Tax & ATO News Australia

Moignard And Commissioner Of Taxation:

This is an interesting decision of the AAT in relation to trust distributions. Much of the analysis it unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.  With the greatest of respect to Mr Moignard this case also shows the difficultly of representing yourself in tax cases, even before the case gets to the more formal jurisdiction of the Federal Court (eg, on objections with the ATO, or at the AAT). Raising matters at the last minute never find favour with the courts and tribunals, and getting early advice about the potential arguments is critical.


Quick Summary:

  • Commissioner issued an amended assessment for $243,959.84 and imposing a penalty of $187,043.45 for 2007-8 FY.
  • Taxpayer sought to introduce a ‘capital argument’, which the tribunal disallowed.
  • Commissioner advanced alternative argument that the taxpayer was presently entitled to one third of the $480,476, which was the net profit from the sale of a property held by the trust. On the basis that the default provision of the RST Deed provided where there has been no exercise of trustee discretion to pay, apply or set aside the Deed had the effect of making the taxpayer and his two children entitled to the net profits in equal shares.
  • Bean DP found that the default clause of the trust deed operated, the amounts assessed by the Commissioner were excessive being “$51,671.10 versus $195,814.20”.
  • Bean DP found the written resolution and the “certificate” did not support a valid distribution to another trust as they were produced well after financial year in question.
  • Bean DP found the taxpayer’s true entitlement did not come to his knowledge before making the disclaimer, thus it was not effective.
  • Bean DP agreed with the Commissioners Moignard application of 50% penalties for the taxpayer’s recklessness as he had the capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was. 


Article Summary:

This is an interesting decision of the Administrative Appeals Tribunal (‘AAT’) in relation to trust distributions. Much of the analysis is unsurprising, but the trust disclaimer argument would have been of great interest had it had a better run.
 

On 18 October the AAT released its decision in relation to the rehearing of Moignard and Commissioner of Taxation, following an appeal to the Federal Court.
 

Upon the rehearing of the matter, the Commissioner sought to advance his alternative argument that the trustee did not exercise their discretion to pay, apply or set aside the trust income. On this basis, the default provisions of the trust deed would apply to deem trust income be distributed equally between the taxpayer and his two children.
 

In light of the Commissioner’s abandonment of his primary argument, the taxpayer sought to include a new argument, which Bean DP dismissed given it was raised at a very late stage of the proceedings.
 

The taxpayer sought to argue that it had made a valid distribution during the 2007-8 financial years, which was supported by a written resolution and certificate made in April 2011. Bean DP agreeing with the Commissioner concluded that the resolution was not made until well after the end of the relevant accounting period, and therefore could not amount a determination to distribute.
 

Additionally, the taxpayer contended that the taxpayer disclaimed the purported distribution of funds” from the sale of the property. However, the Tribunal rejected this argument, finding that the disclaimer did not relate to the actual share of the taxpayer’s trust income and was clearly not made on the basis of an understanding of the operation of the deed or the share of the trust income to which he was entitled.
 

Bean DP found that in order for a disclaimer to be effective, the disclaimer would have to indicate or be made on the basis of an understanding of what the taxpayer’s entitle actually was.
 

One of the final issues the Tribunal addressed was the appropriate penalties. The Commissioner sought to apply a 50% administrative penalty for Mr Moignard’s recklessness in complying with tax laws. The Tribunal taking into account Mr Moignard’s extensive qualifications and commercial experiences found that he “had capacity and resources which should have enabled him to arrive at a better and more accurate understanding of what his true taxation liability was.” Accordingly, the Tribunal agreed with the Commissioners application of a 50% administrative penalty.

In conclusion, Moignard and Commissioner of Taxation shows the importance of understanding the terms of a trust deed and ensuring the appropriate documents for distributions are recorded in the same accounting period.



 

Posted in: Tax & ATO News Australia at 25 October 17

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Author: David Hughes

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