Carter v Commissioner of Taxation

• Jurisdiction: Australia Federal only
• Judgment Date: 10 September 2020
• Neutral Citation: [2020] FCAFC 150
• Date: 10 September 2020
• Court: Full Federal Court (Australia)

Federal Court of Australia

Carter v Commissioner of Taxation [2020] FCAFC 150

File number:	NSD 134 of 2020
Judgment of:	JAGOT, DAVIES and THAWLEY JJ
Date of judgment:	10 September 2020
Catchwords:	TAXATION – application for an extension of time to appeal under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) from a decision on a review under s 14ZZK of the Taxation Administration Act 1953 (Cth) – purported distribution of trust income – whether Tribunal erred in holding there was no resolution distributing trust income – where consent of Guardian required for distribution – where Guardian did not know of her appointment as Guardian – held no distribution of trust income – disclaimers by default beneficiaries – whether disclaimers effective – effect of delay – third disclaimers were effective – whether disclaimers operated retrospectively for the purposes of s 97 of the Income Tax Assessment Act 1936 (Cth) – held disclaimers operated retrospectively – appeal allowed
Legislation:	Administrative Appeals Tribunal Act 1975 (Cth) ss 33, 44 Corporations Act 2001 (Cth) ss 9, 251A, 286, 1305, 1322 Income Tax Assessment Act 1936 (Cth) s 97 Taxation Administration Act 1953 (Cth) s 14ZZK Payroll Tax Act 2007 (NSW) ss 72, 81
Cases cited:	Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 236 FLR 1 Bateman v Davis (1818) 3 Madd 98 Blenkinsop v Herbert [2017] WASCA 87; 51 WAR 264 Browne v Dunn (1893) 6 R 67 Commissioner of Taxation v Bamford [2010] HCA 10; 240 CLR 481 Commissioner of Taxation v Ramsden [2005] FCAFC 39; (2005) 58 ATR 485 Commissioner of Taxation v Thomas [2018] HCA 31; 264 CLR 382 Harmer v Commissioner of Taxation [1991] HCA 51; 173 CLR 264 JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 Haritos v Federal Commissioner of Taxation [2015] FCAFC 92; 233 FCR 315 Orlanski v Spiegel [2015] VSC 662 Orlanski v Spiegel (No 2) [2015] VSC 709 Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 Re Forster’s Settlement [1942] Ch 199 Re the Hare Trust (2001) 4 ITELR 288 Re Paradise Motor Co Ltd [1968] 2 All ER 625 Re Stratton’s Disclaimer; Stratton v Inland Revenue Commissioners [1958] Ch 42 Smeaton Grange Holdings Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1594; 104 ATR 58 Tantau v MacFarlane [2010] NSWSC 224 The Trustee for the Whitby Trust and Commissioner of Taxation [2019] AATA 5637 ; Hubbard M, Protectors of Trusts (Oxford University Press, 2013) Thomas G, Thomas on Powers (2nd ed, Oxford University Press, 2012) Tucker L, Le Poidevin N, Brightwell J, Lewin on Trusts (20th ed, Sweet & Maxwell, 2020)
Division:	General Division
Registry:	New South Wales
National Practice Area:	Taxation
Number of paragraphs:	112
Date of hearing:	17 August 2020
Counsel for the Applicants:	J Evans QC with D Lewis
Solicitor for the Applicants:	O’Loughlin Westhoff
Counsel for the Respondent:	N Williams SC with C Thompson
Solicitor for the Respondent:	Australian Government Solicitor

ORDERS

		NSD 134 of 2020
BETWEEN:	NATALIE CARTER First Applicant ; ALISHA CARATTI Second Applicant ; NICOLE CARATTI Third Applicant
AND:	COMMISSIONER OF TAXATION Respondent

order made by:	JAGOT, DAVIES and THAWLEY JJ
DATE OF ORDER:	10 September 2020

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. The decision of the Tribunal dated 23 December 2019 affirming the decisions under review be set aside, and in lieu thereof the objections of each of the applicants to the assessments for the 2014 income year be allowed.

3. The respondent pay the applicants’ costs of the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

overview

1. On 23 December 2019, the Administrative Appeals Tribunal affirmed objection decisions of the Commissioner of Taxation relating to various assessments issued to the Trustee of the Whitby Trust and four of Mr Allen Caratti’s adult children: Christina Caratti, Alisha Caratti, Nicole Caratti and Natalie Carter. The applicants each seek an extension of time in which to “appeal” to this Court under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). The Commissioner did not object to an extension of time being granted. The Court was satisfied it was appropriate to grant an extension, the appeal being arguable, there being no prejudice to the Commissioner and there being an adequate explanation for delay.

2. The Tribunal’s decision disposed of seven applications for review under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA 1953). The applications were heard together, with evidence in each review being evidence in the other. The issues were defined by two sets of Statements of Facts, Issues and Contentions (SFIC), one set for the Trust and one set for all of the children.

3. The Trust challenged as excessive assessments in respect of the 2011 to 2013 years. In respect of these years, the Trust was issued assessments relating to default distributions made to Mr Caratti’s fifth child, who was a minor at the time of the assessments, and was issued further assessments after Christina, Alisha, Nicole and Natalie had disclaimed (First Disclaimers) default distributions made to each of them by operation of cl 3.7 of the Whitby Trust Deed. The Commissioner accepted that the First Disclaimers were effective and withdrew assessments which had been issued to them. The Trust has not appealed the Tribunal’s decision.

4. Christina, Alisha, Nicole and Natalie each challenged as excessive assessments for the 2014 year. In respect of the 2014 year, the children had again sought to disclaim default distributions made to them (Second Disclaimers). On this occasion, however, the Commissioner did not accept that the disclaimers were effective and did not withdraw the relevant assessments. On learning of the Commissioner’s position, the children subsequently executed a further deeds of disclaimer seeking to disclaim the default distributions made to them in the 2014 year (Third Disclaimers).

5. The children’s challenge to the 2014 assessments rested on two main contentions: first, that 100% of the income had been validly appointed to the Bernguard Trust such that they could not take in default under cl 3.7; and, secondly, that even if there were no valid appointment of income to the Bernguard Trust, they had each validly disclaimed the relevant distribution either by the Second Disclaimers or by the Third Disclaimers.

6. The Tribunal did not accept either contention and affirmed the objection decisions. Only Alisha, Nicole and Natalie have appealed; Christina has not.

7. There were three issues in the appeal. The first issue was whether there was a valid distribution of 100% of the Whitby Trust income to the Bernguard Trust in the year ended 30 June 2014. If there was, then the assessments issued to Alisha, Nicole and Natalie in respect of that year under s 97 of the Income Tax...