This was an ITA section 160 case. The learned judge went on his own excursion to consider a point that was not pled or argued.
In 2002, there was a trust set up under which two children took title to property that had formally been held in the name of father and another child. The beneficiaries of the trust were father (husband) and wife. Father had a tax debt in 2002.
In obiter, Justice MacPhee concludes that the transfer from father and son to the two children gave rise to section 160 liability for the two children trusteees. That part does not seem contentious. The problem is that it isn’t clear that trustees get any value from having trusteeship of property. The value seems to be nominal; most of what they get is a liability, the burden of carrying the trust. But Justice MacPhee concluded that the two children trustees were liable for the full $60,000 tax debt of the father.
In 2009, those trustees transferred the property to the wife entirely. The assessment here was against the wife for taking over the husband’s 50% joint beneficial interest, at a time when he was a tax debtor. That latter, 2009, transfer gave rise to the assessment that was upheld here and the decision seems sound on that basis.
For a tax debt to accrue to a non-arm’s length transferee, there must be a transfer and the value of the transfer must exceed the consideration paid. But what is the value, to trustees, of a transfer of property to those trustees for the benefit of others? Doesn’t all the value of the property transferred accrue to the beneficiaries?
The Federal Court of Appeal in Livingston v The Queen 2008 FCA 89 considered this issue somewhat (paras. 20-22) but it does not seem to have been fully considered or argued.
Section 160 refers to a transfer of “property, either directly or indirectly, by means of a trust or by any other means whatever”. If one doesn’t consider the interest of a beneficiary, then what do the words “by means of a trust” add? The transfer to the trustee is a transfer of legal title, not one by means of a trust, which is the transfer that the beneficiaries get. So we need to consider the beneficiaries and what value they get in assessing where to impose the tax liability.
In Singh, all the beneficial interest went to the husband and wife. There was nothing left for the trustees.