Atlantis Holdings Pty Limited in its capacity as trustee of the Bruce James Lyon Family Trust
Document type: Decision Impact Statement
Venue: Supreme Court (2011/402144)
Judgment date: 22 February 2012
Date published: 24 September 2012

Summary of decision:
Outlines the ATO's response to this case which concerned the Commissioner's challenge to an application brought by a trustee under section 63 of the Trustee Act 1925 (NSW) for judicial advice.

Overview of facts:
Following an audit, the Commissioner assessed Atlantis Holdings Pty Ltd as trustee of the Bruce James Lyon Family Trust (the trustee) as liable to pay tax on the trust's net income in respect of the 2007 and 2008 tax years. | The assessments were based in part on the view of the Commissioner that no beneficiary was presently entitled to the income of the trust in those years. | The principal areas of contention between the trustee and the Commissioner were: • whether the class of default beneficiaries (those who were entitled to trust income in default of an appointment by the trustee by 30 June) included certain companies and religious bodies given the clause in the deed dealing with entitlements to income in default of an appointment by the trustee spoke of beneficiaries 'who shall then be living'; • whether any minors included in the class of default beneficiaries could validly disclaim their interest under the deed; • the effect of valid disclaimers. | • whether the class of default beneficiaries (those who were entitled to trust income in default of an appointment by the trustee by 30 June) included certain companies and religious bodies given the clause in the deed dealing with entitlements to income in default of an appointment by the trustee spoke of beneficiaries 'who shall then be living'; • whether any minors included in the class of default beneficiaries could validly disclaim their interest under the deed; • the effect of valid disclaimers. | The trustee filed a Summons with the Supreme Court seeking an order giving the Court's opinion, advice and direction pursuant to section 63(1) of the Trustee Act which provides that: 'A trustee may apply to the Court for an opinion advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.' | The matters on which the trustee was seeking advice from the Court concerned: • the effect of the words 'who shall then be living' on the operation of the default beneficiary clause and in particular, which beneficiaries could benefit under that clause • the effectiveness of purported disclaimers made by minor beneficiaries of the trust of their interest as default beneficiaries • the effect of a valid disclaimer vis-a-vis non-disclaiming beneficiaries. | • the effect of the words 'who shall then be living' on the operation of the default beneficiary clause and in particular, which beneficiaries could benefit under that clause • the effectiveness of purported disclaimers made by minor beneficiaries of the trust of their interest as default beneficiaries • the effect of a valid disclaimer vis-a-vis non-disclaiming beneficiaries. | A copy of the summons had been served on the Commissioner. | Prior to a hearing on the questions in which advice was sought by the trustee, the Court determined to hear as a preliminary question whether it was appropriate for the Supreme Court to provide the advice pursuant to section 63. | The trustee submitted that the advice sought by it related to the interpretation of the trust's deed and involved issues affecting distributions to the beneficiaries. The trustee argued that judicial advice from the Supreme Court on the questions posed in the application were likely to lead to the speedy resolution of the dispute with the Commissioner, without the need for proceedings under Part IVC of the Taxation Administration Act 1953, consequent upon objections lodged by the taxpayer against the assessments raised by the Commissioner being disallowed. | The Commissioner submitted that the questions, upon which an opinion or advice was sought, were the exact issues that arise with respect to the objections lodged, and any appeal proceedings (to the Federal Court) or applications for review (to the AAT) that would follow disallowance of the objections as provided for under Part IVC. Accordingly, in the Commissioner's submission, it was not appropriate for the Supreme Court to give advice on the questions, nor was it the purpose of section 63 of the Trustee Act for advice to be given in cases such as this. In effect, the trustee was seeking to challenge the correctness of the assessments made by the Commissioner in circumstances where sections 175 and 177 of the Income Tax Assessment Act 1936 operated to make Part IVC proceedings the appropriate mechanism for such a challenge. | Issues decided by the Supreme Court | Rein J held that the Summons should be dismissed on the basis that the trustee was not actually seeking advice as to what it should do (as contemplated by section 63) but rather was seeking a determination of the key issues in its dispute with the Commissioner. His Honour noted such a determination was not within the purview of section 63 and it would be inappropriate to provide judicial advice on the matters sought [para 22]. | In the alternative, his Honour held that even if what was being sought could properly be characterised as judicial advice within the meaning of section 63, he would remain of the opinion that the matter was not suitable for the provision of advice for reasons including the following: (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings. | (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings.

Issues decided:
Rein J held that the Summons should be dismissed on the basis that the trustee was not actually seeking advice as to what it should do (as contemplated by section 63) but rather was seeking a determination of the key issues in its dispute with the Commissioner. His Honour noted such a determination was not within the purview of section 63 and it would be inappropriate to provide judicial advice on the matters sought [para 22]. In the alternative, his Honour held that even if what was being sought could properly be characterised as judicial advice within the meaning of section 63, he would remain of the opinion that the matter was not suitable for the provision of advice for reasons including the following: (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings. (1) There is no utility in the Court advising the trustee about how a clause in the trust deed is properly to be construed when that question must necessarily be decided in the Part IVC proceedings [para 23(3)]. (2) It would be undesirable and inappropriate for the Supreme Court to express a view on the substantive issues that divide the trustee and the Commissioner when the Commissioner is yet to determine objections lodged and if he disallows them the matter will proceed to either the Administrative Appeals Tribunal or the Federal Court [para 23(1)]. (3) Advice given by the Court on the matters identified by the trustee would not only not be binding on the Commissioner but would not be binding on the trustee itself [para 23(2)]. That is, regardless of the advice given by the Court, neither party would be prevented from agitating the same issues in the context of Part IVC proceedings.

ATO view of decision:
The Commissioner views this decision as confirmation that Part IVC proceedings are the appropriate mechanism for challenging the correctness of an assessment. In appropriate cases, the Commissioner will seek to challenge proceedings commenced by a taxpayer under provisions equivalent to section 63 of the Trustee Act that agitate the very issues that are central to the correctness or otherwise of an assessment that will be the subject of Part IVC proceedings. | Similarly, the Commissioner will, in appropriate cases in which other forms of discretionary relief are sought to like end (for example, declaratory relief or an order for equitable rectification), seek to argue that the Court should in exercise of its discretion decline to grant relief, on the basis that Part IVC proceedings are the appropriate mechanism for challenging the correctness of an assessment.

Administrative treatment:
Implications for ATO Precedential documents (Public Rulings & Determinations etc) | None | Implications for Law Administration Practice Statements | None

Legislative references: Income Tax Assessment Act 1936 (Cth) 166 175A 175 177 Trustee Act 1925 (NSW) 63 Tax Administration Act 1953 (Cth) Part IVC
Case references: Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42 (2008) 237 CLR 66 Platypus Leasing Inc v Commissioner of Taxation (No 3) [2005] NSWSC 388 (2005) 189 FLR 441 59 ATR 84 Platypus Leasing Inc & Ors v Commissioner of Taxation [2005] NSWCA 399 (2005) 61 ATR 239
Subject references: Trusts Trustees Application to court for judicial advice Purpose and function of s 63, Trustee Act 1925 (NSW) Judicial discretion as to relief