Case D22

Judges:
AM Donovan Ch
GR Thompson M
RK Todd M

Court:
No. 2 Board of Review

Judgment date: 18 May 1972.

---

A.M. Donovan (Chairman): In these references the Board is asked to substitute for the opinion of the Commissioner its own opinion that it is unreasonable for the provisions of sec. 99A of the Act to apply to two trust estates in respect of the years of income ended 30 June 1966 to 1968, both inclusive. It is a consequence of the operation of that section that the net incomes of the trusts accumulated during those years bear tax at the rate of 50%.

2. The facts stated by my colleague, Mr. Todd, show that each of these trusts is but one of two for the benefit of the same person. Prior to 1964 the creation of more than one trust for the same beneficiary was a device frequently employed to achieve a minimising of tax, and in my view is an example of the type of practice against which sec. 99A is directed. For this reason alone and in spite of counsel's arguments, but subject to consideration of the matter referred to below, I am of the opinion that it is not unreasonable for sec. 99A to apply to the trusts for the years in question. My reasons have been expressed on a previous occasion in Case A50,
69 ATC 288 .

3. It was said, however, that one matter which should influence the Board to form a favourable opinion was the inhibition by the Commissioner of the trustee's inclination to distribute the trust income. If the trustee distributed the income there was the certain knowledge that the Commissioner would issue assessments under sec. 102 calling for greater tax than would be exigible if the income were accumulated and sec. 99A allowed to operate. The decision in
Truesdale v. F.C. of T. 70 ATC 4056 ; 120 C.L.R. 353 has since shown that the Commissioner's belief that sec. 102 applied to these trusts was incorrect. Although it was not put in so many words, we were in effect asked to find that the Commissioner's error led the trustee to accumulate the income and we were asked to find, for that reason, that it is unreasonable for sec. 99A liability to attach to the accumulations.

4. I am not sure to what extent, if at all, the matter of sec. 102 assessments influenced the decision to accumulate. I say this for two reasons. First, Truesdale's decision (supra) was handed down in August 1970 but no attempt was made to distribute the income of the then current year up to the end of June 1971. Second, at least in respect of the year

---

ATC 137

ended 30 June 1968, not a great amount was involved one way or the other as will be shown later. But let it be supposed that the accumulations resulted from the Commissioner's mistaken belief and from no other cause. Is that a reason for concluding that sec. 99A should not apply to the trusts? I think not. We are not concerned here with some uninformed taxpayer confronted by circumstances which have arisen spontaneously who has been misled by the Commissioner's action. We are dealing with a fairly sophisticated set of circumstances brought into existence, at least in part, with the object of keeping tax payable to the minimum, and it is reasonable to suppose that the person responsible for administering the trusts had the advantage of expert independent advice on the incidence of tax. I hasten to add that this comment implies no criticism for it is open to all taxpayers to so order their affairs within the law that the burden of tax is at its lowest. But in these circumstances the trustee cannot be heard to say that relief ought to be granted when a decision, however induced, is taken which results in the payment of more tax than might conceivably have been the case. It has to be remembered that the Board is not being asked to exercise its discretion so that the tax is reduced to what would have been payable had the income been distributed, for such a step is not possible. It is being asked, in effect, to reduce the tax substantially below that amount.

5. In amplification of what has just been said, I might refer to one of the trusts (that for beneficiary H) in respect of the year of income ended 30 June 1968. The present sec. 99A liability and H's personal tax amount to approximately $1,900. If the whole of the trust net income had been distributed and had attracted sec. 102 liability, the total tax payable would have been increased by only $200. If, however, the law had been correctly interpreted and H assessed on the income so distributed, his tax would have amounted to $1,700, that is to say, there would have been a reduction of only $200 on the total amount presently payable. However, if the Board does as it is asked and decides that sec. 99A should not apply, the total tax payable by H and by the trust would be reduced to an amount very little in excess of $1,100.

6. I can see nothing in the material before the Board which would justify the formation of the opinion that it is unreasonable for sec. 99A to apply to the trusts for the years in question. I would accordingly uphold the Commissioner's decisions on the objections.