Drummond J
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Kajewski v Commissioner of Taxation [2003] FCA 258
APPEAL - nature of appeal to Federal Court under s 14ZZ the Taxation Administration Act 1953 (Cth) - Commissioner's power to issue amended assessment under s 170(2)(a) where avoidance of tax by taxpayer due to fraud or evasion by tax agent
Taxation Administration Act 1953 (Cth) s 14ZZ(c) Income Tax Assessment Act 1936 (Cth) s 51(1)
Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 Re Coldham; ex parte Brideson (No 2) (1990) 170 CLR 267 Poletti v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4,639 Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (1994) 181 CLR 466 Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 s 14ZZP Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 132 CLR 535 Avon Downs Proprietary Limited v Federal Commissioner of Taxation (1949) 78 CLR 353 House v R (1936) 55 CLR 499 Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Limited (1972) 128 CLR 28 Amway of Australia Pty Ltd v Federal Commissioner of Taxation (1998) 158 ALR 652 Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (2001) 191 ALR 420 Australasian Jam Company Proprietary Limited v Federal Commissioner of Taxation (1953) 88 CLR 23 Denver Chemical Manufacturing Company v Commissioner of Taxation (New South Wales) (1949) 79 CLR 296 Colonial Mutual Life Assurance Society Limited v The Producers and Citizens Co-Operative Assurance Company of Australia Limited (1931) 46 CLR 41 Federal Commissioner of Taxation v Turner (1984) 73 FLR 24 Zeta Force Pty Ltd v Commissioner of Taxation (1998) 84 FCR 70
JOAN AMELIA KAJEWSKI v COMMISSIONER OF TAXATION Q 107 - 110 OF 2000 WILLIAM CHARLES KAJEWSKI v COMMISSIONER OF TAXATION Q 111 - 114 OF 2000 PETER JOHN KAJEWSKI v COMMISSIONER OF TAXATION Q 115 - 118 OF 2000
26 MARCH 2003 BRISBANE
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE OF ORDER:
26 MARCH 2003 WHERE MADE: BRISBANE
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The applicant pay the respondent's costs of and incidental to the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT
IN THE FEDERAL COURT OF AUSTRALIA
BETWEEN:
APPLICANT AND:
RESPONDENT JUDGE:
DATE:
26 MARCH 2003 PLACE: BRISBANE
Each of the applicants appeals under s 14ZZ(c) the Taxation Administration Act 1953 (Cth) against decisions of the Commissioner disallowing their objections to amended assessments issued in October 1999 for the 1990, 1991, 1993 and 1994 years of income. The three applicants have filed a total of twelve separate appeals, which were all heard together.
At all material times, Askena Pty Ltd conducted a motor vehicle and farm machinery sales business at Roma as trustee for the Kajewski Family Discretionary Trust. It was a substantial business, with about a dozen employees, in addition to the three applicants. The applicants were the directors and shareholders in Askena and the beneficiaries of the Family Trust. The Commissioner issued all the amended assessments in reliance on s 170(2)(a) the Income Tax Assessment Act 1936 (Cth) ("the ITAA"). By these assessments, he increased each applicant's taxable income by including in the particular applicant's amended assessment for the relevant year that applicant's entitlement as beneficiary of the Family Trust. It is common ground that resolution of all twelve appeals involves a determination of the following issues:
(a) Whether the Commissioner should have increased the income of the Family Trust in respect of the year ended 30 June 1990 by disallowing the claim for a $200,000 deduction under s 51(1) the ITAA previously allowed.
Determination of this issue will resolve questions as to the Commissioner's entitlement to disallow deductions initially allowed under s 51(1) from the income of the Family Trust for relatively small amounts of interest in each of the 1991, 1993 and 1994 years. Subject to issue (b) below, it will also resolve each of the twelve appeals now before me by resolving whether the Commissioner was entitled to increase each applicant's taxable income by including in their amended assessment for the 1990 year an amount equal to one-third of the $200,000 deduction disallowed to the Family Trust and, in respect of the 1991, 1993 and 1994 years, amounts equal to one-third of the interest disallowed from the Family Trust's assessable income in each of the 1991, 1993 and 1994 years.
Whether the Commissioner's reliance on s 170(2)
the ITAA in issuing the amended assessments in October 1999 to the applicants is open to challenge.
(c) Whether each applicant is liable to the penalty tax imposed by the Commissioner and liable to pay interest in respect of the amended assessments.
(d) Whether the Commissioner's refusal to remit these penalties and interest can be challenged.
It is necessary to say something about the nature of the appeal conferred on a taxpayer by s 14ZZ(c) the Taxation Administration Act: the applicants submit that the appeal is by way of a re-hearing de novo, while the Commissioner contends that his decision to issue amended assessments in reliance upon s 170(2)(a) the ITAA can only be challenged on what was said to be "administrative law grounds". As I understand this submission, this is said to be the position even if the Commissioner had not put into evidence the certificates under Reg 45 of the Income Tax Regulations to which I later refer.
The nature of the appeal to this Court under s 14ZZ is not defined. It must be determined by evaluating the relevant statutory provisions: Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 621 - 622 and Re Coldham; ex parte Brideson (No 2) (1990) 170 CLR 267 at 273 - 274. That this Court is confined to exercising judicial power in contrast to administrative merits review is also relevant. The Full Court, in considering the nature of the right of appeal given by s 14V the Taxation Administration Act against the making by the Commissioner of a departure prohibition order in Poletti v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4,639, said, at 4,641:
Appeals from decisions of Commonwealth officers or federal administrative tribunals, though called appeals, are not appeals in the strict sense. The right of 'appeal' is to a court exercising the judicial power of the Commonwealth, for it is the first occasion on which a court is seized with jurisdiction to consider a matter after it has been dealt with by administrative bodies. Appeals of this kind, of which there are numerous examples … lie to the Federal Court in the exercise of its original, not appellate, jurisdiction.
There is a fundamental distinction between an appeal to a court from the decision of an administrative body, which may necessarily include a rehearing, frequently de novo, and an appeal to a federal court or state or territory court exercising federal jurisdiction, in each case exercising the judicial power of the Commonwealth under Chapter III of the Constitution (a distinction emphasized by Mason J in Sperway at 621). The reason is, of course, that federal courts or other courts exercising federal jurisdiction exercise only the judicial power of the Commonwealth, and do not act administratively or exercise administrative or executive powers by, for example, substituting their own discretion for the discretion of the original decision-maker. This distinction must be kept sharply in mind in this case because it argues powerfully against the appeal from the Commissioners order under s 14S(1) of the [Taxation Administration] Act being a rehearing de novo.
Section 14ZZ(c) the Taxation Administration Act does not in terms limit a taxpayer dissatisfied with the Commissioner's appealable objection decision to judicial review of that decision on administrative law grounds, such as those set out in s 5 the Administrative Decisions (Judicial Review) Act 1977 (Cth): it gives the taxpayer a right to "appeal to the Federal Court against the decision". The scope of the review opened up by the institution of such an appeal is a wide one. In Federal Commissioner of Taxation v Australia and New Zealand Savings Bank Limited (1994) 181 CLR 466, it was said at p 476 that upon institution of such an appeal, the Court becomes "seized of the [Commissioner's] decision in its entirety", even though the taxpayer may seek to challenge only a part of that decision. Subject only to s 14ZZO(a) the Taxation Administration Act, the Court has power to dispose of the appeal by making such order as it thinks fit under s 14ZZP, a power that is "expressed in the widest terms": ibid. In exercising this right of "appeal", where, as here, the Commissioner's decision rejects a challenge to an assessment, it is implicit in s 177(1) the ITAA that the taxpayer is entitled to challenge the correctness of both the amount of the assessment and any of the particulars of the assessment. Further, s 14ZZO(b) the Taxation Administration Act imposes on a taxpayer, in proceedings on an appeal to the Federal Court under s 14ZZ against an appealable objection decision, the "burden of proving", that "the assessment is excessive" and the burden of proving that, where appropriate, "the taxation decision should not have been made or should have been made differently". As Brennan J observed, in reliance on s 14ZZO(b)(i), in Deputy Commissioner of Taxation v Richard Walter Pty Limited (1995) 183 CLR 168 at 198:
The procedures in Pt IVC of the Administration Act expose an assessment to correction if the application of the general provisions of the Act to the facts as found establishes that the assessment was excessive."
See also per Dawson J at 221 and Toohey J at 227. In order to discharge the burden of proof cast on the taxpayer by s 14ZZO(b) the Taxation Administration Act and its statutory precursors, it has long been accepted that it is necessary for the taxpayer to prove, by proper evidence put before the appeal Court, what is the correct amount of the taxpayer's taxable income in respect of which the Commissioner should have made his assessment: see Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 87 - 88; Danmark Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 at 336 and McCormack v Federal Commissioner of Taxation (1979) 143 CLR 284 at 303. Subject only to s 14ZZO(a), the taxpayer is, in general, entitled to put before the appeal court evidence that may not have been before the Commissioner and to seek the Court's decision on whether, on all the evidence before it on the appeal, an assessment different in amount from that issued by the Commissioner should issue. Cf Re Coldham at 274.
Each of the present appeals is against the Commissioner's objection decisions to disallow the objections of all applicants to all his amended assessments. Institution of each appeal refers to this Court the particular objection decision in its entirety and the Court's wide power under s 14ZZP is thereupon enlivened. The issues which a taxpayer appealing under s 14ZZ(c) in respect of an assessment is entitled to raise show that the appeal is an avenue available to a taxpayer for showing that the assessment in question was wrongly made. As such, it can involve questions of both fact and law: Kolotex Hosiery (Australia) Pty Ltd v Federal Commissioner of Taxation (1975) 132 CLR 535. The right of appeal given by s 14ZZ(c) is of the same nature as the right of appeal given by s 14V against a departure prohibition order made by the Commissioner, which "may involve questions of fact or law or both": Poletti at 4,645. The taxpayer is thus entitled to challenge the entire factual and legal basis upon which the amended assessment was issued, subject only to s 14ZZO(a).
Because the taxpayer is entitled, on such an appeal, to lead evidence relevant to the issues for determination that was not before the Commissioner, an appeal under s 14ZZ(c) has some of the characteristics of an appeal by way of a hearing de novo. But s 14ZZO(a) shows that the taxpayer does not have an unqualified right to put before the appeal court all the material which it might contend is relevant to determining the correct amount of the assessment that should be made. Section 14ZZO(b) is also inconsistent with the appeal being by way of hearing de novo, for the reasons referred to in Poletti at 4,644. That the appeal cannot be characterised as an appeal by way of hearing de novo is not inconsistent with a proceeding under s 14ZZ(c) still being an appeal against the factual and legal determinations made by the Commissioner in issuing the particular assessment in which the taxpayer has an extensive right to put additional evidence before the Court. Cf Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 621 - 622 and 628 - 629. The considerations referred to and s 14ZZO(a) and (b) show that the right of appeal under s 14ZZ is not in the nature of a rehearing de novo or of a right to judicial review of the kind provided for by the Administrative Decisions (Judicial Review) Act 1977 (Cth), even though the sole avenue available to a taxpayer for challenging an appealable objection decision is by appeal under s 14ZZ(c). Poletti at 4,643 to 4,645 supports this view of the nature of this appeal.
The applicants' right of appeal under s 14ZZ(c) against the appealable objection decisions here in question is a right of appeal against the factual and legal determinations made by the Commissioner in deciding to issue the amended assessments, including his determination on issues raised by s 170(2)(a) the ITAA in the course of arriving at his decision, and in fixing the amount of those amended assessments.
The Commissioner's power to issue the amended assessments here in question in reliance on s 170(2)(a) the ITAA is conditioned, firstly, upon there being in fact an avoidance of tax and, secondly, upon the Commissioner being of the opinion that that avoidance is due to fraud or evasion. That the power to issue an amended assessment is conditioned upon the Commissioner first forming his opinion on these matters does not, I think, change the nature of the appeal conferred by s 14ZZ(c) on the taxpayer. However, longstanding authority establishes that there is a limitation on the jurisdiction of the Court on an appeal under provisions of the kind now contained in Pt IVC to interfere with an appealable objection decision in so far as that decision may be based upon the formation of an opinion confided by the statute to the Commissioner. The leading case, constantly followed, is Avon Downs Proprietary Limited v Federal Commissioner of Taxation (1949) 78 CLR 353 at 360. The basis upon which the Court, on an appeal under s 14ZZ(c), can interfere with the formation by the Commissioner of a discretionary opinion confided to him by the legislation was stated by Dixon J in Avon Downs in language similar to that in which his Honour, with Evatt and McTiernan JJ in House v R (1936) 55 CLR 499 at 504 - 505, stated the basis upon which an appeal court with power to conduct a full appeal on law and fact nevertheless has limited authority to interfere with a discretionary judgment by the primary judge. In House v R, their Honours also said that, once the appeal court concludes that the primary judge's discretionary judgment should be set aside:
… the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.
In Kolotex, the majority said that a court conducting an appeal under a precursor of s 14ZZ(c) the Taxation Administration Act has exactly the same power. In that case, the taxpayer appealed against the Commissioner's assessment. The issue was whether the taxpayer company was wrongly denied a deduction in respect of previous year losses. The taxpayer's entitlement to this deduction depended upon a provision of the ITAA that required it to satisfy the Commissioner of certain matters. The majority each held that, once the Court was satisfied on the material that was before the Commissioner that the Commissioner's opinion was flawed with error of the kind identified in Avon Downs, it was open to the Court in disposing of the appeal to determine, by reference to all the material before the Court, though that may be more extensive than that before the Commissioner, what opinion the Commissioner ought to have formed. See Gibbs J at 567 - 568 and Stephen J at 576 - 577. See also Federal Commissioner of Taxation v Brian Hatch Timber Co (Sales) Pty Limited (1972) 128 CLR 28 at 57 - 58 and 59. Such an approach is consistent with the approach of a court of appeal dealing with an appeal against the exercise of a judicial discretion. It is implicit in what their Honours said in Kolotex that, when the Court exercises the special power to determine the opinion the Commissioner should have formed, the line between judicial and administrative or executive power is nevertheless not transgressed. But consistently with this Court in its original jurisdiction exercising judicial power and not a power of administrative merit review, the Court, in contradistinction to the Tribunal on an appeal to it under s 14ZZ(a) or (b), cannot simply form its own opinion on the materials before it on matters confided by the legislation to the opinion of the Commissioner: it can only exercise such a power if it has first determined that the Commissioner's opinion is vitiated by error of law of the kind described in Avon Downs and House v R and should be interfered with in accordance with the principles stated in Avon Downs. And even where the Court exercises that special power itself, the Court does not engage in the administrative act of issuing the assessment amended to give effect to its judgment: that task remains one for the Commissioner under s 14ZZQ(1).
In Amway of Australia Pty Ltd v Federal Commissioner of Taxation (1998) 158 ALR 652, Foster J noted, at 668, that Kolotex was conducted by the parties on the basis that once it had been decided by the Court that relevant error had been shown, then the appeal should be decided by reference to all the material before the Court. But nothing in the judgments of Gibbs and Stephens JJ in Kolotex suggests that their Honours acted on this invitation while reserving the question whether that was the legally correct approach. Both their Honours considered the function of the Court and independently came to the conclusions to which I have referred.
Of course, the Court dealing with an appeal under s 14ZZ against an assessment based upon the Commissioner's opinion as to the existence of a particular matter which considers that the opinion is flawed with error of the kind referred to in Avon Downs is not bound to exercise for itself the relevant discretion conferred by the tax statute on the Commissioner. It can do that if it considers it appropriate, but as Foster J noted in Amway at 667, the Court has the option under the wide power in s 14ZZP to "refer the matter back in order that the discretion may be properly exercised according to law".
An appeal under s 14ZZ(a) is against the Commissioner's "objection decision". In order to identify the subject matter of the appeal, the relevant "objection decision" needs to be identified. The same issues are raised by each applicant's appeals. It will be sufficient to identify the objection decisions the subject of Mrs Kajewski's appeals. By a document entitled "Notice of Objection Against Assessment" dated 13 April 2000, Mrs Kajewski objected "against the assessments and amended assessments of income tax issued [by the respondent] on 20 October 1999 based on income derived by me during the financial years ended 30 June 1990, 1991, 1993 and 1994". She contended that the assessments should be amended: "to excise the following amounts of income and the consequential amounts of interest, and where applicable, penalties from my assessable income" that were particularised in the document. In support of this contention, Mrs Kajewski relied upon a number of claims, including claims that, for various reasons, the amounts of each assessment were excessive (claims
to (4) and (8)); claims that she was not liable to the penalty tax or, if liable, that it should have been remitted in full (claims
to (7)) and claims that the Commissioner has sought to amend the assessments beyond the power conferred by s 170(2)
the ITAA because there is no evidence of tax avoided and, if there has been an avoidance of tax, that avoidance did not arise or occur as a result of fraud or evasion (claims
to (11)).
The Commissioner responded to Mrs Kajewski's "Notice of Objection" by a document entitled "Notice of Decision on Objection" dated 9 August 2000. The Commissioner's decision on Mrs Kajewski's objection is precisely identified in p 1 of this document. It was a decision to disallow Mrs Kajewski's objection against the four (amended) assessments that issued on 20 October 1999. Having stated his decision, the Commissioner then went on in his Notice of 9 August 2000 to advise Mrs Kajewski: "Our report 'Reasons for Decision' is attached". This second document, also dated 9 August 2000, contains the delegate's detailed reasons for making this decision, the effect of which was to reject all the claims made by Mrs Kajewski in her "Notice of Objection".
WERE THE AMENDED ASSESSMENTS EXCESSIVE?
It is convenient to deal first with the question whether the applicants have shown that their various amended assessments were excessive.
The case as put by counsel for the applicants is that by late 1989, the applicant, William Kajewski, was contemplating leaving the business for a variety of personal reasons. The other applicants believed his continued involvement was essential to the success of the business. In early 1990, the Kajewskis' accountant, Mr Steve Hart, was in Roma on one of his regular visits to clients. In response to the concerns about William's departure, Hart suggested the setting up of an employee retention plan as an encouragement to William to remain involved. On 26 June 1990, Mr Ian Stevens, a fellow director with Hart in a number of the Hart group of companies, including Harts Fidelity Ltd, called on the Kajewskis at Roma with a number of documents which they then executed. These, it was said, included a deed establishing the Askena Staff Benefit Trust and service agreements between Askena and each of Peter and William Kajewski. Importantly, the applicants' case is that, by various of the documents they then executed, they obtained a loan from which, with some of Askena's own money, contributions totalling $200,000 were made by Askena Pty Ltd to the Askena Staff Benefit Trust; this was the subject of the $200,000 deduction claimed by the Family Trust in respect of its income for the year ending 30 June 1990, but ultimately disallowed. These contributions said to have been made by Askena comprised two amounts, one of $25,400 and another of $174,600. In closing submissions, the applicants put this part of their case in this way:
12. … On 29 June 1990, a cheque for $25,400 drawn by the employer [Askena Pty Ltd] was deposited to the credit of a bank account conducted by Hartcorp Fidelity Limited, the trustee of the staff benefit trust, with the ANZ Bank at Edward & Charlotte Streets, Brisbane, account no 3686-04873. According to the evidence, the bundle of documents they executed [prior to 30 June 1990] included a loan offer document from Mevton Pty Ltd, loan acceptance documents (minutes and certificate of acceptance) and security documents (guarantees) for a loan from Mevton Pty Ltd to Askena Pty Ltd as trustee of the Kajewski Family Discretionary Trust.
13. At an early stage it had been contemplated that the contribution to the staff benefit fund would be made [by Askena] with finance provided by Chase-AMP Bank Limited. However, as that could not be arranged in time, Steve Hart made arrangements in June 1990 for Mevton Pty Ltd (and/or Grade Enterprises Limited as its undisclosed principal or equitable assignee) to be inserted as financier and for the contribution by Askena Pty Ltd as trustee for the Kajewski Family Discretionary Trust to be invested in an insurance bond with Security Life Insurance Co Ltd for $174,600. The insurance bond with Security Life Insurance Co Ltd was a whole of life policy and therefore had an investment component upon its redemption.
Mevton Pty Ltd is a company within Mr Hart's "family holdings", but not part of the Hart group of companies. He and Mr Stevens were its directors up to May 1990 and again from 1993; the interim directors were two secretaries employed by the Hart group. Grade Enterprises Pty Ltd (sometimes called Grade Investments) and Security Life are both Vanuatu companies. Counsel's submissions continued:
14. Nevertheless, it had been intended to continue to proceed with the the [sic] Chase-AMP Bank application for finance for an AMP Policy and replace the interim Mevton structure with finance from Chase-AMP and an AMP Policy. After the Chase-AMP Bank approval for finance had been obtained and security documents signed, it was decided not to proceed with the Chase-AMP Bank finance for the AMP Policy. The interest rate on the Chase-AMP Bank Limited finance was about 16%, which was higher (the interest rate for loans of 10 years around 30 June 1990 was said to have been about 11.2%). Instead, the repayments to Mevton Pty Ltd were used to fund the acquisition of an AMP Investment Linked Policy by Hartcorp Fidelity Limited as trustee of the staff benefit trust, thus providing an accumulating asset.
15. It was expected that sufficient funds would be available after 10 years in the staff benefit trust to pay out the loan to [sic] Mevton Pty Ltd (and/or Grade Enterprises Ltd) and allow for the proceeds of the [Security Life] insurance bond to be distributed to William Kajewski. Alternatively, as the insurance bond was charged as security for the loan from Grade Enterprises Limited, sufficient funds would be available from the insurance bond to discharge the loan and the value of the AMP Policy would benefit the intended member of the staff benefit trust.
16. As events transpired, the AMP Policy was less profitable than expected and the policy was redeemed on or about 19 January 1993 for $21,937.05. Sometime after 16 November 1993, further payments to Mevton Pty Ltd were stopped (after 40 payments totalling $97,196). In 1994 the Kajewskis were notified that the funds in the staff benefit trust has been invested elsewhere, and only $100,000 was now expected at the end of 10 years instead of $300,000 - $400,000 …
The applicants contend that events occurred prior to 30 June 1990 which entitled the Family Trust to the deduction of $200,000 initially allowed in respect of its income for the year ended 30 June 1990, but subsequently disallowed, so that there was never any avoidance of tax. Their alternative case is that, if there was an avoidance of tax by Askena, that did not result from any conduct capable of justifying the Commissioner's conclusion that that avoidance of tax was due to fraud or evasion within s 170(2)(a). It was also submitted that even if the understatement of taxable income in the trustee's income tax returns and in the beneficiaries' income tax returns was due to fraud or evasion, the consequential avoidance of tax was not due to fraud or evasion by any of the applicants themselves.
The Commissioner's case is that Askena never incurred any liability in the year ending 30 June 1990 in respect of the employee retention plan and that such documents as have been put into evidence supporting such a claim have been fabricated by Mr Hart or persons within his organisation working under his direction. Further, the Commissioner contends that no part of the $200,000 was deductible from the Family Trust's 1990 income because there was never any intention on the part of the Kajewskis to set up an inducement for William to remain with the business; it was said that the whole transaction was proposed by Mr Hart to the Kajewskis and accepted by them as a means of generating a $200,000 tax deduction that would be available to Askena in respect of the 1990 year to reduce the very substantial increase in taxable income that the business had generated in that year over the previous year.
At the beginning of these reasons, I explained why the critical issue for determination is whether the Commissioner was entitled to increase the Family Trust's income for the 1990 year by disallowing the $200,000 deduction previously allowed. To show that the various amended assessments complained of were excessive, the applicants must show that Askena, as trustee of the Family Trust, incurred an outgoing of $200,000 by 30 June 1990 that was deductible under s 51(1) the ITAA.
It was no part of the applicants' case that Askena incurred an outgoing of $200,000 by 30 June 1990 merely by determining to establish its Staff Benefit Trust and by also determining then to make a payment of $200,000 into that trust by that date. Merely by making these determinations Askena could not have "completely subjected or definitively committed" itself to make the $200,000 payment into the Trust so that its entitlement to claim the $200,000 deduction (if a business outgoing) thereupon arose: see Merrill Lynch International (Australia) Ltd v Commissioner of Taxation (2001) 191 ALR 420 at pars [80] and [81]. Askena's decision to make such a payment, though it may have been made before 30 June 1990, was a unilateral and voluntary one that it was free to revoke at any time before it was implemented. Moreover, Askena did not intend to pay $200,000 of its own moneys into the Staff Benefit Trust by 30 June 1990. It intended to borrow $174,600 of that sum in order to make that payment. Counsel for the applicants, in par 46 of his submissions in reply, correctly recognised that Askena could only show that it had incurred an outgoing to the extent of $174,600 in the 1990 year in respect of the Staff Benefit Trust that could satisfy s 51(1) if, by that date, Askena had entered into a legally enforceable agreement to borrow that sum for that purpose.
I do not accept that Askena, by 30 June 1990, ever became committed to borrowing the $174,600 for the purpose of being invested for the Staff Benefit Trust. As will appear, not only has Askena failed to show that it incurred an outgoing of $174,600 by 30 June 1990, but it has also failed to show that any part of the $200,000 deduction claimed by the Family Trust from its 1990 income had the character of a business outgoing necessary to attract deductibility under s 51(1).
The applicants assert that, in early 1990, Mrs Kajewski and Peter Kajewski were concerned to retain William Kajewski's participation in Askena's business and that, at the suggestion of their accountant, Mr Hart, they set about establishing an employee retention plan. They say that the Askena Staff Benefit Trust was set up to administer this plan and the $200,000 was contributed by Askena for that purpose: as to $25,400 from its own cash and as to $174,600 from borrowings. I will assume that, if such a purpose were established, the payments said to have been made by or on behalf of Askena in respect of the Staff Benefit Trust could be characterised as business outgoings within s 51(1). I am not satisfied, however, either that the Staff Benefit Trust was set up as part of a plan to retain William Kajewski's services in Askena's business or that it was intended that the $200,000 would be paid in implementation of that same plan.
The applicants did not lead much evidence that provided ground for thinking that William Kajewski's continued participation in the business was of critical importance to its continued operation. Mrs Kajewski and Peter Kajewski said that shortly before their meeting in early 1990 with Mr Hart, they considered that William Kajewski's continued involvement in the business was essential to ensure its success. They did not explain why. He did train, however, as a motor mechanic and worked as a licensed motor dealer for some years, handling both the sales and servicing side of the Ford dealership business. Peter trained as a watchmaker and, with his mother and William, conducted the Ford dealership in Roma from 1982. Mrs Kajewski struck me as having a better grasp of the financial side of Askena's business than either William or Peter.
What is clear from the applicants' evidence is that the suggestion to set up an arrangement involving the establishment of the Staff Benefit Trust came from Mr Hart in the course of his visit to the Kajewskis at their business premises in Roma in early 1990. He had looked after their tax affairs and those of Askena for some years. Each of Mrs Kajewski and Peter and William Kajewski said Mr Hart raised the possibility of an employee retention plan which could be used by Askena's business for the retention of William's services. Each expressed concerns about the plan and each recalls being assured by Mr Hart, upon whom each relied in deciding to go ahead with the arrangement, that the plan he was proposing was legitimate. William Kajewski, eg, said:
Mr Steve Hart assured us that the plan was entirely legitimate. I recall seeking his assurance on this point and remember his reply that "He would not go to jail for anyone". I trusted Mr Hart and relied on his expertise and advice … If he has recommended to the business that we do something, then we have followed his advice and have signed whatever documents Harts have placed in front of us and paid whatever monies Harts have asked us to pay.
Each said they did not have much understanding of how the plan proposed by Mr Hart would work.
I consider that Mr Hart proposed the plan to the applicants as a means of enabling Askena and, in turn, the three applicants, to avoid the large tax bill that they were facing in respect of the 1990 year and that the applicants accepted and acted on that proposal to achieve that object.
Askena had a taxable income of only about $17,000 in the 1989 year. The applicants knew in early 1990 that they could anticipate a very large tax bill for the 1990 year in comparison with the bill for 1989 because of the increased income the business was generating. In its income tax return lodged in February 1991 for the year ending 30 June 1990 signed by Mrs Kajewski, Askena, as trustee for the Kajewski Family Discretionary Trust, declared a net income of $37,723, an amount arrived at after deduction of an "employee retention plan expense" of $200,000. The $200,000 deduction had the effect, until the amended assessments were issued, of reducing Askena's taxable income for the 1990 year from $237,000 to about $37,000.
According to the applicants, it was Mr Hart who suggested at the meeting in early 1990 that payment into the employee retention plan he proposed should be a figure of $200,000. They also understood from Mr Hart that such a payment would generate a $200,000 tax deduction for them. Though Askena's plan was structured so as to enable it to be depicted as a device for encouraging William Kajewski's continued participation in the business, that was done, in my opinion, for the purpose of colouring the investment of $200,000 to be made by Askena in respect of the plan with a business, and thus a deductible, character.
Mrs Kajewski said that, initially at least, she thought they were going to borrow $200,000 from Chase AMP to take out an insurance policy with Chase AMP, a loan "which was to help us with an employment retention plan". She said that she had never at any time understood the scheme and concluded her evidence in this way:
Well, what is the answer to my question, Mrs Kajewski? You understood as at June 1990 that the scheme provided for you a tax deduction of $200,000?‑‑‑Yes. Yes.
And if you understood nothing else, you understood that?---Yes.
Peter Kajewski gave this evidence:
Well, I want to suggest to you that he [Hart] said, look, you know, $17,000 profit last year; you're going to have over $200,000 this year. You're going to have to pay a lot of tax on that 200,000 unless we do something. He said words to that effect, didn't he?‑‑‑Well, he could have done. This - the whole plan, I think, was part of a tax deduction as well as a retention plan for building [sic: Bill].
Yes, we'll come to that in a moment. But it was in that line that he said, well, look, maybe we can do one of these employee retention plans; is that correct?‑‑‑No. We took out the retention plan because Bill was vital to the - at that stage to our dealership and he was crook at the time and he wanted to - I mean, without him the place would have gone down. He was the ideas man and the - had all the ideas and was the leading - he was the dealer principal, I suppose, and that was the ‑ ‑ ‑
But that is because Mr Hart asked you to identify somebody who you could put forward as crucial to the business. That's how it started, isn't it?‑‑‑Well, quite possibly; yes.
William Kajewski gave this evidence:
And you didn't feel it was necessary to get into the detail of the plan, as long as Mr Hart told you that there was a plan?‑‑‑Mr Hart told us that the plan was okay and correct and we - I questioned him. That is what I've been told. I would believe that.
And you understood that the effect of the plan was to try to provide the business with a tax deduction of $200,000?‑‑‑That's right. There was a plan in place to - that we could get this tax offset and I also - there was a bond in place which, I understand, covered part of that - the insurance in case, I guess, something happened with me, to cover that which - I understand enough about finance insurance that they wanted to be protected and that would cover the plan.
Mr Hart denied the scheme he initially proposed was designed as a tax minimisation arrangement. He said he first advised the Kajewskis to put $200,000 into the employee retention plan "back in late 89/early 90", well before he had any idea what Askena's taxable income was likely to be for the 1990 year. I do not accept his evidence. It was Mr Hart who suggested that $200,000 should be put into the plan and a $200,000 tax deduction was recalled by each of the Kajewskis as one of the attractions of the plan suggested by Hart. That particular figure was proposed by Mr Hart because he knew it would serve to obliterate the applicants' large tax problem for the 1990 year.
Around about 27 November 1996, Mrs Kajewski had a conversation with Mr Hart. She made a note of it. I accept it accurately records what was said. Mr Hart told her of the Australian Taxation Office ("ATO") investigation into "this whole scheme", ie, the employee retention plans arranged by Harts, but said that Askena and the Kajewskis were not implicated in the investigation. She also noted Mr Hart's advice that he was "destroying evidence as quickly as is permissible". At trial, she claimed she thought Mr Hart was referring only to the fact that records could lawfully be destroyed after five years. But Mr Hart was not giving her a bit of irrelevant legal advice in telling her he was "destroying evidence" in the context of discussing an ATO investigation into the activities of Mr Hart and his clients. She noted too that Askena's scheme was instigated, on her understanding of things, not in June, but in either July or November 1990. She also noted Mr Hart's advice that he had not issued any paperwork to the Kajewskis "purposely". She said that she had frequently asked Mr Hart for paperwork dealing with the scheme, but none was issued. (By this stage they had learned of Mevton and Security Life, though Mr Hart had kept them in the dark about both organisations for a long while after the applicants were supposed to have become involved in commercial arrangements with each.) She queried what Askena had received for the $97,196 paid at Mr Stevens' direction to Mevton month by month from November 1990 until November 1993, when Mr Stevens told her to stop making those payments. Mr Hart's answer was that the payments had ceased "as tax benefit received when scheme winds up in ten years' from inception". She understood the tax benefit he was referring to was the deduction of $200,000 claimed by Askena in respect of the 1990 year. She also said that Mr Hart told her that, when the scheme wound up after the ten years, Askena would receive back only about $100,000 instead of the $400,000 they had originally expected and that they would have to pay tax on that $100,000. She said that when she queried Mr Hart about Askena being able to anticipate only $100,000 at the end of ten years instead of the $400,000, he said words to the effect:
Oh cut it out mate, you've had the tax benefits.
This note that Mrs Kajewski made of her conversation with Mr Hart in November 1996 points strongly to the arrangements involving the establishment of the Askena Staff Benefit Trust as having been intended by Mr Hart, and understood by the Kajewskis, as a device for reducing the tax bill that Askena and the Kajewskis were facing as the 1990 financial year came towards its close.
Further, the employee retention plan, of which the Askena Staff Benefit Trust arrangements were but an example, was not something devised by anyone in the Harts group as a solution for clients of the group who may have encountered problems in retaining key staff in their business. The evidence before this Court shows that counsel for the applicants correctly acknowledged in his submissions that the employee retention plan entered into by Askena and the applicants was what counsel says is now called a "mass marketed tax avoidance arrangement"; it was one of thirteen similar plans marketed to clients of Mr Hart in which the financier for each plan was said to be Mevton Pty Ltd. It appears, however, that each of these thirteen clients initially applied to Chase AMP before 30 June 1990 for the finance intended to be used to make the investment in the relevant Staff Benefit Trust. Counsel also acknowledged, as the evidence shows, that these thirteen plans were similar to an unstated number of other plans entered into by other clients of Harts in which Chase AMP provided the necessary finance. The Harts organisation generated substantial fees for itself from these plans, which it marketed to a considerable number of its clients.
During the late 1980s and early 1990s, the Harts group had a business association with the AMP Society and marketed various AMP products to clients of the group. According to Mr Stevens, in the first half of 1990, the AMP Society introduced the Harts group to one of its new products which it called the "Remuneration Reward plan". The plan, as proposed by the AMP Society, envisaged an employer making a long term investment in an AMP insurance product, such as a bond, to the intent that the proceeds of the investment on maturity would be distributed to loyal employees; further, an employer could borrow funds at attractive rates to make this investment from an AMP subsidiary, Chase AMP. The employer would obtain various tax advantages, including a deduction in respect of interest paid on the borrowed investment funds. It was this AMP plan which Harts in turn marketed to its clients as its "employee retention plan".
In the second quarter of 1990, Mr Hart was involved with other members of Harts staff in discussions with AMP staff about this new product. Prior to 30 June 1990, Chase AMP did approve some finance applications, including the one in respect of the Oldvale Pty Ltd Staff Benefit Trust, lodged by Harts on behalf of clients in connection with their employee retention plan arrangements. But some applications to Chase AMP for finance in connection with employee retention plans sold to its clients by Harts were, in early June 1990, being held up because of concerns Chase AMP apparently had about how Harts were representing to clients, who were seeking finance from that bank, the benefits to be obtained from entry into such a plan. Lillis of Chase AMP wrote to the CEO of Hartcorp Finance Pty Ltd on 8 June 1990 requesting "a written explanation of your proposed employee retention plan". The Harts group was keen to satisfy Chase AMP's concerns as a matter of urgency: they had resulted in delays for Harts in implementing a number of these plans for various of their clients. It appears it was Mr Hart personally who provided the information sought by Lillis. In his response of the same day, 8 June 1990, Mr Hart gave details requested by Chase AMP "of the commercial benefit accruing to the client in respect of the Employee Retention Loan Applications". These benefits included substantial tax benefits. Mr Hart concluded:
We trust you will now expedite the approvals pending.
His concern for expedition by Chase AMP of approval of the still-pending finance applications by Harts clients to Chase AMP was, I think, dictated by his desire to have the employee retention plans for the clients in question implemented by 30 June 1990, so that the clients could obtain the tax benefits he had promised them in that year.
Mr Stevens, a director of Hartcorp Fidelity Limited, the Harts company that acted as trustee of superannuation and other trust funds for clients of the group, was involved, along with Mr Hart, in the April-May 1990 period in discussions with AMP officers in relation to the new employee retention plan product. He said that his involvement "was to introduce the product to clients who had a need to retain crucial staff members and I further coordinated the execution of relevant documentation and liaised with the AMP Society and where relevant, Chase-AMP, the financiers and the solicitors for AMP and Chase AMP being Mullins & Mullins …". He was also involved in preparation of the documentation necessary to establish these plans for Harts clients. He said that if Harts had Chase AMP finance approval, they would prepare a Chase AMP document package made up of documents supplied by Mullins and Mullins, including documents to be executed by the Harts client. He also said that:
There was some delays in negotiations and further delays in June 1990 with Chase-AMP due to some queries regarding the trust deed and a number of applications were put on hold. This therefore involves some clients going via the Mevton/Grade route whilst still going on with their Chase-AMP finance applications …
Despite what Mr Stevens says about the Kajewskis' application to Chase AMP not being one of the applications so held up, it is quite clear that the finance application to Chase AMP made by Harts on behalf of Askena on or about 22 June 1990 was held up beyond June and was only approved in mid August of that year.
I accept that, as a result of Mr Hart's earlier meeting with them, Mr Stevens met with the Kajewskis in Roma on about 26 June 1990 and that they then executed a number of documents presented to them by Stevens which related to establishing an employee retention plan for Askena. This documentation may have included the Askena Staff Benefit Trust Deed, though neither the original nor a stamped or otherwise verified copy of that Deed showing that it was executed before 30 June 1990 was produced in evidence. This Trust was to be established as part of the setting up of the employee retention plan. Harts had procured from its own solicitors a draft trust deed adapted to that purpose a couple of months earlier. On this occasion at Roma, one of the Kajewskis gave Mr Stevens a cheque drawn by Askena as trustee of the Kajewski Family Discretionary Trust for $25,400 in favour of Hartcorp Fidelity, which was to be trustee of the Askena Staff Benefit Trust. This cheque was duly paid by Askena's bank.
I do not, however, accept that the documents presented to the Kajewskis on this occasion by Mr Stevens included the Offer of Loan by Mevton or any of the other documents associated with that purported loan which Stevens said he then presented to the Kajewskis and which they then executed.
Mr Stevens gave evidence that he used the Chase AMP documents produced in connection with the employee retention plans as the models for the letters of offer by Mevton and all other Mevton loan documentation to various clients which he drafted. Mr Stevens said he prepared the Mevton letter of offer on instructions from Steve Hart. He said that "the Mevton loan offer and acceptance documents are nearly word-for-word the same as the Chase AMP bank offer and acceptance documents". Mr Stevens acknowledged that he personally collected the Chase AMP model documents only on 22 June 1990. The standard form letter of offer by Mevton to Harts clients Norm Lowe Family Holdings and Rural Aviation which Mr Stevens acknowledged he also drafted are both, however, dated 20 June 1990. He failed to get the chronology right, if his evidence here were to be believable.
The applicants, in my opinion, first learned of the existence of Mevton in late 1990. In my opinion, each of the Kajewskis expected in June 1990 that the loan moneys necessary to make up the $200,000 contribution intended to be made by Askena in respect of the employee retention plan would be borrowed from Chase AMP. I consider that that continued to be their expectation in the ensuing months and that it was only late in 1990 that they learned from Stevens that the loan was not to be raised from Chase AMP but instead from Mevton Pty Ltd.
The document of 22 June 1990 entitled "employee retention plan" (an internal Hart group pro forma document) indicates that Askena intended to borrow, in respect of a "deduction" of $200,000 shown on that form, moneys from Chase AMP. Consistently with this, Phillips of Hartcorp Fidelity, by memorandum entitled re "employee retention plan" also of 22 June 1990, forwarded to Mrs Kajewski certain forms "to be completed to enable Chase AMP to assess your application". By application signed by Mrs Kajewski and Peter Kajewski on behalf of Askena on or about 22 June 1990 and returned to Phillips, Askena sought from Chase AMP a unit trust investment loan in the amount of $200,000 for a term of five years with periodic repayments of principal plus interest. The application stated that Askena's "equity participation" was $20,000.
On 16 August 1990, Lillis of Chase AMP sent a facsimile to Hartcorp setting out the status of the applications made by Harts on behalf of eleven of its clients to Chase AMP for finance in connection with employee retention plans. Lillis then advised Hartcorp that Askena's application to Chase AMP for $174,600 in finance for that purpose had been "formally approved". The evidence did not indicate when the Harts organisation told Chase AMP that Askena was only seeking this amount rather than the $200,000 initially applied for. By letter dated 15 August 1990, Chase AMP notified Hartcorp Fidelity as trustee for Askena Staff Benefits Trust that it was prepared, on the terms set out, to offer finance in an amount of $174,600 for the purpose of enabling the Trust to purchase an insurance bond. On the same day, it gave instructions to its solicitors, Mullins & Mullins, to prepare the necessary documentation and also advised each of the applicants by letter of the loan approval and of the need for each to give a personal guarantee. This Chase AMP offer was then accepted in writing by Hartcorp Fidelity as trustee for the Askena Staff Benefit Trust, with Mr Hart signing through that company's seal as a director and with Mr Stevens as the witness. Each of the applicants also endorsed on this acceptance their own acceptances of the bank's offer.
It was a term of this Chase AMP offer that Chase AMP was to control disbursement of the $174,600 advance in purchasing an AMP insurance bond policy and it was a further term that Chase AMP hold that insurance bond as security for repayment of the loan. On 20 September 1990, Mr Stevens and Mr Hart on behalf of Hartcorp Fidelity Limited as trustee for the Askena Staff Benefit Trust undertook to sign a transfer of this insurance policy in favour of Chase AMP "as soon as practicable following the issue of the policy from the AMP Society". The same two gentlemen on the same date, again acting as directors of Hartcorp Fidelity, authorised Chase AMP to pay the full amount of the loan of $174,600 to the AMP Society as the purchase price of the AMP insurance bond. On the same date Messrs Hart and Stevens, on behalf of Hartcorp Fidelity, gave Chase AMP authority to complete the assignment of the AMP insurance policy to Chase AMP. On 4 October 1990, Mr Stevens wrote to the three applicants re "Employee Retention Plan - Chase AMP Loan" enclosing documentation for execution and return. This documentation, executed by the various applicants personally or as directors of Askena on 11 October 1990, included a guarantee by Askena in favour of Chase AMP of repayment by Hartcorp Fidelity as trustee for Askena Staff Benefit Trust of the $174,600 advance and a statutory declaration testifying to Askena's capacity to give this guarantee to Chase AMP "in respect of a loan of $174,600" to be made by Chase AMP Bank Limited to Hartcorp Fidelity.
In the meantime, on 18 September 1990, Mullins & Mullins wrote to Mr Stevens of "Hartcorp Fidelity Limited", the trustee of the Askena Staff Benefit Trust, enclosing the documents to be executed in connection with this recently approved loan of $174,600 which Hartcorp Fidelity as trustee had sought from Chase AMP. These included a guarantee to be executed by Askena, itself Trustee of the Kajewski Family Discretionary Trust, of Hartcorp Fidelity's obligations to repay the $174,600 loan then intended to be made by Chase AMP in respect of the Askena Staff Benefit Trust. Mullins & Mullins commented in this letter:
It will be necessary for us to peruse a Trust Deed of the Askena Pty Ltd Staff Benefit Trust to ensure that the Trust has power to guarantee a loan to a third party.
For these reasons, each appeal is dismissed with costs.
I certify that the preceding one hundred and thirty-nine (139) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.
Cases that have considered Kajewski v Commissioner of Taxation
Referred to (5)
Judicial Consideration (Chronological)