Decision impact statement

Gutteridge and Commissioner of Taxation

Court Citation(s):
[2013] AATA 947
2013 ATC 10-347
(2013) 96 ATR 472

Venue: Administrative Appeals Tribunal
Venue Reference No: 2012/2724 and 2725
Judge Name: F D O'Loughlin
Judgment date: 24 December 2013
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:
  • Nil

Subject References:
Capital gains tax
CGT small business relief
Basic conditions for relief
Maximum net asset value test
Connected entity

Exclamation This decision has no impact for ATO precedential documents and Law Administration Practice Statements.


Outlines the ATO's response to this case which concerns whether a sole director and shareholder of a trustee company controlled the trust, so that another entity was a connected entity of the trust for the purposes of the maximum net asset value test.

Brief summary of facts

The taxpayers, Mr and Mrs Gutteridge, were beneficiaries of a discretionary trust which carried on a business of sourcing and fitting out properties for conducting childcare businesses. The Trust made capital gains from the sale of its business assets. The taxpayers, as beneficiaries of the Trust, were subsequently taxed on those capital gains without the benefit of the CGT small business concessions contained in Division 152 of the Income Tax Assessment Act 1997 ("ITAA 1997").

The Commissioner denied the concessions on the basis that the Trust did not satisfy the maximum net asset value ("MNAV") test in section 152-15 of the ITAA 1997. In applying that test, he had formed the view that the trust was controlled by the sole director and shareholder of the Trustee company (the taxpayers' daughter). On that basis, another entity that the daughter controlled was said to be 'connected with' the Trust, and its assets taken into account in applying the MNAV test.

The taxpayers argued that the Trust was not controlled by their daughter, and that the other entity was therefore not connected with the Trust. Despite the fact that the taxpayers' daughter was the sole shareholder and director of the Trustee company, the taxpayers argued that the Trust was controlled solely by Mr Gutteridge.

Issues decided by the AAT

The primary issue was whether the taxpayers' daughter controlled the Trust. The control test is set out in subsection 328-125(3) of the ITAA 1997 and is determined (in this instance) by whether the Trustee 'could reasonably be expected to act' in accordance with the directions or wishes of the daughter.

The AAT considered the control test has parallels with the definition of 'director' in the Corporations Act 2001. More specifically, there is a reasonable expectation that a person will act in a certain way if the person is 'accustomed to act' in that way.

The AAT held that the test was not simply who held the formal office of director of the Trustee company, nor what the Trust deed stated, but rather called for an examination of the actual circumstances of a case. Based on the evidence before it, the AAT then held that although the daughter was the director and public face of the business carried on by the Trust, the Trustee was not accustomed to act in accordance with her wishes. The AAT considered that Mr Gutteridge alone controlled the Trustee and was, in effect, a shadow or de facto director of the Trustee company.

ATO view of Decision

The Commissioner accepts that the decision was open to the AAT in view of the findings of fact made by the Tribunal.

However, while the circumstances in this case allow for a finding that a person could reasonably be expected to act in a certain way because they were 'accustomed to act' in that way, the Commissioner does not accept that the 'reasonable expectation' test in subsection 328-125(3) of the ITAA 1997 can be substituted with an 'accustomed to act' test in all cases. It depends, as the AAT said at paragraph 21, on an examination of all the circumstances of a case. For example, if there is no history at all of a trustee having acted on the directions of another, there may nonetheless be an expectation (reasonably founded) that they would act on the directions of a particular person, were such directions to be given.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)


Implications on Law Administration Practice Statements


Legislative References:
Income Tax Assessment Act 1997
Division 152
Subdivision 152-A
section 328-125
subsection 328-125(3)
subsection 328-125(4)

Corporations Act 2001
section 9

Case References:
Buzzle Operations Pty Ltd (In Liq) v Apple Computer Australia Pty Ltd
[2011] NSWCA 109

Other References:
ATO ID 2008/139

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