Thinking | 11 September 2020

Talking Tax – Issue 191

By Peter Murray and Adam Dimac

Failing to disclaim trust distributions

In The Beneficiary v Commissioner of Taxation [2020] AATA 3136 the Administrative Appeals Tribunal (AAT) considered whether:

  • a trust distribution was effectively disclaimed by the taxpayer; and
  • an application to extend grounds of objection against the relevant income tax assessment (the Amended Assessment) should be granted.

The Commissioner of Taxation (Commissioner) assessed the taxpayer’s income tax liability for 2014 income year on the basis that the taxpayer’s assessable income included a distribution of $80,000 (the Distribution) from a trust (the Trust).

The AAT partially granted the taxpayer’s application to have the grounds of objection extended, and it was accepted by all parties that a disclaimer executed by the taxpayer on 6 April 2018 (Disclaimer) evidenced an unequivocal intention to disclaim the Distribution.

However, the AAT found that that the Disclaimer was not effective as the taxpayer had previously accepted the Distribution. Relevant to this decision was the fact that the taxpayer had included PAYG instalments of $31,248, which were paid by the trustee of the Trust on her behalf, in her tax return for the 2014 income year.

This case provides a number of important reminders:

  • when it comes to disclaiming a distribution from a trust, timing and context are vital;
  • a taxpayer’s objection should be broad, and include all possible grounds of objection; and
  • if the grounds of an objection needs to extend, a timely application to the AAT is vital (if possible, this shouldn’t be left until 8.00 am on the day of the hearing).

The key facts

The taxpayer and her former husband were the primary beneficiaries of the Trust. The trustee of Trust was a company of which the taxpayer’s former husband was the sole director.

On 30 June 2014, the trustee of the Trust resolved to distribute ‘the second $80,000’ of the income of the Trust to the taxpayer.

The taxpayer did not include the Distribution in her tax return for the 2014 income year, however she included in her return the PAYG instalments of $31,248 which were paid by the trustee of the Trust during the year on her behalf; this resulted in taxpayer getting a refund of $31,328.

The taxpayer’s assessment for the 2014 income year was amended by the Commissioner in April 2018 to include the Distribution.

The taxpayer objected to the amended assessment on the basis that she had disclaimed the Distribution on 6 April 2018 pursuant to the Disclaimer. The Commissioner did not accept the taxpayer’s objection, and the taxpayer made an application for review of the Commissioner’s decision with the AAT.

The taxpayers primary ground of objection was that she had disclaimed the Distribution on 6 April 2018 pursuant to the Disclaimer.

The AAT granted the taxpayer’s application to amend her grounds of objection to include that the distribution was disclaimed in March 2015, when her counsel struck through the distribution in a draft income tax return sent to the taxpayer by the accountants who prepared her and her former husband's individual returns, and the trust's return.

The AAT refused to grant the taxpayers application to amend her objection to include a number of other grounds, largely on the basis that the AAT was not satisfied the grounds had merit and because of the taxpayers delay in seeking to raise the further grounds.

The AAT’s decision

The AAT ultimately dismissed the taxpayer’s objection, as it was not satisfied that the taxpayer had discharged the burden of proving that she had not accepted the Distribution before it was disclaimed. Relevantly, the AAT stated that:

  • the taxpayer was aware of the Distribution by late March 2015, when the amount of the Distribution was struck through in the draft tax return;
  • the Disclaimer evidenced an unequivocal intention to disclaim the Distribution, but it was not executed until 6 April 2018;
  • the taxpayer lodging her tax return on the basis that she was entitled to the benefit of a credit for the amount of the PAYG instalments paid by the Trustee, and retaining the resulting refund, was inconsistent with her claim that she had not accepted the Distribution;
  • the taxpayer’s inaction over the period between becoming aware of the Distribution by late March 2015, and finally disclaiming it on 6 April 2018 (around the time her objection was lodged), indicates she was reluctant to disclaim the Distribution, that it should be inferred that she accepted the Distribution; and
  • the striking through and initialling of the draft return in March 2015, without more, did not constitute a disclaimer of the Distribution.

The houses agree to extend JobKeeper

On 26 August 2020 the Coronavirus Economic Response Package (Jobkeeper Payments) Amendment Bill 2020 (Bill) was introduced by the House of Representatives. The Bill was passed by both houses and the Coronavirus Economic Response Package (JobKeeper Payments) Amendment Act 2020 (Act) received royal assent on 3 September 2020.

The Act introduces a number of changes, which include:

  • extending the end date for the JobKeeper Scheme to 28 March 2021;
  • changes to the tax secrecy provisions to allow tax officers to disclose otherwise protected information in relation to the JobKeeper Scheme for the purposes of the administration of an Australian law. Such disclosures can only be made for a purpose relating to COVID-19; and
  • extending certain provisions of the Fair Work Act 2009 to align with the extension of the JobKeeper Scheme to 28 March 2021.

While the Act sets out the framework for the extension to the JobKeeper Scheme, organisations will need to stay tuned for the Treasurer’s amendments to the JobKeeper Rules, which set out the functional provisions of the scheme.

Our detailed article can be found here.

Super early release extension

The Government announced earlier this year that it would extend the application period to allow for those negatively affected by the COVID pandemic to access up to $10,000 of their superannuation for the 2020-21 year.

On 3 September 2020 The Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No 3) 2020 (the Regulations) were registered which gives effect to the extension of the COVID early release of superannuation.

The deadline for applications to access superannuation on compassionate grounds relating to COVID-19 is now 31 December 2020.

Those who are impacted by COVID-19 and wish to access their superannuation early should note that applications must be made by 11.59 pm Australian Eastern Daylight-saving Time (AEDT) on 31 December 2020.

This edition of Talking Tax was written with the assistance of Teresa-Fara De Dominicis, Graduate Lawyer.

Contact

Peter Murray

Peter is the section leader of the firm's Tax team. Peter has joined Hall & Wilcox in 2016 after...

Adam Dimac

Adam is an experienced tax lawyer, and advises clients on a range of matters including tax planning and structuring,...

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