| In a unanimous decision, The High Court of Australia | | | | assessable income by the income tax law. |
| has handed down its judgment in the important | | | | Second issue |
| Bamford case. | | | | The second issue concerned the question of whether |
| The High Court indicated the importance of this matter | | | | the term "that share" in sub-section 97(1) was a |
| with the speed with which the decision came. | | | | proportionate share. In the case at hand, the taxable |
| Argument was heard by the court early this month | | | | income of the trust was higher than the distributed |
| and the decision was given today. It is a relatively short | | | | income. This was due to an error of the trustee in |
| document. | | | | computing the taxable income of the trust by |
| The case concerned two issues related to the | | | | considering that certain outgoings were deductible |
| taxation of trusts and beneficiaries. | | | | when they were not. The Commissioner assessed the |
| First Issue | | | | beneficiaries on the total (correct) taxable income |
| The first issue related to a capital gain that the trustee | | | | according to the proportion each beneficiary had |
| of a trust had made. The Commissioner of Taxation | | | | received of the distributed income. The taxpayer |
| ("the Commissioner") argued that the capital gain was | | | | argued that this treatment was incorrect. |
| not included in "the income of the trust estate" of | | | | The High Court decided that the Commissioner was |
| which sub-section 97(1) of the Income Tax | | | | correct and applied the decision of Sundberg J in Zeta |
| Assessment Act 1936 speaks. If this was correct, this | | | | Force Pty Ltd v Commissioner of Taxation. |
| meant that there was no income of the trust estate to | | | | Accordingly, when dealing with sub-section 97(1), one |
| which sub-section 97(1) could apply and that the | | | | must first determine the income of the trust estate |
| trustee would be assessed under the (punitive) taxing | | | | (according to appropriate accounting principles and the |
| provision, section 99A. The Commissioner argued that | | | | trust instrument) and determine the proportion of the |
| the capital gain, while available for distribution under the | | | | amount that a beneficiary is presently entitled to. Once |
| terms of the trust deed, was not "income according to | | | | that percentage has been calculated, it is applied to the |
| ordinary concepts" and could not, therefore, be | | | | net income (the taxable income) of the trust to |
| included in "the income of the trust estate". | | | | determine how much of that net income a particular |
| The High Court disagreed with the Commissioner's | | | | beneficiary will need to declare in their own tax return. |
| argument. In the view of the High Court, the term | | | | The term "share"as used in sub-section 97(1), where it |
| "income of the trust estate" does not only include | | | | appears for the second time, means proportion rather |
| income under ordinary concepts. It also included | | | | than part or portion. |
| statutory income and, capital gains, which are not | | | | Wishing you easier business. |
| income according to ordinary concepts, are treated as | | | | |