Case X30
Members:CJ Bannon QC
Tribunal:
Administrative Appeals Tribunal
C.J. Bannon Q.C. (Deputy President)
The taxpayer seeks review of an amended assessment to tax for the financial year ended 30 June 1982. The adjustment sheet provided with the amended assessment, issued on 12 June 1986, adds as income a share of the income of a family discretionary trust.
The taxpayer's parents were shopkeepers in a country town. On 5 June 1973, the taxpayer's grandfather settled $10 upon the terms of a discretionary trust (ex. 1). The beneficiaries named in the trust were the shopkeeper, his wife and three named children, one of whom is the taxpayer. There is power given in the deed to vary the trusts, but those five people are the default beneficiaries. The shopkeeper and his wife operated a retail business in the country town per medium of an exempt proprietary company, with a name descriptive of their business. The company changed its name on 13 July 1973 (ex. D) to a name incorporating the surname and initials of the taxpayer's parents. In the minute book of directors' meetings of the parents' proprietary company, the trust is referred to as bearing the former name descriptive of their retail business (see minute of 31 May 1977, ex. F). However, I am satisfied that the descriptive name used in the minute refers to the discretionary trust created by the deed (ex. 1).
The original trustees of the family trust were the taxpayer's father and mother. By deed executed 31 May 1977 (ex. E) the original trustees of the family trust retired and were replaced as trustees by the family proprietary company, which accepted the trust as per the minute of 31 May 1977 (ex. F). Although the taxpayer was put to proof of these matters, I accept the evidence of his father concerning due execution of the deed (ex. F). The taxpayer's father, when giving evidence, claimed he was ill, and certainly did not appear well. He was closely cross-examined as to the dates of execution of various documents signed by himself and his wife. His memory was obviously faulty, but I am inclined to believe that documents tendered in evidence, which he signed and which are dated, probably bore those dates when signed, as he claimed. As was brought to his attention, he and his wife signed other documents which are undated, such as those forming ex. 3.
The family trust became the subject of a number of manoeuvres. The grey eminence behind those manoeuvres was the local accountant, a gentleman well known to those dealing with taxation matters. He was present at the hearing of this matter on the first two days. Neither the taxpayer nor the respondent called him as a witness. However, criticism was made of his non-appearance in the witness box. When the Tribunal suggested at the close of their evidence that it might exercise its inquisitorial powers and call him as a witness, neither party desired this to be done. The grey eminence shortly thereafter left the hearing room and did not appear again that day nor the next. No inference will be drawn because of his arrival or departure. Having regard to the statutory onus of proof in taxation matters, and the competent and skilled representation of both parties in these proceedings, I considered it inexpedient to summons the accountant to give evidence when not called by either party.
At the close of the hunt, Mr G.K. Downes Q.C. became concerned lest the grounds of objection prepared by the grey eminence were wide enough to cover the case he was raising. Belatedly, he sought leave to add as a particular of ground 2 of the objections the following:
``The taxpayer did not know of or participate in or benefit from any scheme in the sense that such scheme did not avoid the taxpayer's liability to tax.''
Mr D. Bloom Q.C. for the respondent, understandably objected to the amendment. I reserved my decision upon the point. Mr Downes wanted to ensure that it was open to him to argue that he fell within both propositions enunciated by Pincus J. in
Stamp v. F.C of T. 88 ATC 4803 as regards the operation of sec. 260 of the Income Tax Assessment Act 1936 (Cth) (``the Act''). In my view, the grounds of objection were probably wide enough to protect him. If I thought it necessary, I would have granted the requisite leave.
As originally presented, the taxpayer's case was one of extreme simplicity. He knew nothing about his parents' discretionary trust. He worked for various employers, other than his parents, in the tax year under review. At the end of the year he left his group certificates with the firm of the grey eminence, the family accountant. A tax return was prepared for him, setting out his income as that detailed in the group certificates. He signed the return (ex. 6)
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and it was lodged by the accountant, apparently on 12 November 1982, and an assessment issued based on that return (ex. A, T8). When the amended assessment (ex. A, T9) issued dated 12 June 1986, he referred the matter to the firm of the grey eminence. Notice of objection dated 8 August 1986 (ex. A, T10) was lodged on his behalf by the grey eminence. He knew nothing about it.The taxpayer gave evidence, which I accept, that on 8 August 1986 he signed a document (ex. G2) addressed to the trustee of the family trust which, omitting formalities, is in the following terms:
``This will serve to advise that I wish to disclaim any right title and interest in a distribution of the sum of $23,573 made to me on a notice of distribution from the Commissioner of Taxation, for the year ended 30 June 1982.
I do not consent or assent to the receipt of this income and wish to disclaim it and would appreciate it if the income could be reallocated according to the terms and conditions of the Trust Deed.''
He gave evidence that the document was signed by him when his father informed him of the existence of the family trust in August 1986, and was handed by him to his father. It was an agreed fact between counsel that the sole shareholders of the trustee company at all relevant times, were the father and mother of the taxpayer. The father gave evidence also that he was a director and shareholder of the trustee company, his wife being the secretary.
Mr Downes' principal submission was that the taxpayer was unaware of any interest in the family trust, or of its existence. When he became aware of it, he immediately executed a disclaimer (ex. G2) in terms to disclaim the income for the financial year, the subject of the amended assessment. There seems no reason to reject the taxpayer's evidence. He appeared to be an honest person, born on 25 September 1963, and therefore nearly 23 years old at the time of the claimed disclaimer. I accept him as a witness of truth.
Whilst the taxpayer was working in various paid jobs, his parents were conducting the retail shop through the family company. The taxpayer's father gave evidence, accepted by me, that the accountant suggested the formation of the family trust some time around 1973, to take over the retail business. The accountant suggested it had advantages concerning cash flow, and it was formed to benefit the business and the cash flow. During the years 1973 to 1981 the trustee of the family trust determined income arrangements. As shown in the tax returns for the financial years ending 30 June 1982 and 30 June 1984 (ex. 6 and 5 respectively), the family trust conducted the retail business. In the financial year 1982, the whole of the profit amounting to $70,720 was allocated to a trust, which I will refer to as one of the ``accountant's trusts''. For that year the balance sheet shows the taxpayer as entitled to $20,169 on capital account as at 1 July 1981.
For the tax year 1984 the family trust tax return shows a distribution of the net profit of $69,096 as ``trust law distribution'', equally between the taxpayer's parents. The balance sheet shows the taxpayer's capital account as $20,168 less ``welfare & maintenance'' $20,168, leaving a balance of nil. This was not explained.
The taxpayer's father gave evidence that at the end of the financial year 1979 the accountant advised that the taxpayer's parents be removed as beneficiaries under the trust, and two of the ``accountant's trusts'' numbered 82 and 83 be added as beneficiaries. In that year the ``accountant's trusts'' received the income, the family missing out (transcript p. 69). For the financial year 1980 the accountant suggested another ``accountant's trust'' be named as a beneficiary for the purpose of taking the income (transcript pp. 69-70). The taxpayer's father gave the impression that the income came back under some guise or other to him and his wife by virtue of ``round robin'' cheques drawn by some unnamed source (transcript p. 61).
The ``accountant's trusts'', of which there appear to be many if the numbers are any indication, were not family trusts of the taxpayer's family. The terms of those trusts and the beneficiaries thereunder, were not revealed in evidence. For all the Tribunal knows they may provide for benefits to the settlor or the trustee of the family trust (ex. 1), so that any variation of the trusts of the family trust in their favour would contravene cl. 7 of the family trust.
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Mr Downes submitted that the respondent and the Tribunal should not be concerned with the legal formalities of the exercise of powers and variations under the family trust. However, in The Law of Vendor and Purchaser by Cyprian Williams (1910) 2nd ed., vol. 1 p. 293, it is stated:
``The general rule is that in the exercise of a power all conditions prescribed in the instrument creating the power must be strictly observed; and in this respect no distinction is made between matters apparently substantial, such as the nature of the instrument by which the power is to be executed or the requirement of the consent of any person to its execution, and formalities like the number of witnesses by which the executing instrument is required to be attested. And the rule is that any instrument showing an intention to exercise the power, but not exactly complying with the terms and conditions imposed by the donor of the power, is void altogether as an exercise of the power.''
See also Williams on Real Property 22nd ed. by Joshua Williams pp. 390, 391.
In a slightly more recent work, Halsbury's Laws of England 4th ed., vol. 36 para. 863 and 866, similar statements appear.
In Emmet on Title (1967) 15th ed., p. 1,176, it is observed:
``If the donor of the power makes it a condition that the power must be executed by a deed, then, at law, the execution by a will or by a simple writing not executed as a deed would not be sufficient, and vice versa. But equity will, in favour of certain persons, such as purchasers for value from the donee of the power, creditors of the donee, or the wife and children of the donee or persons for whom he is under a moral obligation to provide (but not a husband or a grandchild), or in favour of a charity, aid a defective execution of such power if the defect consists merely of the non-observance of some formality, and the intention to pass the property is clear, but not if such formality is of the essence or positively required by the legislature.''
Because of the importance of property to the Australian and British legal systems, ownership of property and beneficial interests therein are not mere matters of private law, but are properly of concern both to the respondent and this Tribunal in carrying out functions reposed by law. Some irregularities of an internal nature may be overcome by equitable relief, but not those which affect the incidence of tax. In
Cridland v. F.C. of T. 77 ATC 4538 at p. 4543; (1977) 140 C.L.R. 330 at p. 341 Mason J., as he then was, considers this position.
In this matter, by deed of appointment of new trustee executed on 31 May 1977 (ex. E) (a copy of which is ex. 4), the original trustees of the family trust appointed the family company as the trustee and retired from the trusts. The family company assented to the appointment under its seal. I see no reason to doubt the validity of the appointment. The acceptance accords with Art. 106 of the articles of association (ex. C) and falls within cl. 25(15) of the company's memorandum of association (ex. C). Having appointed a limited company as the trustee, it became necessary that for any deed executed by it, the deed comply with the requirements of sec. 51A of the Conveyancing Act, 1919 (N.S.W.) as amended. As appears in the second edition of the work on that statute by the late Mr G.P. Stuckey Q.C., it is noted at p. 102 that ``The seal is essential to the execution of a deed by a corporation''. See also
A.R. Wright & Son Ltd. v. Romford Borough Corporation (1957) 1 Q.B. 431 at pp. 435 and 436 and Palmer on Company Law (1976) 22nd ed. vol. 1, para. 27-14 p. 278. Section 35 of the Uniform Companies Act, 1961 (N.S.W.) gave companies certain powers in respect to contracts as explained in Australian Company Law and Practice (1965) Wallace and Young p. 133 et seq. Similar and extended provisions are contained in the Uniform Companies Code, 1981, sec. 80. Neither of these provisions removes the necessity for a corporation to execute a deed under the seal of the company.
A document dated 4 June 1980, and signed by the taxpayer's parents, apparently in the role of directors of the family company, became ex. H. The document purports to be a deed of variation of the trusts of the family trust, but the seal of the family company is not affixed thereto. The document recites that the family company is the trustee of the family trust, and recites that pursuant to ``para. 7 of the said deed'' (i.e. the family trust) ``the trustee was empowered by deed or by oral resolution to
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vary the trusts or any provisions whatsoever hereof in any manner whatsoever'' and then recites the desire of the trustee to add to its powers pursuant to the deed. The habendum of the purported deed states that cl. 2 of the family trust deed is deleted and replaced by a new clause. The new clause provides that instead of the residuary beneficiaries being the father, mother, brother and sister of the taxpayer together with the taxpayer, the residuary beneficiaries are to be a company which I will refer to as an ``accountant's company'' as trustee for two of the ``accountant's trusts'' numbered 80 and 81 respectively, together with the children and grandchildren of the taxpayer's father.Secondly, the purported deed purports to add a new cl. 16 to the family trust in the following terms:
``Clause 16
If at the end of any accounting period the amounts in respect of which determinations have been made pursuant to cl. 1(b) shall exceed the net income of the trust fund for such accounting period then the trustees shall be deemed to have applied the capital of the trust pursuant to cl. 1(a) hereof to the extent of the deficiency.''
In my opinion, the document (ex. H) has no legal validity. It is not a deed because it is not executed under the seal of the company as required by law. There is no evidence before me that the ``accountant's company'' or the ``accountant's trusts'' can enforce the defective document as being charities (one of the exceptions mentioned by Emmet). I have grave doubts that their purpose is charitable, more likely their true purpose is financial. However, speculation aside, the onus rests on the taxpayer and is not discharged. As Emmet also points out, grandchildren cannot enforce a defective execution of a power.
Furthermore, as Mr Bloom Q.C. learnedly pointed out, the power given under cl. 7 of the family trust is probably not wide enough to enable the trustee to substitute new residuary beneficiaries for those intended by the settlor. The relevant portion of cl. 7 reads as follows:
``At any time prior to the vesting day the trustees may from time to time in their absolute discretion notwithstanding anything to the contrary herein contained expressed or implied by deed or by oral resolution vary the trusts or any provisions whatsoever hereof in any manner whatsoever.''
The apparent width of that clause should be read in the light of the observations of Megarry V.C. in In
re Ball's Settlement Trusts (1968) 1 W.L.R. 899 at p. 905, where he said:
``If an arrangement changes the whole substratum of the trust, then it may well be that it cannot be regarded merely as varying that trust.''
The family trust (ex. 1) is expressed to be ``for the benefit of the beneficiaries described in cl. 2 hereof'', that is, the son, daughter-in-law and grandchildren of the settlor, not the accountant's company's and trusts. Mr Bloom also referred me to In
re Holt's Settlement (1969) Ch. 100 at p. 116 and to the observations made in In
re Pilkington's Will Trusts (1964) A.C. 612 at p. 629 by Lord Reid and at p. 641 by Viscount Radcliffe. As Lord Reid pointed out, a resettlement is permissible ``if trustees genuinely and reasonably believe that it is for the benefit of a beneficiary contingently entitled to a share of capital'' etc.
In this matter I have no confidence that the purported deed of variation proceeds from a genuine exercise of discretion for the benefit of contingent beneficiaries. Having seen the taxpayer's father in the witness box, I doubt that he even considered such a matter. It is more probable that he and his wife signed a paper put before them by the accountant, without a proper consideration of the duties of the trustee under the discretionary trust, and that it was done wholly for tax reasons, and to avoid tax. It is my conclusion that the document is ineffective and invalid. It remains to be said that it was not suggested that there was any oral determination by the trustee, it being a corporation, pursuant to cl. 7 of the family trust, nor was it suggested that the document ex. H was evidence of such an oral determination. I do not so consider it. The document was the accountant's document. I am not satisfied that the directors of the trustee company made any oral determination. They simply signed documents put before them by the accountant (transcript pp. 60-61, 69-70).
Mr Bloom also advanced an argument that I should not treat the document ex. H as evidentiary, because of the provisions of sec. 79 of the Judiciary Act 1903 (Cth) (``the
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Judiciary Act''). The argument was based upon a judgment of Hill J. inDavis v. F.C. of T. 89 ATC 4377, a case in which it was held that sec. 79 of the Judiciary Act rendered sec. 29 of the N.S.W. Stamp Duties Act, 1920 applicable to proceedings in the Federal Court, so as to prevent parties relying upon an unstamped instrument as in ex. H. However, Mr Bloom did not wish to argue that the Tribunal is exercising federal jurisdiction, in spite of the finality and binding effect of its determinations, and upon the assumption that it is exercising administrative power, sec. 79 of the Judiciary Act has no application. Mr Downes argued that the Tribunal could accept an undertaking to stamp, but the Tribunal has no officer who could take an undertaking sounding in contempt. Its only power with regard to contempt is to seek action by the Attorney-General. A more complex argument may arise from the judgment of Priestley J.A. in
Ash Street Properties Pty. Ltd. v. Pollnow (1987) 9 N.S.W.L.R. 80 where at p. 100 Priestley J.A. pointed out the effect of sec. 29 of the N.S.W. Stamp Duties Act was to render a document of no effect until duly stamped. In view of my earlier conclusion I do not intend to consider this argument further.
Moving on now to other activities of the family company as trustee of the family trust, minutes of the meeting of the board of directors in evidence are ex. F, minutes of a meeting of 31 May 1977 accepting the appointment as trustee, and minutes of the meeting of 25 June 1980 are ex. J, where the board resolved purportedly in pursuance of the power contained in cl. 7 of the family trust to add the following new cl. 1(c).
``Clause 1(c)
In the event of any nominated beneficiary disclaiming any income then the trustee will hold such income for the year of income on trust, equally, for the following charities:
Royal Guide Dogs for the Blind Association of Australia; Red Shield Appeal; Multiple Sclerosis Society of New South Wales and Frawood Nominees Pty. Ltd. as trustee for the Frawood Trust No. 79.''
Such clause may well be outside the purposes of the trust and I am not satisfied the discretion was properly exercised. However, it is probably unnecessary to decide this question.
The taxpayer's father gave evidence that for the financial year ended 30 June 1979 he, his wife and children were removed as recipients of the family trust income on the accountant's advice, and two ``account's trusts'' numbered 82 and 83 substituted. For the financial year ended 30 June 1980 the accountant suggested another ``accountant's trust'' be added as a recipient of income. Two documents were signed by the taxpayer's father and his wife purporting to be notices of disclaimer of their interests under the family trust. These are undated and became ex. 3.
Turning to the financial year ending 30 June 1982, the year in dispute, for that year an income tax return was lodged by or on behalf of the family trust signed by the taxpayer's father (ex. 6). The return shows the net income of the trust from carrying on the retail business was $70,720. According to the return, the whole of the income was distributed to one of the ``accountant's trusts''. The respondent did not accept this and issued the amended assessment to the taxpayer (ex. B). The adjustment sheet accompanying that assessment attributes one-third of that income to the taxpayer, the basis being that the Commissioner accepted that the taxpayer's parents already had effectively excluded themselves from receiving such moneys and took the view that the money should be distributed equally amongst the taxpayer, his brother and sister, instead of to the accountant's company.
It is now necessary to consider two resolutions of the board of the trustee company dated 31 March 1982 and 21 April 1982 (ex. K and L respectively). These recite as follows:
``The trustees hereby declare, in pursuance of cl. 1(b) of the trust deed, that the income earned to 31 March 1982 [in the case of ex. K] and to 30 June 1982 [in the case of ex. L] shall be distributed on the following basis:
- [ex. K] 1. `accountant's company' as trustee for the `accountant's trust' No.81 $65,000
- [ex. L] 1. `accountant's company' as trustee for the `accountants trust' No. 81 $15,000.''
Clause 1(b) of the deed of family trust (ex. 1) is in the following terms:
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``1. The trustees shall stand possessed of the settled fund upon the vesting days in trust:
- ...
- (b) As to the income; as to the income of each year ending on the thirtieth day of June in each year for such one or more of the beneficiaries and in such shares as the trustees shall on or before the thirtieth day of June in each year determine and in default of such determination for the beneficiaries then living in equal shares absolutely PROVIDED ALWAYS that for the purpose of this clause the term `income' shall include all amounts (whether realised in cash at the relevant date or not) as shall constitute income derived in the relevant year for the purposes of sec. 25 and 26(a) or otherwise under the Income Tax Assessment Act 1936 (as amended) and any Act repealing or replacing the same AND PROVIDED FURTHER that notwithstanding anything herein contained upon a beneficiary becoming entitled as hereinbefore provided to any portion of such income shall not be divested from such beneficiary nor shall divesting be authorised by any provision herein and such portion of such income shall be and remain the property to which such beneficiary is absolutely presently entitled.''
I do not consider either of the resolutions (ex. K and L) a valid determination in pursuance of cl. 1(b). That clause contemplates ascertainment of the net income for a financial year, and a distribution of that net income. It does not contemplate distribution of lump sums out of the income or advances on the income. I consider the purported determinations allotting income to the accountant's company as trustee for the accountant's trust to be invalid. Further, it is to be noted that the amounts determined by the resolutions exceed the net income as shown in ex. 6.
For the reasons given above, and assuming that the taxpayer's parents had effectively disclaimed their shares in the trust property, the respondent was right to conclude that the income for the financial year ended 30 June 1982 fell to be divided equally between the taxpayer, his brother and sister as beneficiaries under the default clause in the deed of family trust, unless he had effectively disclaimed his interest.
It is necessary to now consider the taxpayer's purported disclaimer dated 8 August 1986 and addressed to the trustee of the family trust (ex. G2), the terms of which are set out previously.
Counsel for the respondent submitted that such document was not effective to disclaim. Disclaimer goes back to Bracton and is discussed in vol. 12 Halsbury (4th ed.) para. 1370. Mr Bloom's point was that the taxpayer had a right to disclaim the property the subject of the family trust, he could disclaim the benefit of the trust, but not the income for a particular year. Counsel drew my attention to the taxpayer's accumulated funds of $20,168 in the trust in 1987 as shown in the tax return (ex. 6), although mysteriously vanishing in 1984 according to the later tax return (ex. 5). Latham C.J. discussed disclaimer in
F.C. of T. v. Cornell (1946) 73 C.L.R. 394 at p. 402 but does not decide this precise question. Mr Bloom cited
Bence v. Gilpin (1868) 3 L.R. Ex. 76 at p. 81, in which Kelly C.B. decided that a disclaimer by two out of three joint tenants of copyhold lands after exercising acts of ownership, was void. I was referred also to the judgment of Jenkins L.J., as he then was, in
Re Strattons Disclaimer (1958) 1 Ch. 42. At p. 52 Jenkins L.J. adopted observations of Lord Greene who indicated that the person disclaiming retained his interest in the property up to disclaimer. Neither of these cases directly considers whether or not it is possible to disclaim part of an interest created under a discretionary trust, that is, to disclaim a discretionary distribution of income, without disclaiming accumulated sums or residuary rights. I accept that the taxpayer when he signed the document (ex. G1) did not know the terms of the family trust. Perhaps he should have made enquiries. Perhaps he should have attempted to disclaim his whole interest under the family trust as his parents purported to do (ex. 3). In Wharton's Law Lexicon (1938) 14th ed. it is stated, amongst other things, that ``A devisee in fee may, by deed, without matter of record, disclaim the estate devised'' but the author does not consider a partial disclaimer. It is stated in Lewin on Trusts (1939) 14th ed. p. 176 that a person may not disclaim trusts as to portion of the trust property. In
Re Lord & Fullerton's Contract (1896) 1 Ch. 228
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however, a trustee in bankruptcy may disclaim portion of a bankrupt's estate. InF.C. of T. v. Everett 80 ATC 4076 at p. 4081; (1979-1980) 143 C.L.R. 440 at p. 450 Barwick C.J., Stephen J., Mason J., as he then was, and Wilson J. said:
``It is, of course, well established that an equitable assignment of, or a contract to assign, future property or a mere expectancy for valuable consideration will operate to transfer the beneficial interest to the purchaser immediately upon the property being acquired, but not before... On the other hand, an equitable assignment of, or a contract to assign, present property for value takes effect immediately and passes the beneficial interest to the assignee.''
As to the present case, it appears to me that the effect of the residuary clause in the family trust, the determinations in favour of the accountant's trusts being ineffective, was to vest the income for the financial year ending 30 June 1982 in the taxpayer, his brother and sister in equal shares. Whatever may be the position as regards assignment, the balance of opinion appears to favour Mr Bloom's proposition. Research into Norton on Deeds (1928) 2nd ed. at p. 23 elicited this proposition.
``A disclaimer must be an actual disclaimer of all interest.''
The proposition may obtain some support from the case of
Re Young (1913) 1 Ch. 272, therein cited. I have reached the conclusion that the purported disclaimer was ineffective.
It was also submitted that the taxpayer had no present entitlement to the income at the time of disclaimer. Clause 1(b) of the family trust, as quoted previously, provides that the trustee is to stand possessed of the income in trust for the beneficiaries on the vesting day in trust.
Clause 3 places the vesting day in the distant future. In the meantime, the trustee is given extensive powers under cl. 6 to so deal with money and other property vested in it, as to render the availability of money on the vesting day uncertain.
Authorities dealing with ``present entitlement'' within the meaning of the Act include
Union Fidelity Trustee Co. of Australia Ltd. v. F.C. of T. 69 ATC 4084 at p. 4089; (1969) 119 C.L.R. 177 at p. 185 per Kitto J.;
F.C. of T. v. Whiting (1943) 68 C.L.R. 199 at p. 215;
F.C. of T. v. Totledge Pty. Ltd. 82 ATC 4168 at p. 4175; and
Harmer v. F.C. of T. 89 ATC 5180 at pp. 5189, 5190. See also the decision of my colleague Deputy President G. McDonald in Case W95,
89 ATC 795. In my opinion, without canvassing the reasoning in the cases, the taxpayer was ``presently entitled'' to the income for the financial year ending 30 June 1982 within the meaning of the Act.
Turning now to the arguments concerning sec. 260 of the Act and the question of sham, I am of the opinion that the evidence does not demonstrate sham. The very object of the accountant, and the manipulations carried out, was to create legally effective situations which preclude sham. It then becomes necessary to consider the application of sec. 260 of the Act.
The evidence before me from the taxpayer's father is that all the documents provided by the accountant were for the purpose of avoiding tax. Otherwise, there is no suggestion of any commercial or other purpose. Neither party has suggested that Pt IVA of the Act applies to the present case. The taxpayer's disclaimer was made on 8 August 1986 long after the witching date for the demise of sec. 260 of the Act which is 27 May 1981.
The current cauldron of views on sec. 260 and its operation include the decisions of Pincus J. in Stamp v. F.C. of T. (supra) and of Hill J. in Davis v. F.C. of T. (supra) at p. 4408 col. 2. The two legs to sec. 260 endorsed by Pincus J. in Stamp's case did not find favour with Hill J. in Davis' case. It is not for an inferior tribunal to pronounce with finality upon the conflicting opinions of judges of a superior court. If this Tribunal is obliged to make a decision, I would prefer, with diffidence, to punt in favour of the views of Pincus J. in 88 ATC 4803 at p. 4806, quoted by Hill J. in 89 ATC 4377 at p. 4408, bridging col. 1 and 2. However, I am unable on the evidence to link a purported disclaimer executed in 1986 after sec. 260 ceased to operate, with a contract, agreement or arrangement to avoid tax entered into on or before 27 May 1981. The tax return for the financial year ended 30 June 1982 is stamped lodged 12 November 1982. It shows the whole income as distributed to an ``accountant's trust''. In 1986, long after sec. 260 ceased to operate, the taxpayer was asked to execute his disclaimer. It is no part of a
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contract, agreement or arrangement made before 27 May 1981. Indeed, it appears to be an afterthought when it was feared that allocating income to the accountant's trust would not work. It seems to me that the machinations of the grey eminence had not thought that far ahead. The result is that the respondent fails on the sec. 260 argument. The respondent chose not to rely on Pt IVA of the Act, although the possibility of its application was raised by the Tribunal. It has to be recalled that the Act primarily deals with taxes on income, although it also deals with capital gains since the insertion of Pt IIIA in 1986. The present taxpayer having attempted to disclaim his income, it may be questionable if he should be regarded as having received any tax benefit in regard to any income or capital gain in the event that the disclaimer was effective. However, while drawing attention to sec. 177D of the Act, I do not consider the Tribunal need investigate any further when neither party wishes the issue to be raised nor has raised it.Lastly I deal with the additional penalties imposed on the taxpayer. Most correctly Mr Bloom did not seek to advance arguments as to why these should stand against an innocent taxpayer. With the knowledge possessed by the Tribunal, long after the respondent's decision, and having regard to my opinion that the taxpayer has not been dishonest, it appears proper that all additional tax and penalties be remitted.
The result of this hearing is that the taxpayer fails on the main issue but succeeds on the question of additional tax. The objection decision under review is affirmed as regards the amended assessment of tax but not as regards penalties. It is directed that the respondent set aside the amended assessment so far as regards additional tax but otherwise confirm the amended assessment.
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