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CASE 44/95

Members:
BH Pascoe SM

Tribunal:
Administrative Appeals Tribunal

Decision date: 28 July 1995

BH Pascoe (Senior Member)

The applicant in this matter is a corporate trustee for the A Maintenance Trust and the applications are for review of a decision of the respondent to disallow in part objections against assessments of income tax for the years ended 30 June 1992 and 30 June 1993. The issue in dispute was whether Division 6AA of Part III of the Income Tax Assessment Act 1936 (``the Act'') applied to all or part of the net income of the A Maintenance Trust in those years. The whole of the net income of the Trust was distributed for the benefit of A and assessable to the Trustee pursuant to section 98 of the Act. Any amount of the net income which was attributable to assessable income that is not ``excepted trust income'' is subject to the higher rate of tax specified in section 13(3) of the Income Tax Rates Act 1986.

2. On 6 May 1994 the respondent issued assessments to the applicant in respect of income for the years ended 30 June 1992 and 1993 pursuant to section 98 at that higher rate of tax. The net income assessed was $18,705 for 1992 and $22,770 for 1993. By notices of 20 May 1994 the applicant objected to the assessments. By letter of 1 July 1994, the respondent allowed the objections in part by accepting that $1,173 in 1992 and $2,851 in 1993 was excepted trust income but maintaining that the balance of net income in each of the years did not constitute excepted trust income.

3. The facts in this matter are somewhat complicated. The beneficiary of the trust, A, was and still is under the age of 18 years. Her father, F, is a partner in a large professional firm and has been since 1982. In 1982 he assigned 40% of his interest in the partnership to E Pty Ltd as trustee of the B Trust which was a discretionary trust. In subsequent years up to the year ended 30 June 1990 the net income of the B Trust was distributed principally to the then wife of F with distributions of $416 to A and, in some years, distributions of $416 each to other beneficiaries. In the year ended 30 June 1991 the principal beneficiary was another discretionary trust which, in turn, distributed in income to the then wife. After a breakdown of the marriage the Family Court of Australia issued an order by consent on 10 September 1990 which provided, among other things, for F to pay $675 per month for maintenance of the wife and $675 per month for the maintenance of the child plus certain other expenses on behalf of the wife and child. On 6 December 1991, a further consent order was issued by the Family Court which discharged all previous orders relating to maintenance of the wife and child. This order provided for payment of maintenance to the wife which would provide her with $250 per week after tax. It also provided for maintenance of the child, A, in the following terms:

``3. That the husband pay or cause to be paid for the maintenance of the child A born the 21st day of December, 1978 the sum of $250.00 per week together with all the costs of private schooling, books, uniforms, extra curricular activities, medical, dental, orthodontic and pharmaceutical expenses. The first payment to be made on the 13th day of December, 1991 and weekly thereafter.

4. That to facilitate maintenance for the said child the husband shall forthwith upon the establishment of a Trust styled the A MAINTENANCE TRUST (established for the benefit of the child as a beneficiary of the Trust) transfer the sum of $22,000.00 to the Trust.

5. That the husband's obligations under Order 3 hereof be regarded as satisfied to the extent of the amount of any income or capital from time to time distributed, paid or applied to or for the benefit, maintenance or advantage of the said child from the Trust.

6. That the husband pay and be solely responsible for the payment of any taxation assessed against the said child as a result of her receiving payments of maintenance

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pursuant to these Orders and/or deriving income under the said Trust.''

4. On 10 February 1992 the following occurred:

  • (a) A deed of settlement establishing the A Maintenance Trust was executed with the applicant as trustee
  • (b) A deed of trust establishing the C Unit Trust was executed with E Pty Ltd as trustee
  • (c) The applicant as trustee of the A Maintenance Trust applied for 22,000 units of $1 each in the C Unit Trust with a cheque for $22,000
  • (d) E Pty Ltd, as trustee of the B Trust, nominated E Pty Ltd in its capacity of the C Unit Trust as a beneficiary of the B Trust
  • (e) The firm of which F was a partner repaid to F $22,000 of his capital contribution to the firm
  • (f) F paid $22,000 to the applicant as trustee of the A Maintenance Trust
  • (g) E Pty Ltd as trustee of the C Unit Trust made a loan of $22,000 to the B Trust
  • (h) E Pty Ltd as trustee of the B Trust made a loan of $22,000 to the firm of which F was a partner.

By resolution of the trustee of the C Unit Trust dated 11 March, 1992 the 22,000 units in that trust were issued to the applicant as trustee of the A Maintenance Trust.

5. In each of the years ended 30 June 1992 and 1993 the C Unit Trust derived income from the B Trust in the form of interest of $1,175 and $2,860 respectively on the loan of $22,000 and a distribution of income as determined by the trustee of the B Trust of $17,560 and $19,980. The interest income was at the same rate as paid by the firm on loans by partners or persons or entities associated with partners and was said by F in evidence as being 2% above market rates. The total net income of the C Unit Trust was distributed to the A Maintenance Trust as the sole unit holder. In turn, the A Maintenance Trust distributed the whole of its net income to A. It is this distribution which is said by the applicant to be ``excepted trust income''.

6. The provisions of the Act relevant to this issue are contained in section 102AG which states:

``102AG(1) Where a beneficiary of a trust estate is a prescribed person in relation to a year of income, this Division applies to so much of the share of the beneficiary of the net income of the trust estate of the year of income as, in the opinion of the Commissioner, is attributable to assessable income of the trust estate that is not, in relation to that beneficiary, excepted trust income.

102AG(2) Subject to this section, an amount included in the assessable income of a trust estate is excepted trust income in relation to a beneficiary of the trust estate to the extent to which the amount:

  • (a)...
  • (b)...
  • (c) is derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary:
    • (i)...
    • (ii)...
    • (iii)...
    • (iv)...
    • (v)...
    • (vi)...
    • (vii)...
    • (viii) as the result of a family breakdown (see section 102AGA)
  • (d)...
  • (e)...

102AG(3) Subject to sub-section (4), where assessable income is derived by a trustee, directly or indirectly, under or as a result of an agreement (whether entered into before or after the commencement of this sub- section) any 2 or more of the parties to which were not dealing with each other at arm's length in relation to the agreement and the amount of the assessable income so derived is greater than the amount (in this sub-section referred to as the `arm's length amount') of the assessable income that, in the opinion of the Commissioner, would have been derived by the trustee, directly or indirectly, under or as a result of that agreement if the parties to the agreement had dealt with each other at arm's length in relation to the agreement, sub-section (2) does not apply in relation to that assessable income to the extent to which the amount of the assessable income exceeds the arm's length amount.

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102AG(4) Sub-section (2) does not apply in relation to assessable income derived by a trustee directly or indirectly under or as a result of an agreement that was entered into or carried out by any person (whether before or after the commencement of this sub- section) for the purpose, or for purposes that included the purpose, of securing that that assessable income would be excepted trust income.

102AG(5) In determining whether sub- section (4) applies in relation to an agreement, no regard shall be had to a purpose that is a merely incidental purpose.

102AG(5A) ...

102AG(6) ...

102AG(7) ...

102AG(8) For the purposes of this section, where-

  • (a) any property is transferred to the trustee of a trust estate; and
  • (b) the trustee has a discretion to pay or apply the income derived from that property to or for the benefit of specified beneficiaries or beneficiaries included in a specified class of beneficiaries;

that property shall be taken to have been transferred to the trustee for the benefit of each of those specified beneficiaries or for each of the beneficiaries in that specified class of beneficiaries, as the case may be.''

Section 102AG(2)(c)(viii) was amended and section 102AGA was inserted by Act No. 181 of 1994 applicable in relation to the year of income that commenced on 1 July 1979 and all later years of income. Nothing turns on these amendments as both parties concede that the amendments have no effect on this dispute.

7. At the hearing the applicant was represented by Mr M Bearman, and the respondent by Mr T Murphy. Evidence was given by F and a Mr P who is a partner of F in the professional firm and also a director of E Pty Ltd. In the course of his evidence F stated that the figure of $22,000 was arrived at as being the only amount available to him personally. Under the partnership arrangements each partner is required to provide a specific amount of working capital by way of loan and the amount is reviewed annually. In F's case, only $22,000 of the working capital had been provided by him personally with the balance from the B Trust the bulk of which, in turn, had been borrowed from a bank. He agreed that, if the amount had been $2,000, then that amount would have been the maximum amount able to be transferred to the A Maintenance Trust. He accepted that he was aware of section 102AG but could not recall who it was who explained it to him. All of the documentation for the establishment of the A Maintenance Trust, the C Trust, nomination of C Trust as beneficiary, application for and issue of units in the C Trust and loan arrangements were prepared at the same time by solicitors for F. They were received together by F who then arranged for signatures and the drawing and signing of the various cheques. He did not remember the actual order of signing but thought that the C Trust deed had been executed first with other documents signed later.

8. The directors of the applicant trustee company were and still are F and a lady who is now his wife. F gave evidence that he had taken the view that it was necessary for him to have greater influence over the spending of income of the trust for his daughter than he would have as one of six directors of E Pty Ltd which acted as trustee of the B Trust and in which the daughter was one of the discretionary beneficiaries. He had also considered that the best investment of the limited capital available would be to derive an income stream in some form from the firm but in a form which, in the event of his ceasing to be a partner, would be capable of being invested elsewhere.

9. Mr P was very careful in his answers to cross examination. As a director of E Pty Ltd he stated that the company acted as trustee for the family trusts of several partners of the firm. The other directors who were also partners of the firm were not consulted with by F in arriving at the structure which was established on 10 February, 1992 and P did not understand completely the legal reasons for the way it was structured. He accepted the advice of F and agreed to his requests on the assurance that it was part of the Family Court arrangements resulting from the matrimonial problems. When asked why it was necessary for the C Trust to be nominated as a beneficiary of B Trust he responded, after considerable thinking time, that C Trust was set-up as part of the marriage breakdown and part of providing maintenance as part of the family arrangements. Whilst

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accepting that distributions from the B Trust were arrived at after advice from F he maintained that such distributions were solely at the discretion of the directors. He maintained that he was conscious of the responsibilities of a trustee and did not sign documents ``blindly''.

10. The respondent sought to support the assessment of the greater part of the income as not constituting excepted trust income on four separate bases. Firstly, it was said the income was not derived by the applicant from the investment of the $22,000 transferred to the trust. The view was taken that the only income derived from the investment of the money was the interest content of the distribution by C Trust. The balance of the distribution did not result from the investment but from the exercise of a discretion by the trustees of the B Trust. Thus it was argued, that although the A Maintenance Trust obtained all of its income from its unit holding in the C Trust, the only part of that income which was attributable to the $22,000 transferred was the interest paid to the C Trust on the investment of the proceeds of the issue of units.

11. Secondly, the respondent argued that the property transferred to the applicant trustee was not transferred for the benefit of A. This was said to be so because, under the terms of the trust, A was entitled to the income until reaching the age of 18 years or earlier death but thereafter the income was to be distributed at the discretion of the trustee among a wide class of general beneficiaries or accumulated. The corpus of the trust was to be held for the general beneficiaries. Consequently, it was argued, the property transferred was in part only for the benefit of A. It was further argued that it was F who derived the primary benefit from the transfer of property as the payment from the trust had the effect of reducing the amount which he would have otherwise to pay by way of maintenance and reducing the income tax which, under Clause 6 of the Family Court Order, was the responsibility of F.

12. Thirdly, the respondent submitted that the applicant, E Pty Ltd and the directors of both companies were not dealing with each other at arm's length and the assessable income derived was greater than that which would have been derived if the parties had dealt with each other at arm's length. It was said that, not only were the various parties involved in the transaction not at arm's length, the dealings with each other were not on an arm's length basis. All of the transactions were initiated by F, the directors of F acted in accordance with instructions of F and the investment of $22,000 was one stage in a circle of payments which started and finished with the firm of which F was a partner. It was submitted therefore, that the arm's length amount of income was the interest paid on the $22,000.

13. The fourth basis argued in support of the respondent's decision was that the assessable income was derived as a result of an agreement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that the assessable income would be excepted trust income. It was suggested that any or all of agreements including the Consent Order, the transfer of $22,000 to the A Maintenance Trust, the subscription for units, the various loan agreements, the nomination of the C Trust as a beneficiary of the B Trust and the distribution of income from the B Trust were for such a purpose.

14. In answer to the respondent's submissions it was argued for the applicant that the provisions of section 102AG(2)(c)(viii) applied to include the income of the A Maintenance Trust as excepted from income. It was said that the whole of the income was derived from the investment of the $22,000 in units in the C Unit Trust. It was recognised that there could be two forms of income derived by the C Unit Trust and that the return would be high given the intention to access the income stream from the partnership as a means of providing the required income for maintenance of the beneficiary. Without the investment in units in the C Unit Trust the relevant income would not have been derived. It was said that the $22,000 was transferred for the benefit of A. She clearly benefited from the income in the relevant years, would continue to be entitled to the whole of the income until age 18 and may well continue to benefit after that age.

15. Much of the argument presented for the applicant was addressed to subsection (3) and (4) of section 102AG. Whilst it was said that there was no agreement, it was submitted that, even if an agreement could be identified, all parties were dealing at arm's length both as directors of both E Pty Ltd and the applicant had acted properly in a fiduciary capacity. When parties are required to exercise a specific

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fiduciary obligation within the strict terms of powers under a deed of trust, it was said that the dealings must be at arm's length. Whilst F was consulted prior to the exercise of the discretion by the directors of E Pty Ltd, those directors acted appropriately in discharging their fiduciary responsibilities and the proper exercise of discretions. Consequently, it was argued, there can be no question that the parties were dealing at arm's length. It was strongly denied that any agreement existed to which subsection (4) could apply as the structure had been established solely for the purpose of providing maintenance for the daughter of F arising out of a family breakdown and in compliance with an order of the Court.

16. It is appropriate to deal with each of the four proposals put for the respondent in turn. Section 102AG(2)(c) treats as excepted trust income an amount included in the assessable income of a trust estate to the extent to which the amount is derived by the trustee from the investment of any property transferred to the trustee for the benefit of the beneficiary as a result of family breakdown. An initial question to be answered is was the whole of the income derived by the A Maintenance Trust from the C Unit Trust from the investment of the $22,000 transferred to the applicant trustee by F. The respondent says no to the extent that the income was derived by the C Unit Trust from a discretionary distribution from the B Trust. In my view, that argument should succeed. It was quite clear to all parties concerned that an essential part of the arrangement was that the $22,000 would pass around the circle and result in interest paid by the partnership being derived by the A Maintenance Trust rather than by F who, it is assumed, had previously received the interest. The discretionary distribution by the B Trust to the C Unit Trust was, in one sense, a windfall gain unrelated to any investment. Whilst for the applicant it was argued that the A Maintenance Trust received the whole of the income from its investment in the C Unit Trust, I take the view that the income was derived as a beneficiary of the C Unit Trust and only income which was derived from the investment of the $22,000 was the proportion referable to the interest derived from its further investment by the C Unit Trust.

17. Was the $22,000 transferred to the trustee for the benefit of the beneficiary? In my view, yes. It is clear that the A Maintenance Trust provides that A must receive the benefit of the whole of the income of the trust until she reaches 18 years of age. During that period, any income not paid or applied for her benefit must be accumulated and held upon trust for that beneficiary absolutely. Whilst she is only one of many potential beneficiaries after reaching that age, she, nevertheless, remains a beneficiary. Whilst neither party referred to section 102AG(8), this subsection would appear to add weight to the view that the property was for the benefit of the beneficiary. For the applicant, it was argued that the insertion of section 102AG(2A) by Act No. 181 of 1994, applicable in relation to income derived on or after 7 March 1994, would not have been necessary if section 102AG(2)(c) required the beneficiary to be entitled to corpus. In my view, whilst this amendment might lend weight to the argument for the applicant, it is unnecessary to consider it in detail as, in all of the circumstances of this case, I am prepared to find that the property was transferred for the benefit of A.

18. The next matter to consider is whether the income was derived, directly or indirectly, under or as a result of an agreement any two or more parties to which were not dealing with each other at arm's length in relation to the agreement. For section 102AG(3) to apply there must be a finding in relation to three matters. Firstly, that the income was derived under or as a result of an agreement; secondly, that parties to the agreement were not dealing with each other at arm's length in relation to that agreement and, thirdly, that the income is greater than the amount that would have been derived if the parties had been dealing at arm's length. ``Agreement'' is defined widely in section 102AA(1) to mean ``any agreement, arrangement, understanding or scheme, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings''. It is clear, in my view, that the income derived by the applicant trustee was derived as a direct result of a series of agreements. There was an agreement between F and his wife to the form of the Order of the Family Court under which F was to transfer the sum of $22,000 to a trust to be established. There were agreements between the trustee of the A Maintenance Trust and E Pty Ltd as the trustee of the C Unit Trust for the subscription for and issue of units, between E Pty Ltd as trustee of the C Unit Trust and itself

ATC 393

as trustee of the B Trust to lend $22,000 at interest, between E Pty Ltd as trustee of the B Trust to lend $22,000 to the partnership, the agreement between the directors of E Pty Ltd to appoint the C Unit Trust as a beneficiary and, I have no doubt, the agreement between F and the partnership to repay his loan account and replace it on the same day with a loan from the B Trust. Whilst each of these agreements was an essential part of the structure or mechanism by which the A Maintenance Trust derived the income it did, the critical agreement was that by which the Trust derived income by way of discretionary distribution from the B Trust.

19. The expression ``dealing with each other at arm's length'' is used in other parts of the Act, such as section 160ZH(a) and the former section 26AAA(4). In the case of
Granby Pty Ltd v FC of T 95 ATC 4240, Lee J. discussed the meaning of the phrase and the recent authorities in the following words (at page 4243-4244):

``The expression `dealing with each other at arm's length' involves an analysis of the manner in which the parties to a transaction conducted themselves in forming that transaction. What is asked is whether the parties behaved in the manner in which parties at arm's length would be expected to behave in conducting their affairs. Of course, it is relevant to that enquiry to determine the nature of the relationship between the parties, for if the parties are not parties at arm's length the inference may be drawn that they did not deal with each other at arm's length.

When Hill J. considered the meaning of similar words in sub-s. 102AG(3) of the Act in The Trustee for the Estate of the late AW Furse No 5 Will Trust v FC of T 91 ATC 4007 he said as follows at 4014-4015:

`There are two issues, relevant to the present problem, to be determined under sec. 102AG(3). The first is whether the parties to the relevant agreement were dealing with each other at arm's length in relation to that agreement. The second is whether the amount of the relevant assessable income is greater than the amount referred to in the subsection as the ``arm's length amount''.

The first of the two issues is not to be decided solely by asking whether the parties to the relevant agreement were at arm's length to each other. The emphasis in the subsection is rather upon whether those parties, in relation to the agreement, dealt with each other at arm's length. The fact that the parties are themselves not at arm's length does not mean that they may not, in respect of a particular dealing, deal with each other at arm's length. This is not to say that the relationship between the parties is irrelevant to the issue to be determined under the subsection.'

His Honour approved of the following statement by Davies J. in respect of the use of like words in sub-s. 26AAA(4) of the Act in Barnsdall v FC of T 88 ATC 4565 at 4568:

`However, sec. 26AAA(4) used the expression ``not dealing with each other at arm's length''. That term should not be read as if the words ``dealing with'' were not present. The Commissioner is required to be satisfied not merely of a connection between a taxpayer and the person to whom the taxpayer transferred, but also of the fact that they were not dealing with each other at arm's length. A finding as to a connection between the parties is simply a step in the course of reasoning and will not be determinative unless it leads to the ultimate conclusion.'

Whatever the meaning of the expression may be in equity (see: Australian Trade Commission v WA Meat Exports Pty Ltd (1987) 75 ALR 287 at 291; Barnsdall at 4567-4568) for the purpose of sub-s. 160ZH(9) of the Act the term `at arm's length' means, at least, that the parties to a transaction have acted severally and independently in forming their bargain. Whether parties not at arm's length have dealt with each other at arm's length will be a matter of fact. As Hill J. stated in Furse at 4015, determination of the manner in which parties not at arm's length have dealt with each other requires `an assessment whether in respect of that dealing they dealt with each other as arm's length parties would normally do, so that the outcome of their dealing is a matter of real bargaining'.

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If the parties to the transaction are at arm's length it will follow, usually, that the parties will have dealt with each other at arm's length. That is, the separate minds and wills of the parties will be applied to the bargaining process whatever the outcome of the bargain may be.

That is not to say, however, that parties at arm's length will be dealing with each other at arm's length in a transaction in which they collude to achieve a particular result, or in which one of the parties submits the exercise of its will to the dictation of the other, perhaps, to promote the interests of the other. As in Minister of National Revenue v Merritt 69 DTC 5159 at 5166 where the parties to the transaction were parties at arm's length, the terms of a loan transaction made between them had been dictated by a unilateral decision of one of them and no independent will in the formation of that transaction had been exercised by the other. It followed that it could not be said that the parties had dealt with each other at arm's length at the material time. (C.f. Robinson v Minister of National Revenue [1987] 1 CTC 2055.)''

Here, there is little doubt that in each of the agreements and transactions the parties were not at arm's length. Given that F instructed his solicitors to produce the various documents, each of the other parties to the various agreements acted according to his wishes, the parties to the agreements and transactions did not act severally and independently in forming their bargain and the outcome of their dealing was not a matter of real bargaining, I have no difficulty in finding that the parties to the agreements were not dealing with each other at arm's length. I am unable to accept the submission of Mr Bearman that the directors of E Pty Ltd had acted properly in exercising their fiduciary capacity and, therefore, must have dealt at arm's length. I do not see that these are mutually exclusive. The relevant fiduciary duty of the trustee of the B Trust was to distribute the income among a large number of contingent beneficiaries in their absolute discretion. The exercise of that discretion in the manner in which it was done without any enquiry other than of F and acting according to the wishes of F was not, in my view, dealing at arm's length. A similar argument to that put by Mr Bearman could have been put in the case of
Elmslie & Ors v FC of T 93 ATC 4964 where the directors could have been seen as having a fiduciary duty to the company. Wilcox J. (at page 4977) had no difficulty in that case of finding that the dealings were not at arm's length.

20. A finding that the parties were not dealing with each other at arm's length then requires consideration of whether the income derived was greater than the amount that would have been derived if the parties had dealt with each other at arm's length and, if so, the quantum of that excess. I have some difficulty with the statement of Hill J in
The Trustees for the Estate of the late AW Furse No 5 Will Trust v FC of T 91 ATC 4007 (at page 4017):

``I do not accept the applicant's submission that it will in all cases be necessary for a tribunal, in exercising the discretion under sec. 102AG(3), to make an antecedent finding of what an arm's length income would be. There may be some cases where the income derived under the relevant agreement is so much in excess of an arm's length income that there is no need for an antecedent finding.''

Whilst there may be no need for the antecedent finding, once there is a finding of the parties not having dealt with each other at arm's length it appears necessary in all cases for the Commissioner, and the Tribunal, in reviewing the decision, to form an opinion as to what an arm's length income would be. In this case, the Commissioner formed the opinion that the arm's length income was the amount attributable to the interest paid by the B Trust to the C Unit Trust on the loan of $22,000. In the circumstances of this case, I agree with that opinion. If one was to look at a situation where A, or even the A Maintenance Trust received a discretionary distribution direct from the B Trust and that distribution could be seen as an appropriate share of the net income of that trust, it may be possible to take the view that the distribution was no more than might be expected from a completely arm's length trustee. But here, the discretionary distribution was made to a Unit Trust interposed for reasons which, on the evidence of P, were not clearly understood by the directors of the Trustee. There was an investment of $22,000 by the trustee of the A Maintenance Trust in circumstances in which all concerned knew that it would finish up as a loan at interest with the partnership. The interest rate was an arm's

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length commercial rate. Any additional income could be derived only by F requesting his fellow directors of E Pty Ltd to exercise a discretion in favour of the C Unit Trust for reasons not fully explained and not sought.

21. The remaining matter is whether the provisions of section 102AG(4) can apply to the facts of this case. In short, and given what I have said to date, I am of the view that they do. F was required to provide some $21,000 to $22,000 p.a., by his estimate, for maintenance of his daughter following the marriage breakdown. The sources of income available for this purpose were his personal earnings and the pool of income in the B Trust derived from the assignment of part of his partnership interest. Prior to the arrangements of 1991 and 1992, the daughter had received a distribution of $416 from the B Trust. This direct distribution could have been increased to amounts such as $17,560 in 1992 and $19,980 in 1993 as distributed to the C Unit Trust. This would not have been excepted trust income under section 102AG and would have been taxed at the higher rate. Any payment out of F's personal earnings would not have altered the incidence of tax already payable on his income. F entered into an agreement with his former wife, his fellow partners and directors to establish the structure and agreements which were put in place. The primary purpose, notwithstanding the protestations of F in evidence, clearly was the purpose of seeking to convert income from a discretionary trust to income derived from the investment of property transferred for the benefit of the beneficiary as a result of family breakdown. In my view the purpose was to secure that the assessable income would be excepted trust income and it was no incidental purpose. I do not accept the evidence of F that the structure adopted was established to separate any relationship of his former wife with the partnership or any pre-existing trust connected with the partnership, that the Unit Trust was an appropriate vehicle for future and different investments and the arrangements were not primarily designed for the purpose of securing that the assessable income of the A Maintenance Trust would be excepted trust income.

22. For the foregoing reasons, I affirm the decision to disallow the objections to the assessments.


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