The Federal Court has dismissed a taxpayer’s appeal from the decision in AAT Case [2012] AATA 477, Re Yazbek and FCT in which the AAT held that the taxpayer was at all relevant times a beneficiary of a trust [for the purpose of qualification (d) to s170(1), item (1) of the ITAA36].
The taxpayer argued that as he had received no distributions from the trust in relation to the 2005 tax year, he was not a beneficiary of the trust estate at any time in that year and therefore an amended assessment issued to him in 2010, which included an additional $2.1m in his assessable income from the trust for that year, was out of time. However, the AAT held the taxpayer was at all relevant times a relevant beneficiary under the terms of the trust, and that the amended assessment was issued within relevant time limits under Item 4 of s 170(1) of the ITAA 1936, and was not confined to a the normal 2-year time limit.
In dismissing the taxpayer’s appeal, the Federal Court found no error in the decision or reasoning of the AAT. In particular, it agreed that the ordinary meaning of “beneficiary” is a person for whose benefit a trust is to be administered and who is entitled to enforce the trustee’s obligation to administer the trust according to its terms and that, in terms of this meaning, the AAT had correctly applied it in the context of the tax law and the circumstances. Furthermore, the Court held that it was not an absurd construction that Parliament intended to increase the time limit for amending an assessment of a “beneficiary” in the ordinary sense of the word where the “risk” to the taxpayer is that the taxpayer would be called on to pay amounts that were [otherwise] lawfully due.
In addition, the Court found that Parliament did not intend for qualification (d) of item 1 of s 170(1) of the ITAA 1936 to have other than its ordinary meaning nor for it to apply only to those contingent beneficiaries who received benefits in the relevant year. Instead, the Court concluded that where such an interpretation was intended, the tax law generally makes that clear, for example by referring to a “beneficiary presently entitled”.
(Yazbek v FCT [2013] FCA 39, Federal Court, Bennett J, 31 January 2013.)
[FJM Note: This case involved the taxpayer and others who alleged they held shares, and received a dividend, as a limited partnerhip, which should be taxed as a company. The ATO said they had not created a limited partnership and sought to tax them individually on their individual interest in the dividend. The taxpayer (an individual) took the preliminary point in the AAT, that the Commissioner was out of time to amend as the 2-year limit applied under s170(1), item 1, because he was an individual, and that qualification (d) to that item (about being a ‘beneficiary of a trust estate) did not apply. In particular he argued that he was not a ‘beneficiary’ as he was only a ‘potential’ or discretionary beneficiary, and secondly, the amendment was not in his capacity as a beneficiary, as he’d received no income from the trust of which he was a discretionary beneficiary. He lost on both points – both at the AAT and then again in the Federal Court.]
[LTN 23, 5/2/13]