The Full Federal Court has refused to order a retrial in relation to a court declaration allowing a bankruptcy trustee to claw-back a former tax lawyer’s $5m gift to his family trust on the grounds that it was intended to defeat an impending tax liability.
The former tax lawyer had made $5m in contributions to a non-complying superannuation fund during the 1998-99 tax year. He claimed a deduction for the superannuation contributions relying on a private ruling obtained from the Tax Office. The contributions were made from fees he earned in his tax advice business, including the marketing of employee benefit arrangements. After deciding to retire and cease his tax advice business, he wound up the super fund on 1 July 1999 and the $5m was paid to Windoval Pty Limited, as trustee of his family trust. In July 2004, the Commissioner disallowed the deduction claimed for the contributions and issued an amended assessment for $4.5m in tax payable.
At first instance, the Federal Court declared that the transfer of the $5m to the family trust was void against the trustee in bankruptcy under s 121 of the Bankruptcy Act 1966 after ruling that the purpose of the transfer was to defeat the taxpayer’s impending creditors (namely the Commissioner). On appeal, the Full Court found that the primary judge had made an incorrect statement of the evidentiary position in his reasons by stating that there was no evidence that the taxpayer “would have” used his position as controller of the family trust to call back the money in the event of an amended assessment. Nevertheless, the Full Court dismissed the appeal after finding that the error of fact did not have any bearing on the outcome of the case to warrant an order for a new trial.
(Windoval Pty Limited (Trustee) v Donnelly (Trustee), in the Matter of Donnelly (Trustee) [2014] FCAFC 127, Full Federal Court, Jacobson, White & Gleeson JJ, 26 September 2014.)
[LTN 189, 30/9/14]
Catchwords [2014] FCAFC 127
PRACTICE AND PROCEDURE – Whether appropriate to order a new trial pursuant to s 28(1)(f) of the Federal Court of Australia Act 1976 (Cth)
BANKRUPTCY AND INSOLVENCY – Whether the Commissioner of Taxation was an impending creditor within the meaning of s 121(1)(b) of the Bankruptcy Act 1966 (Cth)