Case X22

PJ Burns M

Administrative Appeals Tribunal

Decision date: 30 January 1990.

P.J. Burns (Member)

The matter in dispute in this reference concerns an assessment issued by the Commissioner of Taxation to a trustee of a family trust pursuant to sec. 99A of the Income Tax Assessment Act 1936.

2. The Commissioner disallowed claims made by the trustee of alleged distributions to non-resident beneficiaries of the trust and treated those amounts as income to which no person was beneficially entitled.

3. A copy of the trust deed was not made available at the hearing. However, it was stated on behalf of the applicant that the trust was formed in 1976. The trustee is a company the directors of which are a businessman whom we shall refer to as P, whose family members are beneficiaries of the trust and P's accountant.

4. Trust beneficiaries were originally members of P's immediate family in Australia but sometime in 1980 or 1981 the trust deed was amended enabling the admission as beneficiaries of the two non-residents.

5. The two non-resident beneficiaries are a cousin of P, resident in the United Kingdom, whom we shall refer to as R and an elderly aunt of P's wife, whom we shall refer to as M. M died in 1986 leaving her estate to her husband. He died six weeks later and after distributions to two minor beneficiaries the residue of the estate was left to P's wife.

6. A copy of a directors' resolution of the trustee company dated 24 December 1981 was produced which resolved that the assessable income of the trust for the year ended 30 June 1981 of $14,230 be distributed to the following:

      Beneficiary       (1)       1,000       Immediate
           -            (2)       1,000        members
           -            (3)       1,000        of P's
           -            (4)       4,000        family
           -             R        3,615
           -             M        3,615

7. It was also resolved that any excess over and above $14,230 be divided equally amongst the following beneficiaries: R; M.

8. No payment was made to either of the non-resident beneficiaries.

9. A copy of an undated, unsigned letter purported to be from the trustee to R was tendered. This letter confirmed R's membership of the ``Beneficial Class'' under the trust and advised him that in relation to the financial year ended 30 June 1981 the trustee had exercised its discretion and determined to distribute to him an amount of $3,615. The amount was to be credited to his beneficiary loan account in the books of the trust. It also advised that subject to Reserve Bank of Australia approval the credited amount could be called at any time. The letter then went on to say that an

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authority giving the trustee discretion to invest the funds was also enclosed.

10. A copy of the authority was tendered. This authority was signed but R's signature was not witnessed nor was the document dated.

11. A copy of a purported letter from the trustee to M, similar to that forwarded to R was also tendered. This letter was also undated and was not signed by the trustee company. An authority for investment by the trustee of any income due to M similar to that forwarded to R was also tendered. This document was not signed by M and no written correspondence from her was submitted.

12. In evidence P said that distributions were to be made to the non-resident beneficiaries because:

``Initially it was an extension of the family and both M and R were close members of the family. I wish also to stress that they were childless and I thought if I gave them an interest in the business then they would feel part of our family more so. Also it is a home for my children and wife when they travel overseas in that particular area...''

13. He said that the letter from the trustee to R was signed in mid-1982 and that the authority document was returned reasonably quickly. He also said that he had spoken to R who told him not to send any money, just keep on re-investing it. He added that R ``is not a poor man, he is a ship's engineer, he is quite comfortably off''.

14. In answer to questions from the Commissioner's representative P stated that he knew R very well and that while in Australia R had stayed with the family for two or three weeks at a time. He said that he had never met M but his wife had. When questioned about M's financial situation P said, ``Well I can only go on my wife's inheritance, and as I said to my wife, that is the sum total of her life's work. It is about 60,000 pounds, I think. I said that is a sad indictment when someone has worked all their lives and that is all they could leave.''

15. There is, of course, no reason why such persons should not have been included as beneficiaries of the trust.

16. The applicant's representative referred to the meaning of ``presently entitled'' in sec. 97 as expressed by the High Court in
F.C. of T. v. Whiting (1943) 7 A.T.D. 179; 68 C.L.R. 199, and submitted that the non-resident beneficiaries were presently entitled to the alleged distributions on the basis of that decision in that they had a legal right to payment or to require payment.

17. Section 190(b) of the Income Tax Assessment Act 1936 provides that the burden of proof that the assessment is excessive lies in the taxpayer. In the absence of proper supporting documentation I am unable to accept P's evidence. No payment was made to either of the beneficiaries. Purported copies of letters sent to them by the trustee were not dated nor were they signed or initialled by the trustee or its representative. A reply was not received from M and the authority received from R, although signed, was not witnessed nor was it dated.

18. In the circumstances I am not satisfied that the trustee company has discharged the onus of proof that the non-resident beneficiaries were presently entitled to the income and I affirm the objection decision under review.

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