• The impact of this case on ATO policy is discussed in Decision Impact Statement: Sandini Pty Ltd atf the Karratha Rigging Unit Trust & Ors v Ellison & Ors v Commissioner of Taxation of the Commonwealth of Australia & Ors (Published 27 November 2018).

ELLISON & ANOR v SANDINI PTY LTD & ORS; FC of T v SANDINI PTY LTD & ORS

Members: Siopis J

Logan J
Jagot J

Tribunal:
Full Federal Court, Western Australia

MEDIA NEUTRAL CITATION: [2018] FCAFC 44

Decision date: 27 March 2018

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Logan J

2. I have had the privilege of reading in draft the reasons for judgment of Jagot J.

3. I gratefully adopt her Honour ' s summary of the facts, issues and submissions of the respective parties to the appeal and of the reasons of the primary judge. Her Honour has also extracted relevant legislative provisions. None of these do I repeat. For consistency, I shall also use the abbreviations adopted by her Honour.

4. For the reasons which follow, I would dismiss the appeals.

5. The evidence in this case in relation to the application by Ms Ellison for the making and amendment of an order (I refer to the orders collectively as, " the order " ) under s 79 of the Family Law Act (Cth) (Family Law Act), the subsequent lodgement of a consent by her and Mr Ellison and supporting materials and their approval by the Family Court, all, seemingly, without any attention to the possible federal revenue law consequences of the order proposed, made and later amended, gives pause for thought about the risks of over-specialisation in both the practising profession and the judiciary. However this may be, the task in these appeals is just to determine what those consequences were.

6.

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The method chosen for the determination in the original jurisdiction for the determination of those consequences, via the seeking of declaratory relief, was permissible but unusual.

7. The original jurisdiction of this Court includes, subject to a presently immaterial exception in relation to criminal jurisdiction, jurisdiction in any matter, " arising under any laws made by the Parliament " : s 39B(1A)(c) of the Judiciary Act 1903 (Cth) (Judiciary Act). The determination of a CGT liability under the Income Tax Assessment Act 1997 (Cth) (ITAA97) is, unquestionably, one arising under the laws made by the Commonwealth parliament. Further, it is patent from the antecedent correspondence that a justiciable controversy in relation to that liability had arisen. So there could be no doubt that this Court had jurisdiction to entertain the proceeding and to grant declaratory relief so as to quell the controversy:
Edwards v Santos Limited (2011) 242 CLR 421 .

8. Because the Commissioner is the Commonwealth ' s chief revenue officer and was sued as a representative of the Commonwealth, this Court was not the only court which had jurisdiction to grant the declaratory relief sought. The original jurisdiction of the High Court includes jurisdiction in all matters in which the Commonwealth or a person being sued on behalf of the Commonwealth is a party: s 75(iii), Constitution.
Oil Basins Ltd v Commonwealth (1993) 178 CLR 643 (Dawson J) offers an example of the recognition by the High Court of this jurisdiction in relation to a federal revenue law controversy.

9. Because this aspect of the High Court ' s jurisdiction is not, by virtue of s 38 of the Judiciary Act, made exclusive of the jurisdiction of the several courts of the States, those courts, within the limits of their several jurisdictions, could also have entertained this proceeding, on the basis that it was a matter " in which the High Court has original jurisdiction or in which original jurisdiction can be conferred upon it " : s 39(2), Judiciary Act. Both the amount of the asserted tax liability and limits on the ability of the inferior courts of the States to grant declaratory relief would have meant that the proceeding was one apt only for institution in the Supreme Court of a State.

10. In earlier times, the lack of a comprehensive assessing regime in sales tax legislation sometimes saw the parties to a justiciable controversy avail themselves of this jurisdiction possessed by a State Supreme Court.
Re Totalisator Administration Board of Queensland [ 1989 ] 1 Qd R 215 (McPherson J) offers an example of the recognition of this Supreme Court declaratory jurisdiction in a case ultimately disposed of in the High Court in relation to a sales tax controversy (
sub nom Commissioner of Taxation v Totalisator Administration Board (Q) (1990) 170 CLR 508 ).

11. These days, the combination of a more comprehensive assessment regime in federal revenue statutes, the existence under Pt IVC of the Taxation Administration Act (Cth) (Taxation Administration Act) of a right of appeal to this Court in its original jurisdiction if dissatisfied with an objection decision in respect of such an assessment and the related consequence that this Court is the usual forum for the determination of federal revenue law controversies would usually see the Commissioner, if he had not already done so, make and then tender in a State Supreme Court a certified copy of that assessment. The effect of that tender would not deprive the State Supreme Court of jurisdiction to grant declaratory relief but rather the conclusive evidentiary quality of that assessment in that court as to the taxation liability (s 350-10, Table, item 2, Sch 1, Taxation Administration Act) would render futile the prosecution of that declaratory proceeding in that court by a person who disputed that assessed liability:
Platypus Leasing Inc v Commissioner of Taxation (2005) 61 ATR 239 .

12. In the present proceeding, the Commissioner could have made an assessment and then tendered it. The adoption of this course would also not have deprived this Court of the jurisdiction to entertain the proceeding but, as in a State Supreme Court, would have rendered the proceeding futile in so far as a party sought to dispute that assessed taxation liability. The Commissioner chose not to adopt that course in this proceeding. Such choices fall to be made in the Commissioner ' s general administration of taxation laws. He is hardly to be criticised for making the choice

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which he did. The proceeding was brought in the usual forum for the resolution of federal revenue law liability disputes. Further, the controversy was not just one between one party and the Commissioner but also between the parties to a marriage, only one of whom was in agreement with the Commissioner as to the taxation consequences of the order made in the matrimonial causes jurisdiction. The declaratory proceeding offered a convenient way in which each of those interested in the determination of the controversy could be made parties. Comparatively, in a taxation appeal under Pt IVC of the Taxation Administration Act, only a recipient of an assessment could have objected against that assessment and, in turn only a person dissatisfied with an objection decision could have instituted a taxation appeal. None of that means that the Commissioner was bound not to issue an assessment but it is possible to see, in the circumstances of this case, why, reasonably, he chose not to.

13. The existence of a jurisdiction to grant declaratory relief is one thing, whether, as a matter of discretion, to exercise that jurisdiction so as to grant relief is quite another. Ms Ellison initially made the decision by the primary judge to exercise the discretion a ground of appeal but chose not to press this ground. I respectfully agree with Jagot J that this this retreat was a sound step. That, notwithstanding the existence of a power to assess and the related objection and appeal regime described, the Commissioner chose not to assess and then tender an assessment but instead actively to participate in the proceeding as a party was a powerful factor, in conjunction with the continuance of the controversy, favouring the exercise of a discretion to grant relief. The position may have been different if a Pt IVC taxation appeal proceeding had been pending in this Court and, for some reason, the Commissioner had chosen not to tender the assessment concerned:
Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 . No error of principle was entailed in the decision by the primary judge that the case was one in which it was apt to grant declaratory relief.

14. The question on the appeal is whether the declarations made by the primary judge as to the taxation liability controversy were correct?

15. It is tempting to answer that question just by concurring with the reasons of the primary judge but that would neither afford respectful recognition of a considered view to the contrary which Jagot J proposes to express (with which Siopis J proposes to concur) nor do justice to the submissions carefully made on behalf of each of the parties.

16. As always with a liability which is reliant for its existence on a statute, it is necessary, in determining whether such a liability has arisen, to commence with the text of that statute, construed having regard to context, subject matter and purpose:
Commissioner of Taxation v Consolidated Media Holdings (2012) 250 CLR 503 at [ 39 ] . That means that the starting point must be the ITAA97, the relevant provisions in which are set out in the judgment of Jagot J.

17. From these it emerges that the relevant CGT event is CGT event A1, which arises on the disposal of a CGT asset: s 104-5, ITAA97. The shares in question (2,115,000 MIN shares owned by Sandini) constitute a CGT asset. The time when that CGT event occurs is also specified in s 104-5. Perhaps surprisingly, given that the making of orders in the matrimonial causes jurisdiction was consensually promoted by Mr Ellison and Ms Ellison, it was not suggested by any party that there was any antecedent disposal contract. On the basis that there was no such contract, the time of CGT event A1 was when the entity which hitherto owned the shares stopped being their owner. For this purpose, what is relevant is a change in the beneficial ownership of the shares: s 104-10(2), ITAA97. A suggestion made on behalf of Mr Ellison in submissions that the change in ownership had to be both legal and beneficial is contrary to that provision and must be rejected.

18. At first blush, one might have thought that the answer as to when and by what the requisite change in beneficial ownership occurred was straightforward. It occurred by virtue of the court order when that order was made on 21 September 2010. After all, the order made under s 79 of the Family Law Act spoke from the date of its making:
Kennon v Spry (2008) 238 CLR 366 at [ 129 ] per

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Gummow and Hayne JJ. Of this order, the primary judge observed (at [ 142 ] ):

As noted in
Lysaght v Edwards (1876) 2 Ch D 499 , a right to specific performance to compel the transfer of an asset can be equated with beneficial ownership. In this instance, Ms Ellison had a more substantive right than a right to obtain an order for specific performance. She already had an order of the Family Court for the transfer of the shares within seven days.

19. I respectfully agree with this observation. The order made under s 79 of the Family Law Act in respect of the shares at least worked an alteration in the equitable ownership of those shares:
Mullane v Mullane (1983) 158 CLR 436 at 445 ( Mullane v Mullane ). The order is not materially distinguishable from those which this Court in
Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217 and in
Jones v Daniel (2004) 141 FCR 148 , in the application of Mullane v Mullane , regarded as effecting a change in beneficial ownership. For reasons which follow, the subject of the order was identifiable.

20. On and from the making of the order, it was Ms Ellison who enjoyed all of the attributes of the MIN Shares which gave them value. All that Sandini retained was the bare legal ownership in those shares. It held them as constructive trustee for Ms Ellison. It was Ms Ellison who enjoyed the dispositive power in respect of the shares. The evidence discloses that she exercised this in favour of her family trust. As the primary judge correctly found (at [ 22 ] ), the trustee of the trust became the bare legal owner of the share on its registration as owner on 4 October 2010.

21. The Commissioner contended that there was insufficiency of identity in the shares referred to in the order for there to be a change in beneficial ownership. There was, with respect, a Dickensian quality to this submission, perhaps grounded in the nostalgic recollection of individually numbered, paper share certificates, physical scrip, duly produced at a company ' s share registry for cancellation and issuing of a fresh certificate or indorsement following a share transfer transaction. One might, with respect, have thought that ordinary experience of share transfer transactions in the digital age would have given pause for thought about the advancing of this submission. As it happens, it is without merit.

22. The subject of the rights given by the order was identifiable: 2,115,000 MIN shares owned by Sandini. The evidence before the primary judge (paragraph [ 5 ] of the affidavit of Mr Gould sworn on 14 June 2016) was that the shares in MIN were of the same class, were unnumbered and were not evidenced by the issue of physical scrip. To adopt an applicable description offered by Dixon J in
Archibald Howie Pty Ltd v Commissioner of Stamp Duties (1948) 77 CLR 143 at [ 154 ] , the interest transferred was that part of Sandini ' s " congeries of rights in personam " measured by the number of shares referred to in the order. Such rights would include rights to dividends, to capital and to vote in meetings of the company.

23. The number of shares beneficial ownership in which was transferred to Ms Ellison by the order was nothing more than the means of quantifying her proportionate interest constituted by this " congeries of rights in personam " . That same proportion may be re-expressed from time to time by different numbers of shares:
Commissioner of Taxation v McNeil (2007) 229 CLR 656 at [ 38 ] per Gummow A-CJ, Hayne, Heydon and Crennan JJ, citing with approval an explanation offered by Viscount Finlay in
Inland Revenue Commissioners v Blott [ 1921 ] 2 AC 171 , at 195.

24. An observation made in
Eisner v Macomber 252 U.S. 189 (1920) , at 208, though made in the era of physical scrip, remains relevant in the digital age for the description which is offered of the nature of the proportionate interest conferred by the holding of a particular number of shares:

Certainly the interest of the stockholder is a capital interest, and his certificates of stock are but the evidence of it. They state the number of shares to which he is entitled and indicate their par value and how the stock may be transferred. They show that he or his assignors, immediate or remote, have contributed capital to the enterprise, that he is entitled to a corresponding interest proportionate to the whole, entitled to have the property and business of the company

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devoted during the corporate existence to attainment of the common objects, entitled to vote at stockholders ' meetings, to receive dividends out of the corporation ' s profits if and when declared, and, in the event of liquidation, to receive a proportionate share of the net assets, if any, remaining after paying creditors.

25. As, with respect, the primary judge recognised, it is nothing to the point that there was a greater number of shares in MIN than 2,115,000. That did not prevent a change in the beneficial ownership of some of those shares via the court order. As Leeming JA remarked in
Beck v Henley (2014) 11 ASTLR 457 at [ 40 ] , " Shares are plainly specifically severable. Hence their name " (emphasis in original). The identification of individually numbered shares in MIN is unnecessary in the same way as such identification was unnecessary for the valid creation of a trust in respect of part of a parcel of shares:
White v Shortall (2006) 68 NSWLR 650 at [ 210 ] to [ 247 ] per Campbell J.

26. The Commissioner was not a party to the Family Court proceeding. He must take the order as he finds it in the same way as he is bound to assess in accordance with other orders made in proceedings to which he is a stranger:
Executor Trustee and Agency Co of South Australia Ltd v Deputy Federal Commissioner of Taxes (South Australia) (1939) 62 CLR 545 at 561 - 562 per Latham CJ; at 569 - 570 Dixon J and at 572 per McTiernan J. Such orders form part of the taxable substratum, already determined by a court of competent jurisdiction. The Commissioner ' s submissions as to the form of the order should, for this reason alone, be rejected. In any event, contrary to the Commissioner ' s submissions, the order does not purport to be made under s 79(1)(d) of the Family Law Act, only s 79. The amendments made to s 79 of that Act were not material when compared with the original wording with the observation being made in the explanatory memorandum that, that s 79(1)(d), " largely replicate [ d ] the existing law " (Bankruptcy and Family Law Legislation Amendment Bill 2005, Revised Explanatory Memorandum, par [ 55 ] ). Even if there were some defect in the form of the order, that did not affect its legal efficacy. The analysis of the order made by the primary judge at [ 161 ] through [ 171 ] was correct.

27. This is sufficient to dispose of the appeals but the same result follows from an alternative proposition put to and accepted by the primary judge.

28. Even if either Ms Ellison were but a constructive recipient of the MIN shares and if the relevant CGT event Al were the transfer of the MIN shares by Sandini to Wavefront, Ms Ellison was sufficiently " involved " in that transfer to enliven under the ITAA97 ss 126-5 and 126-15 roll-over.

29. In these provisions, a CGT event is termed a " trigger event " : s 126-5(1). The text of s 126-15 does not require that the person who is in fact the transferee of the CGT asset that is subject to the trigger event be a spouse or former spouse before roll-over relief is available. Instead, what is required is a trigger event, and for a spouse or former spouse to be involved in it. The Commissioner ' s submission that a transfer must be to a spouse or former spouse has no textual support in s 126-15. Instead, that submission is nothing more than a muffled echo of different language used in the former s 160ZZMA of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

30. On any view of the facts, a CGT event Al occurred. Likewise, on any view, Ms Ellison was involved in that event. She was the beneficiary of the order. It was by her direction that her desired registration of the shares occurred. That is involvement in a CGT event. Without Ms Ellison ' s direction, the transfer would have been to her personally and her involvement would have been different, and passive, by way of being a recipient. Further, the transfer would not have happened but for the order. These circumstances constitute sufficient " involvement " in the CGT event for the purposes of s 126-15 of ITAA97. Thus, roll ­ over is available.

31. Section 126-15 is directed to beneficial ends. It relieves taxpayers from taxation burdens which would otherwise arise. The evident policy of s 126-15 is to defer crystallisation of a CGT liability. The text and those beneficial ends are conducive to a liberal construction of the provision:
Burt v Commissioner of Taxation (1912) 15 CLR 469 and
Western Australian Trustee Executor & Agency Co v Commissioner of Taxation (Western Australia) (1980) 147 CLR 119 . The construction advanced on behalf of the first to fourth respondents to each appeal and accepted by the primary judge is in accordance with such a construction of s 126-15 and should be accepted as correct.

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32. It follows that each appeal should be dismissed, with costs.