HOPKINS & ANOR v FC of T

Members:
PE Hack SC DP

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2012] AATA 324

Decision date: 31 May 2012

PE Hack SC (Deputy President)

Introduction

1. The applicants, Mr Ronald Hopkins and Mr Tony Hopkins, are father and son. In the 2004 and 2005 income tax years they were beneficiaries of a discretionary trust. In each of those years in the case of Mr Ronald Hopkins and in 2004 in the case of Mr Tony Hopkins the respondent, the Commissioner of Taxation, has made amended assessments of taxable income and tax payable thereon by Mr Ronald Hopkins and Mr Tony Hopkins as a consequence of the involvement of a related entity in a tax avoidance scheme described as an employee entitlement fund.

2. Mr Ronald Hopkins and Mr Tony Hopkins objected to the amended assessments but their objections were disallowed. In these proceedings they seek a review of the Commissioner's objection decisions[1] They also requested that the Commissioner treat as having been made within time objections to the original assessments. Those requests were refused by the Commissioner. Neither applicant now seeks a review in these proceedings of those parts of the Commissioner’s decisions. .

3.


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The objection decisions under review must be set aside and the objections allowed because Mr Tony Hopkins abrogated his responsibilities as a director of a corporation that acted as the trustee of a discretionary trust and because Mr Ronald Hopkins, who made all relevant decisions of the trustee, completely disregarded the requirements of the trust deed.

Some undisputed facts

4. These proceedings concern the affairs of two trusts - the Hopkins Family Trust (the Family Trust ) and the Trans West Unit Trust (the Unit Trust ).

5. The Family Trust was constituted by a deed dated 8 January 1992 between John Joseph Costello as settlor and Brisbane Air Charter Pty Ltd ( Brisbane Air Charter ) as trustee. Brisbane Air Charter was incorporated in September 1989. Mr Ronald Hopkins is, and has been since September 1989, one of two directors of Brisbane Air Charter. Mr Tony Hopkins is, and has been since June 1995, the other director of the company.

6. The Family Trust was a discretionary trust. It is material to note some of the provisions of the Family Trust trust deed. Clause 1(c)(i) of the trust deed provided,

The "Primary Beneficiaries" means and includes RONALD JAMES HOPKINS, KATHLEEN CLARE ADAM, SAMUAL ALAN JOHN HOPKINS, DONNA MAREE HOPKINS, TONY TROY HOPKINS and any other[2] It seems likely that the word “of” has been omitted from here. the children and grandchildren, spouses of children and spouses of grandchildren of either of the said RONALD JAMES HOPKINS or the said KATHLEEN CLARE ADAM the parents, brothers and sisters of the said RONALD JAMES HOPKINS and KATHLEEN CLARE ADAM and the children and grandchildren of such brothers and sisters and any company in existence at the Vesting Day incorporated in any country throughout the world the shares in which are owned by any one or more of them or by a Trustee upon trust of any trust or trusts in existence at the Vesting Day under which any one or more of them is a beneficiary present or contingent.

The expression "Year of Income" was defined, relevantly for present purposes, as the period of twelve months ending on the 30th June in each year. The "Income of the Trust Fund" was defined in clause 1(c)(v) of the trust deed as being, unless, in any particular year the trustee otherwise determines,

...an amount calculated in the same manner as the Nett Income of a Trust Estate for the purposes of Section 95 of the Income Tax Assessment Act 1936-1976 (Commonwealth).

7. The income of the trust fund was dealt with by clause 3(a) in these terms,

Until the Vesting Day the Trustee shall pay or apply the whole or any part of the income in any year of income of the Trust Fund for the benefit of all or such one or more of the Primary Beneficiaries to the exclusion of the other or others as the Trustee in his absolute discretion may by Deed or by oral declaration recorded in the Minutes of the Trustee determine PROVIDED that such Deed or oral declaration be made on or before the last day in any year of income and in the event of such Deed or oral declaration not being so made any income not so paid or applied shall be deemed to have been paid or applied for the benefit of the Primary Beneficiaries in equal shares and in such an event the Trustee shall credit such proportions of such income to the account of the respective Primary Beneficiaries in the books of account of the Trustee and shall hold the same absolutely on behalf of each such Primary Beneficiary.

8. The Unit Trust was constituted by deed dated 31 January 1992 between Eva Fay McNamara as settlor and Trans West Fuel Pty Ltd ( Trans West ) as trustee. Trans West was incorporated in January 1992. It changed its name to Sebem Pty Ltd in November 2008, well after the events in issue in these proceedings. Throughout the period in issue, Mr Ronald Hopkins and Mr Tony Hopkins were the only directors of Trans West. They ceased as directors on 18 June 2008. The history of issue of units in the Unit Trust is set out in the parties' submissions[3] Exhibit 36 (applicants’ submissions) at paragraphs 12-20 and exhibit 37 (respondent’s submissions) at paragraphs 11.4-11.6. ; that history is not presently relevant. It will suffice to say that it is common ground that during all of the period in issue in these proceedings Brisbane Air Charter, in its capacity as trustee of the Family Trust,


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was the only unitholder entitled to receive distributions of income from the Unit Trust.

9. In its capacity as trustee of the Unit Trust, Trans West carried on a business of fuel distribution pursuant to an agreement with one of the major oil companies.

10. Again it is necessary to have regard to some of the provisions of the Unit Trust trust deed. There is no definition in the deed of "income" however clause 13.1 obliges the trustee to,

...collect receive and get in all dividends interest rents trading income and other income from the investments of the Trust fund.

And, by virtue of clause 13.2 the trustee,

...shall pay out of the gross income of the Trust Fund all costs and disbursements commissions fees taxed [sic] (including stamp duty land tax income tax capital gains tax and fringe benefits tax) management charges and other proper outgoings in respect of the investments and administration of the Trust fund.

11. The interest of unitholders in the income of the Unit Trust is dealt with in clause 14.1 of the deed. It provides that, subject to an irrelevant exception,

...the Trustee shall hold the net income of the Trust Fund for each accounting period in trust for the unitholders subject to the special rights privileges and powers (if any) attaching to any class or classes or [sic] unit in proportion to the amount paid up on the number of units of which they are respectively registered as holders on the last day of such accounting period and the Trustee shall apply the net income of the Trust Fund accordingly.

The trustee had the power to make interim distributions of income[4] See clause 14.2. .

12. Clause 16 of the trust deed set out the powers of the trustee. One to which the Commissioner's submissions drew attention was that in clause 16 (o), namely the power,

To determine whether any real or personal property or any increase or decrease in the amount number or value of any property or holdings of property or any receipts or payments from for or in connection with any real or personal property shall be treated as and credited or debited to capital or to income and generally to determine all matters as to which any doubt difficulty or question may arise under or in relation to the execution of the trusts and powers of this deed and every determination of the Trustee in relation to any of the matters aforesaid whether made upon a question formally or actually raised or implied in any of the acts or proceedings of the Trustee in relation to the Trust Fund shall bind all parties interested therein and shall not be objected to or questioned on any ground whatsoever.

The trustee's obligation to keep accounts was dealt with by clause 27 in these terms,

  • 27.1 THE Trustee shall keep a complete and accurate record of all receipts and expenditure on account of the Trust Fund.
  • 27.2 Promptly after the close of each accounting period the trustee shall prepare a written accounting report (prepared in accordance with normally accepted accounting procedures) for such period consisting of a balance sheet and statement of income and expenditure and a list of assets held at the cost [sic] of each year and a copy thereof shall be furnished upon request to the unitholders.

13. Tax returns lodged on behalf of the Unit Trust for the 1995 to 1999 income years show a pattern of distributions to the Family Trust and to another trust, apparently connected to a Mr Donald O'Brien. Mr O'Brien is shown on the material to have been a director of Trans West between 1992 and 1997. Neither Mr O'Brien nor entities associated with him play any role in the events in issue in these proceedings. It will suffice to note that the tax returns of the Unit trust from 2000 onwards show that in each year the whole of the income of the Unit Trust was distributed to the Family Trust. For the 2004 year that amount was $78,784; for the 2005 year the amount was $200,311.

14. In turn, the tax returns lodged on behalf of the Family Trust show that in the year ended 30 June 2004 it made distributions of $26,284 to Mr Ronald Hopkins; $22,500 to Ms Shirley Hopkins and $30,000 to Mr Tony Hopkins and that in the year ended 30 June 2005 it distributed $200,000 to Mr Ronald Hopkins. It


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is common ground that, despite the trustee of the Family Trust having purported to make a distribution to Ms Shirley Hopkins she was not then a beneficiary of the Family Trust.

15. In each of the 2004 and 2005 income years Trans West participated in an Employee Entitlement Fund scheme. It is not necessary for present purposes to examine the scheme in any detail. It will suffice to say that in the 2004 year Trans West lodged the Unit Trust return claiming deductions totalling $527,265 arising out of its participation in the scheme. For the 2005 year the claim was for $460,180.

The returns and assessing processes

16. At all material times Ahrens Accounting and Business Consultants ( Ahrens ) acted as the external accountants for Trans West, the Unit Trust, Brisbane Air Charter and the Family Trust and as the tax agent for each of those entities as well as for Mr Ronald Hopkins and Mr Tony Hopkins. Mr Ian Ahrens was the principle of the firm at all material times.

17. The firm prepared the 2004 individual tax return for Mr Tony Hopkins and lodged that return on 3 December 2004. The return disclosed as income a distribution of $30,000 from the Family Trust as well as income from salary and wages. The return was assessed as lodged and a notice of assessment, showing a taxable income of $50,118 and tax payable thereon, was issued on 9 December 2004. The notice of assessment showed a net amount refundable to Mr Tony Hopkins as PAYG withholding credits exceeded tax, and other amounts, payable by Mr Hopkins.

18. Ahrens also prepared the 2004 and 2005 income tax returns for the Unit Trust, the Family Trust and Mr Ronald Hopkins and lodged those returns as follows,

the Unit Trust,
¡ 2004 - 23 February 2005,
¡ 2005 - 8 December 2006,
the Family Trust,
¡ 2004 - 23 February 2005,
¡ 2005 - 14 July 2006,
Mr Ronald Hopkins
¡ 2004 - 24 February 2005,
¡ 2005 - 3 May 2006.

Mr Ronald Hopkins' returns were assessed as lodged on 2 March 2005 (2004 year) and 20 July 2006 (2005 year).

19. In April 2008 the Commissioner wrote to Trans West indicating that he was of the view that contributions made to the Employee Entitlement Fund scheme were not deductible and provided Trans west with an opportunity "to review any tax deductions claimed in relation to the EEF arrangement". On 14 May 2008 Ahrens forwarded to the Commissioner a document executed by Mr Ronald Hopkins, as public officer of Trans West, asking for the amendment of the Unit Trust returns for the 2004 and 2005 income years by the removal of the amounts claimed as deductions in relation to the Employee Entitlement Fund scheme.

20. On 10 March 2009 the Commissioner made an amended assessment of Mr Tony Hopkins' taxable income for the 2004 income year, evidenced by a notice of assessment of that date, increasing his taxable income by $200,776 to $250,894. On 6 April 2009 the Commissioner made an amended assessment of Mr Ronald Hopkins' taxable income for the 2004 income year, evidenced by notice of assessment of that date, increasing his taxable income by $175,907 to $402,191. Additionally, an amended assessment was made of Ms Shirley Hopkins' taxable income, increasing it by $150,582. The Commissioner treated the disallowed deduction of $527,265 as having been distributed to the three "beneficiaries" in the same proportion as the original distribution.

21. On 6 April 2009 the Commissioner made an amended assessment of Mr Ronald Hopkins' taxable income for the 2005 year by attributing the entirety of the disallowed $460,180 to Mr


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Ronald Hopkins, thereby increasing his 2005 taxable income to $650,434.

22. On 10 September 2009 Ahrens lodged a notice of objection by Mr Tony Hopkins to the 2004 amended assessment (of 10 March 2009) and a request for an extension of time within which Mr Tony Hopkins might object to the 2004 original assessment (of 9 December 2004). On the same date Ahrens lodged similar documents on behalf of Mr Ronald Hopkins in relation to the 2004 original assessment (dated 6 March 2005) and the 2004 amended assessment (dated 6 April 2009). I infer[5] From the reasons for the objection decision dated 28 May 2010 (Exhibit 3, pages 5-21). that similar documents were lodged in relation to the 2005 original assessment (dated 20 July 2007) and the 2005 amended assessment (dated 6 April 2009). That notice of objection and request appears not to have been reproduced in the material lodged with the Tribunal in accordance with s 37 of the Administrative Appeals Tribunal Act 1975(Cth) but nothing turns on that omission.

23. In the meantime in June 2009 each of Mr Ronald Hopkins and Mr Tony Hopkins executed deeds by which they purported to disclaim any interest in the income of the Family Trust. The three deeds[6] One by Mr Ronald Hopkins in relation to the 2004 income, one by him in relation to the 2005 income year and one by Mr Tony Hopkins in relation to the 2004 income year. are, in substance, identical. That signed by Mr Ronald Hopkins in relation to the 2004 income year reads,

Background

  • A. [Mr Ronald] Hopkins may (subject to the effect of any disclaimer) have become entitled to certain income of the [Family] Trust in respect of the year of income ending 30th June 2004 (the Amounts ).
  • B. [-Mr Ronald] Hopkins wishes to disclaim any such entitlement.

    Operative provisions

    • 1. [Mr Ronald] Hopkins hereby disclaims any right or entitlement to or in respect of the Amounts (or otherwise in respect of the income of the Trust for the year of income ending on 30th June 2004).

24. The Commissioner's objection decisions, that are the subject of these proceedings, were made on 28 May 2010. The applications by Mr Ronald Hopkins and Mr Tony Hopkins to extend the time within which to object to the original 2004 and 2005 assessments were refused. The objections by Mr Ronald Hopkins to the 2004 and 2005 amended assessments and the objection by Mr Tony Hopkins to the 2004 amended assessment were each disallowed.

25. These proceedings were commenced on 22 July 2010.

Leave to amend grounds of the objection

26. At the outset of the hearing Mr Bickford, counsel for the applicants, sought leave to enlarge the grounds of objection to encompass an argument that the distributable income of the Unit Trust should be reduced[7] The proposed grounds are set out in paragraph 25 of exhibit 1. . The application was opposed by the Commissioner but only on the basis that the contentions sought to be raised were devoid of merit. The Commissioner did not suggest that there was any procedural disadvantage occasioned by the late application to amend and the evidence, served late, that was said to support the amended grounds.

27. I will give leave to the applicants to rely on the amended grounds. They represent the final form of an argument that the applicants have been agitating from the outset, albeit that it was poorly articulated when they had earlier been represented by Ahrens. In circumstances where the Commissioner is not disadvantaged by the amendment and it is not suggested that there is any prejudice to the Commissioner, refusal of leave to amend is not warranted even if the proposed argument is without substance. If that be right it can be determined as part of the decision-making process.

The taxation of trusts

28. Division 6 of the Income Tax Assessment Act 1936(Cth) (the ITAA 1936 ) deals with the taxation of trusts. The general rule, set out in s 96 of the ITAA 1936, is that, except as provided in that Act,

...a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate.

It is next necessary to notice the definition of "net income" in s 95 of ITAA 1936. It means, in relation to a trust estate,

... the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions ...

29.


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Section 97(1) of ITAA 1936 provides, so far as is presently relevant,

Subject to Division 6D, 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...[emphasis added]

The nature of the distinction between "the income of the trust estate" and "the net income of the trust estate" has been authoritatively determined in
Federal Commissioner of Taxation v Bamford.[8] 2010 ATC ¶20-170 ; [2010] HCA 10 ; (2010} 240 CLR 481 at 507-508. In that case the Court accepted as correct the analysis of the distinction undertaken by Sundberg J in
Zeta Force Pty Ltd v Federal Commissioner of Taxation[9] 98 ATC 4681 ; (1998) 84 FCR 70 where his Honour said[10] At 74-75. ,

The words "income of the trust estate" in the opening part of s 97(1) refer to distributable income, that is to say income ascertained by the trustee according to appropriate accounting principles and the trust instrument. That the words have this meaning is confirmed by the use elsewhere in Div 6 of the contrasting expression "net income of the trust estate". The beneficiary's "share" is his share of the distributable income.

Having identified the share of the distributable income to which the beneficiary is presently entitled, s 97(1) requires one to ascertain "that share of the net income of the trust estate". That share is included in the beneficiary's assessable income. The expression "net income of the trust estate" in par (a)(i) has the meaning given it by s 95(1) - taxable income as opposed to distributable income. The words "that share" in par (a)(i) refer back to the word "share" in the expression "a share of the income of the trust estate", and indicate that the same share is to be applied to an income amount calculated according to a different formula (taxable income as opposed to distributable income). Since the income amount may differ according to which formula is applied, the natural meaning to give to "share" where it appears for the second time is "proportion" rather than "part" or "portion". When Parliament wanted to convey the latter meaning, as it did in ss 99 and 99A, it used the word "part".

The contrast between the expressions "share of the income of the trust estate" and "that share of the net income of the trust estate" shows that the draftsman has sought to relate the concept of present entitlement to distributable income, and not to taxable income, which is, after all, an artificial tax amount. Once the share of the distributable income to which the beneficiary is presently entitled is worked out, the notion of present entitlement has served its purpose, and the beneficiary is to be taxed on that share (or proportion) of the taxable income of the trust estate.

30. The decision in
Harmer v Federal Commissioner of Taxation[11] 91 ATC 5000 ; (1991) 173 CLR 264 at 271; see too Bamford at 505, [37]. establishes that a beneficiary is "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 expression "presently entitled to a share of the income" directs attention to the processes in trust administration by which the share is identified and the entitlement established[12] Bamford at 506, [39]. . But that entitlement to the income must arise, if at all, before the end of the year of income[13] Trustees of Estate Mortgage Fighting Fund Trust v Commissioner of Taxation 2000 ATC 4525 ; [2000] FCA 981 ; (2000) 102 FCR 15 at 32, [38]. See also Federal Commissioner of Taxation v Ramsden 2005 ATC 4136 ; [2005] FCAFC 39 ; (2005) 58 ATR 485 at [67] and Colonial First State Investments Ltd v Federal Commissioner of Taxation [2011] FCA 16 ; (2011) 192 FCR 298 at 309-310, [32] & [38]. .

The issues

31. It seems convenient to identify the issues that fall (or may fall) to be decided by reference to the basis on which the Commissioner has made the amended assessments and the applicants' basis for contending that those assessments are excessive.

32.


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The Commissioner's case is that the distributable income of the Unit Trust, calculated in accordance with the Unit Trust trust deed, was $78,784 for the 2004 income year and $200,311 for the 2005 income year. However, he says, the Unit Trust's section 95 net income exceeded its distributable trust income by reason of the disallowance of the Employee Entitlement Fund scheme deductions. Brisbane Air Charter, as trustee of the Family Trust, was presently entitled to all of the distributable income of the Unit Trust in each of the two years. Under the proportionate approach endorsed by the High Court in Bamford, in each of 2004 and 2005 the trustee of the Family Trust includes in its section 95 net income the whole of the section 95 net income of the Unit Trust. That is, the Family Trust includes in its assessable income a greater amount than that to which it was presently entitled for trust purposes.

33. Then, the Commissioner says, the trustee of the Family Trust validly exercised the discretion in accordance with the terms and conditions of the trust deed within each of the relevant years to pay or apply income to Primary Beneficiaries as evidenced by the statement of distribution appended to the Family Trust income tax returns for the two years.

34. And, says the Commissioner, the amended assessment of Mr Tony Hopkins' 2004 taxable income which, on its face, appears to be outside the ordinary period of four years for amendment, is justifiable because the amendment was made within four years after the notional date for payment of the original assessment, calculated by reference to the Commissioner's arrangements with tax agents for staggered lodgement of tax returns.

35. The applicants raise a number of bases for contending that the amended assessments are excessive. First and foremost it is said that neither Mr Ronald Hopkins nor Mr Tony Hopkins was presently entitled to any income of the Family Trust except insofar as they might take in default of appointment. The evidence, and the absence of evidence, would satisfy me that the trustee of the Family Trust did not resolve to make a distribution prior to the end of the relevant year. Next, and by a process of re-writing the accounts of the Unit Trust, they seek to demonstrate that the Unit Trust had no distributable income in either year; it ought to have accounted for the amortisation of goodwill, prior year losses and income tax expenses, but did not. Additionally, it is said that errors were made in the amounts brought into account as expenditure in connection with the Employees Entitlement Fund scheme.

36. Finally it is said that, in any event, the amended assessment for Mr Tony Hopkins is out of time and the Commissioner, who does not rely on fraud or evasion, was not authorised to amend his assessment.

Consideration

37. On the view I have reached on the facts it is not necessary to decide all of the questions raised in the parties' cases. That is so because I am affirmatively satisfied that neither Mr Ronald Hopkins nor Mr Tony Hopkins were presently entitled to receive income of the Family Trust trust estate before the end of the relevant years of income. And I reach that conclusion because I am affirmatively satisfied that Brisbane Air Charter, in its capacity as Trustee of the Family Trust, did not exercise the discretion to pay or apply any income prior to the relevant years of income.

38. To explain why I reach this view it is now necessary to make further reference to the evidence.

39. Trans West operated a substantial enterprise. In the year ended 30 June 2004 it had sales in excess of $38 m which yielded a gross trading profit of $4.6 m. Mr Ronald Hopkins appears to have started the business in about 1995. There is no doubt that, at least from 1999 when Mr O'Brien ceased his involvement, Mr Ronald Hopkins has been the controlling mind of Trans West. Mr Tony Hopkins has been employed by Trans west since 1993 and from about 1999 was employed in the role of a general manager, supervising the work of managers employed at five service stations and three fuel depots operated by Trans West.

40. In 2004 Mr Stuart Peacock was employed by Trans West as a management accountant. He described his duties as including "record keeping, cash-flow management and accounting duties generally." He had some accounting qualifications. His witness statement


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refers to, and exhibits, profits and loss statements and balance sheets for Trans West for each of the 2004 and 2005 income years. He says of them that they are documents prepared by him and forwarded to Ahrens by him (or at his direction) on 7 February 2005, in the case of the 2004 financial accounts, and 10 July 2006, in the case of the 2005 financial accounts.

41. I am not able to accept that Mr Peacock prepared the 2004 financial accounts that are annexed to his statement. They are in a format produced by an accounting software package available to accountants, one used by Ahrens at the time. I am, however, prepared to accept that Mr Peacock prepared a set of accounts to the same effect, most likely in the format of the 2005 financial documents annexed to his statement. And I accept that he forwarded a set of the 2004 accounts to Ahrens on or about 6 February 2005 - that is the date appearing in the original form of the document he subsequently used to transmit the 2005 accounts to Ahrens. That document, and the facsimile markings on it, confirms his evidence that he forwarded the 2005 accounts to Ahrens on 10 July 2006.

42. Despite Mr Tony Hopkins having a senior position at Trans West and despite him having been a director at all times material to these proceedings his evidence, which I accept, is that,

  • • He cannot recall being involved in any directors' meetings of Trans West's directors during his time as a director;
  • • Mr Ronald Hopkins made most of the decisions in connection with the management of Trans West;
  • • When his signature was required Mr Ronald Hopkins would explain why his signature was required and he would then sign.

In relation to Brisbane Air Charter he was aware that it was the Trustee of the Family Trust and that he was a beneficiary of that trust. There were, to the best of his recollection, no meetings of the directors of Brisbane Air Charter where resolutions were passed regarding the distribution of income from the Family Trust in either of the 2004 or 2005 income years. Mr Tony Hopkins could not recall being involved in any meeting of the directors of Brisbane Air Charter.

43. My Tony Hopkins' evidence of his non-involvement in the financial affairs of Trans West and in the decision making concerning distributions from the Family Trust is confirmed by Mr Ronald Hopkins[14] Exhibit 7, paragraphs [30]-[31]. . He agreed that he effectively made the decisions required of the trustee of the Family Trust[15] Transcript, page 36, lines 17-21. . Indeed his evidence was that there were no meetings of the directors of Brisbane Air Charter at which resolutions regarding distributions were made or recorded and that questions of distributions by the Family Trust were decided by him in discussions with Mr Ahrens after the end of the financial year and the decision made was reflected in the tax returns lodged[16] Transcript, page 75, lines 18-29. .

44. The nature of the practice adopted is confirmed by the absence of documents that might otherwise be expected to exist and such documents as do exist and have been produced.

45. The evidence of Mr Ahrens confirmed that it was the firm's general practice with its other clients that the firm would be instructed to prepare, and would prepare, trust distribution minutes. That practice is common enough but it was not followed in the case of Mr Ronald Hopkins and entities associated with him[17] Transcript, page 147, lines 15-37. . He approached the matter differently. His practice did not involve him in complying with the requirements of the trust deed, particularly clause 3(a); he simply advised Mr Ahrens of the amounts of distributions which would then be used by Ahrens in the preparation of the tax returns for various beneficiaries. That would invariably be done after the profit and loss account for the Unit Trust had been prepared and there was a concluded view about the amount of income available for distribution to the Family trust.

46. Mr Ahrens explained the departure from what might be regarded as conventional practice on the basis of his having worked with Mr Ronald Hopkins in an accounting practice many years earlier and Mr Ronald Hopkins' familiarity with accounting practice.

47. Ahrens files were produced, in response to a direction made during the course of Mr Ahrens evidence. Notes located within those files confirmed the evidence of Mr Ronald Hopkins and Mr Ahrens[18] Exhibits 18, 19 and 20. . One of those


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documents, exhibit 23, dated 29 October 2004, is a note written by Mr Ronald Hopkins. It makes a reference to a distribution of $30,000 to Mr Tony Hopkins from the Family Trust. The earliest reference to distributions to other persons and the amounts is in a note dated 8 February 2005[19] Exhibit 19. . That is the day on which Ahrens completed the financial accounts and computation reports of Brisbane Air Charter (as trustee)[20] Exhibit 27. and Trans West (as trustee)[21] Exhibit 21. .

48. The notices of objection, prepared on behalf of the applicants by Mr Gregory Pimm when an employee of Ahrens, make explicit reference to "trustees distribution resolution" of the Family Trust. Those references do not persuade me that such documents exist; rather they persuade me that Mr Pimm assumed, on the basis of common practice, that they must have existed and was context to make assertions to the Commissioner on matters of fact without any proper investigation of those matters.

49. Despite the complete absence of any evidence of a determination of a distribution prior to the end of the relevant income years Mr Brennan, counsel for the Commissioner, submitted that I would not be satisfied that there had been no such determination. Reference was made to the accounts prepared and signed off by Ahrens at least for the 2004 income year and I was invited to infer that the accounts recorded distributions to which the beneficiaries had become entitled by written or oral declaration made on or before 30 June in each year. I decline to draw that inference; on the contrary I draw the contrary inference. Mr Ronald Hopkins struck me as a person with little regard for form and no regard for substance. He made all the decisions of the trustee. He determined to make a distribution to a person who was not even a beneficiary. I have no confidence that he was ever conscious of the requirements of the trust deed; the Family Trust was, I suspect, no more than a convenient device to minimise tax. And it is to be borne in mind that at the time of these events the Commissioner was prepared to accept that a beneficiary could be presently entitled even when a trustee's resolution to distribute was made up to two months, or perhaps longer, after the end of the financial year. The rulings that sanctioned that practice were in force in 2004 and 2005; it was not until August 2011 that those rulings were withdrawn.

50. Mr Ronald Hopkins' evidence was that there were no meetings of directors of Brisbane Air Charter in relation to distributions[22] Exhibit 6, paragraph [51]. and that his meetings with Mr Ahrens to discuss distributions did not take place prior to the end of the year. There is no reason to reject that evidence indeed there is every reasons to accept it.

51. I am then not satisfied that there was any valid resolution to distribute or distribution by Brisbane Air Charter in either the 2004 or 2005 years and that, subject to the operation of clause 3 (a) of the Family Trust trust deed, neither Mr Ronald Hopkins (in respect of both years) nor Mr Tony Hopkins (in respect of 2004) were then presently entitled to the income of the Family Trust.

52. Both parties accept that in this event the default of appointment clause operates[23] Exhibit 36 at paragraph [230]; Exhibit 37 at [81]. . The applicants submit that the takers in default are the 46 persons (including the applicants) identified by Mr Ronald Hopkins as falling within the definition of primary beneficiaries. Each of them, it is said, in each year had a present entitlement to any available distributable income in equal shares. The Commissioner argues that clause 3 (a) of the Family Trust trust deed, on its proper construction, tells against an express or direct gift in default of appointment. That is so, it is said, because of the width of the class and the fact that some members of the class are unascertainable at the time of the deed. That being so, there is, so the argument goes, an implied gift in favour of those capable of taking by appointment, more particularly, the primary beneficiaries likely to have been considered as objects of appointment.

53. I am unable to accept either element of the Commissioner's argument. In my view there were 46 takers in default in equal shares.

54. I do not accept that there is any uncertainty in the objects. Those in existence at the relevant time have been identified by Mr Ronald Hopkins. It is possible to say with certainty that any given individual was, or was not, a member of the class[24] In re Baden’s Deed Trusts [1991] AC 424 , 456. .

55. Moreover I cannot accept the second element of the argument. The Commissioner says that there is an implied gift in favour of


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those capable of taking by appointment. He cites this passage from
Lambert v Thwaites[25] (1866) LR 2 Eq 151 . ,

The general principle seems to be this: If the instrument itself gives the property to a class, but gives a power to A. to appoint in what shares and in what manner the members of that class shall take, the property vests, until the power is exercised, in all the members of the class, and they will all take in default of appointment; but if the instrument does not contain a gift of the property to any class, but only a power to A. to give it, as he may think fit, among the members of that class, those only can take in default of appointment who might have taken under an exercise of the power. In that case the Court implies an intention to give the property in default of appointment to those only to whom the donee of the power might give it.

The principle is not open to doubt but it has no present application. Those to whom the donee "might give" are not those to whom the donee has historically given or might be predicted to have given, but those to whom the donee is empowered by the deed to give.

56. It follows that I am satisfied that each assessment was excessive. I would then set aside the objection decision and remit the matter to the Commissioner for reconsideration. It will be a matter for the Commissioner to determine whether any further assessments should be undertaken.

57. In those circumstances I need not deal with the other arguments raised by the parties.


Footnotes

[1] They also requested that the Commissioner treat as having been made within time objections to the original assessments. Those requests were refused by the Commissioner. Neither applicant now seeks a review in these proceedings of those parts of the Commissioner’s decisions.
[2] It seems likely that the word “of” has been omitted from here.
[3] Exhibit 36 (applicants’ submissions) at paragraphs 12-20 and exhibit 37 (respondent’s submissions) at paragraphs 11.4-11.6.
[4] See clause 14.2.
[5] From the reasons for the objection decision dated 28 May 2010 (Exhibit 3, pages 5-21).
[6] One by Mr Ronald Hopkins in relation to the 2004 income, one by him in relation to the 2005 income year and one by Mr Tony Hopkins in relation to the 2004 income year.
[7] The proposed grounds are set out in paragraph 25 of exhibit 1.
[8] 2010 ATC ¶20-170 ; [2010] HCA 10 ; (2010} 240 CLR 481 at 507-508.
[9] 98 ATC 4681 ; (1998) 84 FCR 70
[10] At 74-75.
[11] 91 ATC 5000 ; (1991) 173 CLR 264 at 271; see too Bamford at 505, [37].
[12] Bamford at 506, [39].
[13] Trustees of Estate Mortgage Fighting Fund Trust v Commissioner of Taxation 2000 ATC 4525 ; [2000] FCA 981 ; (2000) 102 FCR 15 at 32, [38]. See also Federal Commissioner of Taxation v Ramsden 2005 ATC 4136 ; [2005] FCAFC 39 ; (2005) 58 ATR 485 at [67] and Colonial First State Investments Ltd v Federal Commissioner of Taxation [2011] FCA 16 ; (2011) 192 FCR 298 at 309-310, [32] & [38].
[14] Exhibit 7, paragraphs [30]-[31].
[15] Transcript, page 36, lines 17-21.
[16] Transcript, page 75, lines 18-29.
[17] Transcript, page 147, lines 15-37.
[18] Exhibits 18, 19 and 20.
[19] Exhibit 19.
[20] Exhibit 27.
[21] Exhibit 21.
[22] Exhibit 6, paragraph [51].
[23] Exhibit 36 at paragraph [230]; Exhibit 37 at [81].
[24] In re Baden’s Deed Trusts [1991] AC 424 , 456.
[25] (1866) LR 2 Eq 151 .

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