Following on from last week's post concerning the long awaited 'Colonial' decision, another decision released by the Federal Court in the last couple of weeks is of significant interest.
In a similar vein to the high profile tax cases last year of Bamford and Thomas, the taxpayer here was largely successful.
For those interested the full title of the case is - FCT v Clark [2011] FCAFC 5 (Full Federal Court; Dowsett, Edmonds and Gordon; 21 January 2011).
In brief terms, the key aspects of the decision (which was given by way of a 2 to 1 majority) were as follows:
1. What is required to constitute a resettlement (i.e. the disposal and reacquisition, for tax purposes, of all assets of a trust at market value) is significantly more than what the Tax Office has traditionally suggested, and indeed argued in this case;
2. The High Court decision of Commercial Nominees confirms that to avoid a resettlement occurring, there only needs to be a continuum of property and membership, that can be identified at any time, even if different from time to time;
3. The Commercial Nominees case, while it related to a superannuation fund, is relevant in relation to trusts more generally;
4. In the circumstances of this case the fact that there had been a change of trustee, a change of control of the trust, a change in the trust assets and a change in the unitholders of the trust between 2 income years did not trigger a resettlement; and
5. Where a trust has been effectively deprived of all assets and then 're-endowed', a resettlement will probably occur.
Until next week.
