 1984 and 1985, albeit the trading result of the trust estate was not known at the time, ``a right to demand 50% of the income of the trust for the relevant years'' was conferred on each beneficiary and in so doing made them ``presently entitled'' to the income of the estate.

The word ``entitled'' per se means ``to furnish with a title'' (the Shorter Oxford English Dictionary). Qualifying it with the word ``presently'' introduces an element of time into its meaning. The applicant's contention that ``if there is a right there is a present entitlement'' does not give sufficient effect to the word ``presently''.

The Shorter Oxford English Dictionary defines ``presently'' as ``at the present time; now.... at once; immediately, instantly, quickly, promptly''.

It follows therefore that at the time the trustees passed the respective resolutions, the administration of the trust estate had not reached a stage where it could be said that the beneficiaries were entitled to anything and their interest at that stage is no more than one in expectancy, albeit something more than a ``mere spes'' (
Gartside v. I.R. Commr (1967) A.C. 533 at p. 618).

In
F.C. of T. v. Whiting & Ors (1942-1943) 68 C.L.R. 199 at pp. 215-216 on appeal to the Full Court of the High Court of Australia, their Honours Latham C.J. and Williams J. said:

``The words `presently entitled...' refer to a right to income `presently' existing - i.e., a right of such a kind that a beneficiary may demand payment of the income from the trustee...

A beneficiary who has a vested right to income... is entitled to income, but cannot be said to be `presently entitled' as distinct from merely `entitled'...

Thus, in order to ascertain whether such a present right exists, it is necessary to look at the state of the administration of the trust estate.''

In discussing the various stages of the administration of the trust estate, their Honours made it clear that although it is not necessary for the beneficiary to have actually received the income it is necessary that income be available for distribution to the beneficiaries if the qualification of present entitlement is to be met.

His Honour Starke J. in the same case said (at p. 219):

``... a beneficiary is not, I think, presently entitled to income unless it can be established that there is income which he is presently entitled to receive; that he is entitled to obtain payment thereof from the trustee.''

In
Taylor & Anor v. F.C. of T. 70 ATC 4026 at p. 4030 Kitto J. discussed the Whiting case and distinguishing it on the facts said:

```presently entitled' refers to an interest in possession in an amount of income that is legally ready for distribution so that the beneficiary would have a right to obtain payment of it...''

The same interpretation has been applied to sec. 101 of the Act where the words ``presently entitle'' occur (see Case T21,
86 ATC 214, Mr Beddoe at p. 216, Dr Gerber at p. 217 and Dr Beck at p. 221). Although in taxation legislation there is no necessary presumption that the same words should bear the same meaning where they occur in different parts of the same Act (
Cylne v. D.F.C. of T. 81 ATC 4429 at p. 4436; (1981) 150 C.L.R. 1 at pp. 15-16 per Mason J.), in this instance the words do convey the same meaning.

In the present case, the trust estate incurred a loss for each of the years ending 1984 and 1985 and as such there was no income for distribution amongst the beneficiaries. That being the case, the beneficiaries were not ``presently entitled'' to any income of the estate.

For the reasons stated above, the Tribunal affirms the decision under review.