Osborne, R. v Commissioner of Taxation of the Commonwealth of Australia [1995] FCA 345

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION No VG 374 of 1993 On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal BETWEEN RAY OSBORNE Applicant -and- COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent Coram: Olney J Place: Melbourne Date: 29 May 1995

MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The appeal be allowed. 2. The decision of the Administrative Appeals Tribunal made on 2 June 1992 be set aside. 3. The matter be remitted to the Administrative Appeals Tribunal for further hearing and determination according to law as expressed in the Court's reasons for judgment published on 29 May 1995. 4. The respondent pay the appellant's costs of the appeal including any reserved costs. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION No VG 374 of 1993

On appeal from the Taxation Appeals Division of the Administrative Appeals Tribunal

BETWEEN RAY OSBORNE Applicant -and- COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent

Coram: Olney J Place: Melbourne Date: 29 May 1995. REASONS FOR JUDGMENT This is an appeal on a question of law pursuant to s 44(1) of the Administrative Appeals Tribunal Act 1975 from a decision whereby the Administrative Appeals Tribunal (the Tribunal) in part affirmed and in part varied objection decisions in relation to amended assessments of income tax payable by the applicant for the years of income ending 30 June 1984 to 30 June 1989 (inclusive). THE OBJECTIONS AND REVIEW Objections lodged by the applicant on 6 March 1991 in relation to the amended assessments were disallowed by the respondent on 4 March 1992. The applicant sought review of the objection decisions on 27 April 1992. The review applications were heard by the Tribunal on 5 November 1992 and 16 December 1992. On 2 June 1992 the Tribunal affirmed the objection decisions except in relation to the amount of additional tax assessed for the years 1986 to 1989 (inclusive) which it varied by reducing the culpability component from 45% to 25%. The Tribunal held that the respondent was entitled to rely on s 260 of the Income Tax Assessment Act 1936 in relation to certain income derived in the 1984 year of income and upon Part IVB in respect of other income derived in 1984 - 1989 (inclusive). FACTS FOUND BY THE TRIBUNAL In 1967 the applicant became a registered valuer under the Valuation of Land Act 1960 (Vic). From 1967 to 1971 he was employed as a real estate salesman and from 1971 to 1976 he conducted a real estate agency business. In 1975 he formed Bellatrix Nominees Pty Ltd (Bellatrix) which undertook real estate development and share trading activities. Bellatrix was the trustee of the Osborne Family Trust No 1 (trust no 1) the general beneficiaries of which included the applicant's children and grandchildren and their spouses as well as the applicant and his spouse. The applicant was named as appointor for life under the trust deed. In 1976 the applicant went overseas and was absent for about 2 years. Upon his return in 1978 he was employed by a finance company selling property finance until 1980 when he left the finance company and commenced practice as a registered valuer working from his home. In 1980 Bellatrix became the proprietor of the business name R & H Osborne Professional Services under which name the valuation work was carried on. The valuation practice was established in the financial year ending 30 June 1981. From 1980 income was derived from valuation fees. The applicant had not derived income from the application of his professional qualifications as a valuer before 1980. A new source of income was created when the applicant's services produced income from property valuations under a corporate trustee/trust structure which until then had been used for property and share trading. In late 1981 the applicant acquired Thornbridge Nominees Pty Ltd (Thornbridge) and established the Osborne Family Trust No 2 (trust no 2) of which Thornbridge was the trustee. The principal beneficiaries of trust no 2 were the applicant's children and the secondary beneficiaries included the descendants, wives, widows, parents and grandparents of the principal beneficiaries as well as other family relatives and trust no 1. The applicant was named as appointor during his lifetime. In June 1983 Thornbridge became the registered proprietor of the business name Ray Osborne & Associates. From late 1983, valuation activities were carried on under the name Ray Osborne & Associates. Registration of the name R & H Osborne Professional Services was allowed to lapse. The applicant and his wife were the directors of both Bellatrix and Thornbridge. In the 1984 financial year income from valuation fees amounting to $10,326 was returned for tax purposes by Bellatrix and income from valuation fees amounting to $37,594 was returned for tax purposes by Thornbridge. In subsequent years all income from valuation fees was returned for tax purposes by Thornbridge. The applicant ceased doing valuation work in 1989. Some former clients were referred to another valuer. The valuation practice was not sold. Following an audit of the applicant's affairs in respect of the years of income ending 30 June 1984 to 30 June 1989 (inclusive) the net income resulting from property valuation was excised from the returns of Bellatrix as trustee for trust no 1 and Thornbridge as trustee for trust no 2 and assigned to the applicant. Amended assessments were issued on 20 December 1990. The net amounts excised from the assessable income of Bellatrix and Thornbridge and added to the applicant's assessable income were: