ANDERSON v FC of T
Members:BJ McCabe SM
Tribunal:
Administrative Appeals Tribunal, Brisbane
MEDIA NEUTRAL CITATION:
[2015] AATA 167
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BJ McCabe (Senior Member):1. Mr Stephen Anderson was appointed a trustee of The Anderson Family (No. 2) Trust. The trust was the owner of a parcel of land that was subdivided in the course of a commercial development. A number of the lots were sold during 2009. There is no dispute those sales were taxable supplies for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ("the GST Act"). The parties agreed the vendor of the property would be liable to pay goods and services tax (GST) on those supplies in the ordinary course - but the vendor did not pay GST in respect of the sales of two lots in particular. Mr Anderson says the liability to pay does not arise - and should not fall on him in particular - for two reasons:
- • the trustee was an incapacitated entity for the purposes of the GST Act; and
- • he retired as trustee on 9 December 2009.
2. The first argument is wrong and the second is misconceived. I explain my reasons below.
WHAT HAPPENED?
3. Mr Stephen Anderson is a chartered accountant. He was appointed as trustee of The Anderson Family (No. 2) Trust[1]
4. Mr Anderson's parents had been involved in a property development project which was being conducted through an associated company that was trustee for another family trust. The Anderson Family (No. 2) Trust was a beneficiary under that other family trust. The project was subject to a mortgage and a second mortgage. Mr Anderson's father ran into financial difficulties and Mrs Anderson, the applicant's mother, was in poor health. Mr Anderson said at the hearing it was decided it would be easier to obtain the finance needed to complete the project if the ownership were transferred to a new entity so that persons other than his parents could assume responsibility for the development. The development property was subsequently distributed to The Anderson Family (No. 2) Trust - that is, it was transferred to him and his brother in their capacity as trustees - in April 2008. A copy of the transfer executed by the transferor on 14 April 2008 is reproduced in exhibit 2 at p 251. Mr Anderson said he gave personal guarantees to the first and second mortgagees in the process, and managed to secure a further advance from the second mortgagee so he and his brother could complete the development and sell the lots.
5. The development proceeded, but it quickly ran into difficulty once the trustees began to sell individual lots in 2009. The second mortgagee sent a notice dated 23 July 2009 demanding repayment of amounts owing under the second mortgage within 30 days: see exhibit 1 at p 95ff. The notice is described on its face as a Notice of Default and Demand for Possession. Mr Anderson and his brother were unable to meet that demand.
6. Mr Anderson said he assumed the second mortgagee had taken possession of the property and that he was obliged to provide reasonable assistance. He said that assumption was based on his general knowledge of the law, the content of the notices served on 23 July 2009 and the text of an email from the solicitor for the second mortgagee dated 16 September 2009. That email asserts "North Burleigh Pty Ltd has the power of sale and is currently mortgagee in possession": see exhibit 1 at p 109. Mr Anderson said he decided to cooperate with any request from the solicitor and other officers from North Burleigh Pty Ltd, the second mortgagee. He explained he was concerned the second mortgagee would enforce the terms of the personal guarantee. The applicant agreed in cross-examination that he was not served with any court orders in relation to the property until later. In fact, those orders were not made until 10 December 2009: see exhibit 3 at p 316-317. When the orders were made, they did not refer to two of the lots in question in these proceedings: lot 32, for which an entity associated with Mr Anderson had signed a contract to purchase on 26 March 2009 (exhibit 1 at p 63ff), and lot 2, which another party agreed to purchase in a contract dated 14 October 2009 (exhibit 1 at p 123ff). The settlement in relation to lot 32 occurred on 13 October 2009 (exhibit 1 at p 122) and lot 2 settled on 18 November 2009 (exhibit 1 at p
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141). Mr Anderson signed the transfers in respect of both properties as trustee for The Anderson Family (No. 2) Trust. Cheques were not drawn at settlement to pay the GST liability. Mr Anderson said the proceeds of both sales were paid directly to the second mortgagee.7. Mr Anderson said he was unhappy with the pressure being applied by the second mortgagee in the latter part of 2009. He said he was being asked to do things he was not comfortable doing - but also felt vulnerable because of the personal guarantees. His brother had resigned as trustee but Mr Anderson did not take that step until 10 December 2009. The deed of retirement (which also purported to appoint Mr Anderson's mother as trustee in his place) was produced shortly before the hearing. I note Mr Anderson Snr (the applicant's father) was not a party to the deed of retirement. That is surprising given the trust deed (exhibit 2 at p 266ff) provides at [17] that Mr Anderson Snr (the appointor) "may at any time…by deed remove any Trustee hereof from office and may…by deed appoint any person or company to be a Trustee hereof": see exhibit 2 at p 275 (emphasis added). There must be some question over whether Mrs Anderson was effectively appointed to the role of trustee given her husband, the appointor, was not a party to the deed.
8. The applicant remained the representative of the trust for taxation purposes after he purported to retire. He pointed out he had played that role before he was appointed as trustee. He said he saw it as part of the accounting services he provided to a number of entities associated with the family. He insisted he spoke with the second mortgagee on a number of occasions about GST liabilities but he could not get clear answers. He lodged Business Activity Statements for the quarterly period 1 October 2009-31 December 2009 (exhibit 1 at pp 155-156) which did not refer to the sales of lots 2 and 32, even though the sales of those lots were completed during that period.
WAS THE TRUSTEE AN INCAPACITATED ENTITY FOR THE PURPOSES OF THE LEGISLATION?
9. The applicant asserted in his Witness Statement (exhibit 5 at [25]) that "[t]throughout the entirety of the business dealings with the Trust and North Burleigh Pty Ltd, North Burleigh Pty Ltd exercised control over the project". He explained North Burleigh Pty Ltd directed how funds were to be spent, dictated the sale price of all lots and received the proceeds (including any amount charged with respect to GST) from the individual lots that were sold. He said North Burleigh Pty Ltd was in possession of all the lots after July 2009 when the trustees were unable to satisfy the notices of demand. That made North Burleigh Pty Ltd the controller of the property, it was claimed.
10. Even if I were to accept the applicant's evidence that North Burleigh Pty Ltd controlled the project as he described, that does not make it a controller for the purposes of the legislation. I will explain why.
11. The person making a taxable supply within the meaning of s 9.5 of the GST Act would ordinarily be liable to pay GST under general principles. But the legislation makes allowances where the entity making the supply is an incapacitated entity. That expression is defined in s 195.1 of the GST Act as:
- (a) An individual who is a bankrupt; or
- (b) An entity that is in liquidation or receivership; or
- (c) An entity that has a representative.
12. The applicant in this case is a natural person. He cannot be placed in liquidation or receivership, and he is not a bankrupt. That means he could only be regarded as an incapacitated entity if he has a representative. That expression is itself narrowly defined in s 195.1. None of the definitions assist the applicant. The applicant relies in particular on the reference in sub-section (ca) to "a controller (within the meaning of s 9 of the Corporations Act 2001 (Cth))" (emphasis added). Section 9 defines a controller as follows:
- (a) a receiver, or receiver and manager, of that property; or
- (b) anyone else who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest[.]
13.
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The definition refers to the property of a corporation, whereas the applicant is an individual. It follows the definition does not fit.14. I would add that the evidence does not establish the second mortgagee made any sales in the relevant period as mortgagee in possession. There was certainly some loose language in emails used by the second mortgagee's solicitor, but the second mortgagee did not obtain orders giving it possession of the property until December 2009. Those orders did not refer to lots 2 and 32, which are in question here, precisely because those lots had already been sold by the trustees with the mortgagee's consent. I do not doubt the mortgagee was in a position to exert pressure on Mr Anderson that might have amounted to control in a practical sense given his outstanding guarantees, but that is not enough to relieve the trustee of GST liability for the purposes of Division 105 of the GST Act. The power of sale was not exercised in relation to the two lots under consideration here, so the GST liability cannot be sheeted home to the second mortgagee.
WHAT IS THE SIGNIFICANCE OF THE APPLICANT'S RETIREMENT AS TRUSTEE ON 9 DECEMBER 2009?
15. I turn to the next question, which is whether the trustee's liability is affected by the applicant's purported retirement as trustee on 9 December 2009. The Commissioner pointed out the evidence of the applicant's retirement is equivocal. The applicant was able to produce a copy of the Deed of Retirement before the hearing, but the Commissioner said there was evidence of the applicant continuing to perform functions - like signing transfer forms - after that date which suggests he had not, in fact, retired from the role. The Commissioner also noted the Tribunal did not hear from the applicant's mother, who purportedly took over the role from him in December 2009. But the Commissioner said that evidence can all be put to one side for now, as I need only decide whether the trustee is liable - and that can be done without reaching a concluded view on the identity of the trustee because the trust is a separate entity.
16. I infer that the Commissioner initially approached this case on the basis that Mr Anderson was personally liable for the GST obligations in the relevant period, including any administrative penalties. But if that were so the Commissioner signalled a different, more limited approach in its Amended Statement of Facts, Issues and Contentions which confirms (at [33]) it is referring to the applicant "as the trustee of the Anderson Trust" and asking the Tribunal to consider whether the applicant as the trustee for the Anderson Trust is liable: at [34]. The Commissioner is insisting the applicant is a separate entity from the applicant acting in his capacity as trustee.
17. Anyone whose knowledge of trusts is uncontaminated by knowledge of the tax laws would find that a startling proposition. As I explained in
David Christie as Trustee for the Moreton Bay Trading Company [2004] AATA 1396 (at [22]-[23]):[2]
A trust is not a legal person. A trust is a creature of equity. It is a relationship in which a person holding an interest in property or funds (the trustee) assumes obligations to manage or apply the property or funds for the benefit of others (the beneficiaries) or for a specific purpose….
The trust does not exist independently of the trustees or the beneficiaries who are involved in the trust relationship. Trusts do not own property, and they do not have the capacity to enter into contracts. The trustee is the legal actor.
18. But the Commissioner is right: the tax laws do modify the general law, at least in relation to aspects of one's taxation affairs. Section 184.1(3) of the GST Act recognises persons can undertake functions in a number of different capacities and adds: "In each of those capacities, the person is taken to be a different entity". Consistent with that approach to the tax laws, s 184.1(1) says a trust (and a partnership, and an unincorporated association, amongst others) is an entity. Section 184.1(2) goes on to explain:
The trustee of a trust or of a * superannuation fund is taken to be an entity consisting of the person who is the trustee, or the persons who are the trustees, at any given time.
19.
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One consequence of this approach is a form of perpetual succession in which the individual and its liabilities live on even though the individuals associated with the entity come and go. That consequence was acknowledged by Lindgren J inAXA Asia Pacific Holdings Ltd v Commissioner of Taxation (2008) 173 FCR 500 where his Honour said (at 521) a "change in the identity of a trustee of a trust does not mark a change in the entity, which is 'the trustee of [the] trust'". That view of the law was confirmed with the addition of Note 2 to s 184.1(2) of the GST Act.
20. Once the argument about incapacitated entities falls away, the applicant is unable to point to any basis why the trustee of the trust in this case should not be liable to pay GST. His main concern at the hearing was that he should not be held liable in his personal capacity. That is fair enough given he believes he is being called on to pay both the liability and penalties out of his private resources. However, the Commissioner says the question of whether a particular individual is liable to pay any amount is not squarely before me. The question of who ultimately pays certainly requires further investigation and careful consideration of the implications of the legislative logic of recognising separate entities.
21. If the Commissioner were to commence recovery proceedings in a court against a particular individual - most obviously Mr Anderson - in his personal capacity, there is an obvious question that would have to be addressed: if an individual incurs a liability in one capacity - as trustee, say - which is distinct from his personal capacity, why can the Commissioner extract payment from the individual in his personal capacity in respect of the other entity's debts? The question is ultimately the same as that posed to the House of Lords in
Salomon v Salomon & Co Ltd [1897] AC 22 and
Maclaine Watson v Department of Trade and Industry [1988] 3 All ER 523; see also
Body Corporate, Villa Edgewater Cts 23092 and Commissioner of Taxation [2004] AATA 425. Moreover, if Mr Anderson can satisfy a court he had actually resigned in December 2009 before the end of the relevant quarter, he may escape any liability because it is accepted GST liability only crystallises at the end of a quarterly period: see
Eskdale South Capital Co Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125 at [20]-[21] per Logan J. In any event, I accept the question of recovery against any particular individual (as opposed to determining the liability of Mr Anderson in his capacity as trustee) is not before me. Whether or not Mr Anderson effectively retired on 9 December 2009 makes no difference to the liability of the trustee in that capacity.
CONCLUSION
22. The GST liability arises on the day when the taxable supply occurred, but it does not crystallise until the end of the quarter. In this case, the taxable supply occurred on the days on which the sales of the two lots were settled: that is, on 13 October 2009 for lot 32, and on 18 November 2009 for lot 2. The applicant, Mr Anderson, was still the trustee at those points of settlement: he did not retire until 9 December 2009 at the earliest. I accept Mr Anderson is in a position to make submissions about the GST liability of the trustee as a result of those transactions since they occurred on his watch, even if he now says he resigned before the end of the relevant quarter. He accepted in his letter of 27 January 2015 that the correct amount of GST was $14,093 in respect of lot 32 and $13,982 in respect of lot 2: see exhibit 3 at p 320. The Commissioner now accepts those figures are correct, as do I. It follows the assessment for the December 2009 tax period should be varied to $21,446 (the amount of GST payable less input tax credits in the amount of $6,629).
23. The assessment in respect of the period ending 31 March 2010 should be set aside in light of concessions made by the Commissioner. I decide in substitution that the amount assessed should be reduced by $41,125 to nil.
24. I set aside the decisions in relation to administrative penalties in respect of both periods in light of concessions made by the Commissioner. In each case, I decide in substitution the amount of administrative penalty should be nil.
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Footnotes
[1][2]
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