TD 2005/34A1 - Addendum
Income tax: what are the results for income tax purposes of entering into a profit washing arrangement as described in Taxpayer Alert TA 2005/1?
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Omit the heading; substitute 'The distribution of income to the promoter trust - intention of the parties'.
Omit the paragraph; substitute:
5A. However sham is only one of various situations in which a court may take an agreement or other instrument, such as a settlement on trust, as not disclosing, or disclosing fully, the legal rights and entitlements for which it provides on its face (that is, by way of exception to the parol evidence rule).
6. The High Court in Raftland Pty Ltd as trustee of the Raftland Trust v. Commissioner of Taxation  HCA 21 explained that:[F1A] ...The apparent discrepancy between the entitlements appearing on the face of the documents and the way in which the funds were applied gave rise to a question whether the documents were to be taken at face value. In various situations, the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face... One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence 'as a mere piece of machinery' for serving some purpose other than that of constituting the whole of the arrangement. That, in essence, is the respondent's case with respect to the alleged existence of the 'present entitlement' of the trustee of the E & M Unit Trust to the income of the Raftland Trust. [footnotes deleted]
Omit 'a sham and'.
Omit 'not to be a sham'; substitute 'to have legal effect'.
Omit 'not a sham'; substitute 'having legal effect'.
- Raftland Pty Ltd as trustee of the Raftland Trust v. Commissioner of Taxation  HCA 21
- Decision Impact Statement B39/2007: Raftland Pty Ltd as trustee of the Raftland Trust v. Commissioner of Taxation
Commissioner of Taxation
29 July 2009
1A Per Gleeson CJ, Gummow and Crennan JJ. Kirby J in separate reasons likewise concluded purported trust distributions may be a sham. See also the Decision Impact Statement relating to Raftland dated 24 October 2008 and AAT cases Case 10,796 (1996) 96 ATC 296; (1996) 32 ATR 1168, Case 11,115 (1996) 96 ATC 443; (1996) 33 ATR 1128 and Case 11,125 (1996) 96 ATC 453; (1996) 33 ATR 1140.