There was a recent decision of the Federal Court that should cause taxpayers real concern. As you know, income tax is not my specialty but the decision in this case made me raise my eyebrows.
The case, Yazbek v Commissioner of Taxation [2013] FCA 39 (31 January 2013,) confirms that the Commissioner may not be limited to two years in issuing an assessment.
Broadly, the Commissioner argued that the four year amendment period applied as the two year amendment period for individuals under Item 1 of s 170(1) of ITAA 1936 was subject to certain qualifications, one of which was, if the individual was “a beneficiary of a trust estate at any time” in the year (qualification (d)).
Not only did Mr Yazbek not receive a distribution from the family trust, the assessment which the Commissioner issued was unrelated to the trust or any income it derived or distributed. As he did not derive any income from the trust, the applicant argued he was not a beneficiary of the trust for the 2005 tax year and the two year amendment period applied.
The Federal Court found that the applicant was a beneficiary of the trust even though he derived no income from the trust for the 2005 tax year.
Why am I concerned (and somewhat surprised) by this decision?
Because just about every individual in Australia is a “beneficiary” of a discretionary trust, be it their own, their parents, their siblings, their in-laws, their aunts and uncles; you get the drift. Most of us would be potential beneficiaries of at least one (and probably several) family trusts although (a) we wouldn’t know it and (b) we would never receive a distribution.
This means that the Commissioner can assess for the four year period rather than the two year period for individuals. Clearly he had both the desire and where-with-all to do it in Mr Yazbek’s case, so why wouldn’t he do it in all cases?
We have not seen a Decision Impact Statement from the Commissioner on this case, or any indication of how widely or in what circumstances he intends to use this power. Perhaps an amendment to the legislation is warranted although the fact that the Commissioner took on the matter suggests that he may well want to keep the un-even playing field, with the rules favoring him (naturally).
Tony Ince, Mostyn Consulting 