Case: Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (1999) 43 ATR 42
Outcome: cited
Federal Commissioner of Taxation v Commercial Nominees of Australia Ltd (1999) 43 ATR 42; (1999) 167 ALR 147, Lee, Emmett and Gyles JJ at [51] observed that: [A] trust estate ... will be that property the ownership of which is divided between trustee and beneficiary. The trustee will always be ascertainable. However, the class of beneficiaries, while identifiable, will not necessarily be closed and all beneficiaries may, of course, not be ascertainable. The Full Court recognised at [49] that since lack of continuity in the identity of the trustee from income year to income year would not prevent losses (in this case capital losses) in earlier years being available as deductions from assessable income in a later year, "criteria must be established for determining when there is sufficient identity of the trusts involved to warrant such deductions being allowable". In framing the criteria, the Full Court said this: [52] The trust obligations of the trustee and the corresponding rights of the beneficiaries may vary from time to time, in accordance with law. Similarly, the property that is the subject of such obligations and rights will not be static. Parts of the property might be distributed so as to cease to be subject to trust obligations. Further property may accrue as income or by further settlement so as to become subject to obligations where previously that additional property was not. [53] However, at any given time it will be possible to identify the property that is the subject of the trust obligations and in respect of which the rights of beneficiaries exist. It is the income which accrues from that property, less outgoings from that property, that go to make up the taxable income of the trust estate or fund. ... [54] The [ITAA 1936] then imposes a liability either on the beneficiaries or, in some cases, on the trustee in a representative capacity. "Superannuation fund", as that term is defined in the SIS Act and the [ITAA 1936], contemplates a continuing regime regulating the manner in which a fund may be added to and the manner in which payments may be made from it. So long as one can identify a continuity of that regime, that will be sufficient. [55] Thus, in order to determine whether losses of particular trust property are allowable as a deduction from income accruing to that trust property in a subsequent income year, it will be necessary to establish some degree of continuity of the trust property or corpus that earns the income from the income year of loss to the year of income. It will also be necessary to establish continuity of the regime of trust obligations affecting the property in the sense that, while amendment of those obligations might occur, any amendment must be in accordance with the terms of the original trust. [56] So long as any amendment of the trust obligations relating to such trust property is made in accordance with any power conferred by the instrument creating the obligations, and continuity of the property that is the subject of trust obligation is established, there will be identity of the "taxpayer" for the purposes of s 278 and ss 79E(3) and 80(2), notwithstanding any amendment of the trust obligation and any change in the property itself. The Full Court at [55] observed that in order to determine whether earlier losses of trust property are allowable as deductions from income (or capital gains) accruing to trust property in a subsequent income year, it will be necessary to establish some degree of continuity of the trust property or corpus that earns the income or capital gain from the income year of loss to the year of income. Secondly, there must be continuity of the regime of trust obligations affecting the trust property and while those obligations might change, continuity remains if the amendments are made in accordance with the terms of the trust instrument, in the proper exercise of the powers so conferred. It follows that if some degree of continuity of trust property is made out and continuity in the regime of trust obligations is established, there will be sufficient identity of taxpayer in the sense that the hypothetical representative trustee taxpayer on behalf of the trust estate that incurred the loss is the hypothetical taxpayer of the trust estate that made the net capital gain.