Federal Commissioner of Taxation v. Hawley.

Judges:
Hanger CJ

Court:
Supreme Court of Queensland

Judgment date: Judgment handed down 8 October 1974.

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Hanger C.J.: These are three appeals by the Commissioner against the decision of a Board of Review allowing objections by the taxpayer to an amended assessment issued on 12th July 1972 in respect of the income years ended 30th June 1968, 30th June 1969 and 30th June 1970.

Section 170 of the Income Tax Assessment Act enables the Commissioner within six years from the date upon which tax became due and payable under an assessment to amend an assessment where the taxpayer has not made to the Commissioner a full and true disclosure of all the material facts necessary for his assessment and there has been an avoidance of tax.

Section 23 of the Act, by paragraph (q), exempts from tax income (other than an amount of income attributable to a dividend, being a dividend paid on or after 19th October 1967) derived by a resident from sources out of Australia and Papua New Guinea, where that income is not exempt from income tax in the country where it is derived.

By sec. 6B, an amount of income derived by a person, not being a dividend paid by a company to the person as a shareholder in the company, shall be deemed to be attributable to a dividend if the person derived the amount of income as a beneficiary in a trust estate and the amount

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ATC 4277

of income can be attributed, directly or indirectly, to the dividend.

The taxpayer did in fact receive income attributable to a dividend from the United States of America; and the case for the Commissioner is that the taxpayer did not make a full and true disclosure in respect of this income within the meaning of sec. 170.

In his return for the year ended 30th June 1968, the taxpayer included the following statement -

``As reported in previous years, this declares current U.S.A. estate - income received as beneficiary through interposed U.S.A. bank-trustee, paid by trustee cheques for which I receipt and on which bank pays my U.S. tax in full at source. Income has been analyzed and held exempt in written opinion of Natl. Taxpayers' Assn's Research Director John McKellar White (Syd. Tax Consultant & Chartered Accountant), as identical with that of Angus Case (High Court decision of 14 Apr. 1961 (Syd.) in favour of taxpayer: previously by Bd. of Review 2 (Melb. 27 Nov. 1959)). Have never been a shareholder, never received dividends, have merely like interest in portion of estate's mixed earnings mostly from rents. Income is subject to deductions by bank-trustee to cover anticipated fees for itself and trust attorney in advance of 1973 Court hearing, also for U.S. & Calif. State taxes, U.S. fiscal year ends Dec. 31, trustee fiscal year ends May 31. U.S. tax rate for 1968 is therefore subject to revision, but bank has paid my tax in full through calendar year 1967 and has withheld for taxes due through June 30, 1968 according to its monthly reports to me. Bank estimated Aust. equivalent nett income for Aust. tax year 1968 is $A6,952.86. All my trust income is U.S.A. taxed, and I hold evidence tax has been paid or will be paid by bank-trustee, but must retain same if U.S.A. in error claimed non-payment. You are of course aware U.S. requires tax on beneficiary paid from estate assets if not paid by trustee or beneficiary.''

Similar statements were included in the Returns of the taxpayer for the two following years.

It was not in dispute before me and indeed it is clear on the evidence that the taxpayer received, as a beneficiary in an estate, income which was deemed by sec. 6B to be attributable to a dividend and therefore not exempt from tax under sec. 23(q). It is also true that the taxpayer had in his possession documents which made this plain. The information which he gave to the Commissioner showed that he was a beneficiary in an estate held on trust in the United States of America; that he relied on the decision of the High Court in the Angus case (see 105 C.L.R. 489) as exempting from tax the income which he received from the estate; he asserted that he had never been a shareholder, had never received dividends, that he had merely a life interest in portion of the estate's mixed earnings which were mostly from rents. He did not state that the income of the estate came at all from dividends.

The obligation of a taxpayer is to make full and true disclosure of all the material facts necessary for his assessment. This, I think it clear, the taxpayer did not do. That the income of the estate in which he was a beneficiary was derived in part from dividends was a material fact; if the taxpayer did not know the fact, (which I very much doubt), he had at hand documents which showed clearly that it was so.

In the circumstances, the appeals must be allowed. As the parties had agreed that the Commissioner was to pay the costs in any event, the effect of this decision is only to oblige the taxpayer to pay the tax which he was legally liable to pay if a full and true disclosure of all material facts had been made.

I think it fair to add that neither before the Board of Review nor before me was there any suggestion made of dishonesty on the part of the taxpayer.