FEDERAL COURT OF AUSTRALIA Sent v Commissioner of Taxation [2012] FCA 382 Citation: Sent v Commissioner of Taxation [2012] FCA 382 Appeal from: Administrative Appeals Tribunal Parties: EDUARD SENT v COMMISSIONER OF TAXATION File numbers: VID 310 of 2011 VID 313 of 2011 Judge: MURPHY J Date of judgment: 16 April 2012 Catchwords: INCOME TAX - Employee incentive share trust plan — Whether payment to trust had character of ordinary income – Whether payment in substitution for bonuses from employment is ordinary income – Whether when part of amount deemed to be ordinary income assessable to the respondent but the remaining part is not — Whether respondent obtained a benefit or gain — Whether amount of ordinary income "derived" – When amount is applied or dealt with by a taxpayer - Whether exemptions applied to treat amount as a fringe benefit - PENALTIES and OFFENCES — Recklessness - Failure by taxpayer to discharge onus regarding recklessness of tax agent – Failure to adopt a reasonably arguable position ADMINISTRATIVE LAW — Whether error of law by the Administrative Appeals Tribunal —– Statutory requirement to provide reasons – Whether inadequacy of reasons an error of law – Whether appropriate to set aside decision for failure to provide adequate reasons - Whether facts as found are capable of supporting the decision Legislation: Administrative Appeals Tribunal Act 1975 (Cth) Fringe Benefits Tax Assessment Act 1986 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Tax Administration Act 1953 (Cth) Cases cited: Allen v Commissioner of Taxation (2011) 195 FCR 416 Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Australian Gas Light Company v Valuer General (1940) 40 SR (NSW) 126 Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290 Ballarat Brewing Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 364 Barrat v Commissioner of Taxation (1992) 36 FCR 222 Brent v Federal Commissioner of Taxation (1971) 125 CLR 418 BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001) 46 ATR 347 Business and Research Management Ltd (in liquidation) v Federal Commissioner of Taxation (2008) 173 FCR 204 Cameron Brae Pty Ltd v Federal Commissioner of Taxation [2007] 161 FCR 468 Civil Aviation Safety Authority v Central Aviation Pty Ltd [2009] FCA 49 Civil Aviation Safety Authority v Central Aviation Pty Ltd (2009) 179 FCR 554 (Full Court) Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 Comcare Australia v Lees (1997) 151 ALR 647 Commissioner of Taxation v ANZ (1994) 181 CLR 467 Commissioner of Taxation v Zoffanies Pty Ltd 132 FCR 523 Commissioner of Taxes (Vic) v Phillips (1936) 55 CLR 144 Committee of Direction of Fruit Marketing v Australian Postal Commission (1979) 37 FLR 457 Conley v Commissioner of Taxation (1998) 81 FCR 24 Dennis Willcox v Federal Commissioner of Taxation (1988) 79 ALR 267 Dornan v Riordan (1990) 24 FCR 564 Farnsworth v Federal Commissioner of Taxation (1949) 78 CLR 504 Federal Commissioner of Taxation v Cooke and Sherdan (1980) 42 FLR 403 Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 Federal Commissioner of Taxation v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108 Federal Commissioner of Taxation v McNeil (2007) 229 CLR 656 Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639 Federal Commissioner of Taxation v White (2010) 79 ATR 498 Federal Commissioner of Taxation v White (No 2) (2010) 80 ATR 373 Fisse v Secretary, Department of the Treasury (2008) 172 FCR 513 Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 422 Harradine v Secretary, Department of Social Security (1989) 25 FCR 35 Hart v Federal Commissioner of Taxation (2003) 131 FCR 203 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 Kennedy v AFMA (2009) 182 FCR 411 Kocak v Wingfoot Australia Partners Pty Ltd & Goodyear Tyres Pty Ltd [2011] VSC 285 MIM Holdings Ltd v Federal Commissioner of Taxation (1997) 36 ATR 108 Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 Minister for Immigration and Multicultural Affairs v Al Miahi [2001] FCA 744 Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 Permanent Trustee Co of NSW v Commissioner of Taxation (1940) 6 ATD 5 Pettitt v Dunkley [1971] 1 NSWLR 376 Pridecraft Pty Ltd v Federal Commissioner of Taxation (2005) 58 ATR 210 R v Deputy Federal Commissioner of Taxation (SA); Ex parte Hooper (1926) 37 CLR 368 Re Poyser & Mills' Arbitration [1964] 2 QB 467 Re-Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Palme (2003) 216 CLR 212 Repatriation Commission v O'Brien (1985) 155 CLR 422 Reuter v Federal Commissioner of Taxation (1993) 24 ATR 527 Scott v Federal Commissioner of Taxation (1935) 35 SR (NSW) 215 Secretary, Department of Community Services and Health v Theologidis (1991) 33 FCR 186 Servos v Repatriation Commission (1995) 56 FCR 377 Tagget v Federal Commissioner of Taxation (2010) 188 FCR 128 (Full Court) Tagget v Federal Commissioner of Taxation (2010) FCA 25 Tinkler v Federal Commissioner of Taxation (1979) 40 FLR 116 Walstern v Federal Commissioner of Taxation (2003) 138 FCR 1 Date of hearing: 22 & 23 September 2011 Place: Melbourne Division: General Category: Catchwords Number of paragraphs: 235 Counsel for Mr Sent: Dr NF Orow Solicitor for Mr Sent: Stephen Byrne Counsel for the Commissioner of Taxation: Mr S Sharpley Solicitor for the Commissioner of Taxation: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 310 of 2011 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: EDUARD SENT Applicant AND: COMMISSIONER OF TAXATION Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION vid 313 of 2011 ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL BETWEEN: COMMISSIONER OF TAXATION Applicant AND: EDUARD SENT Respondent JUDGE: MURPHY J DATE: 16 APRIL 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 These proceedings are both appeals from a decision of the Administrative Appeals Tribunal pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) ("AAT Act"). The Tribunal decision relates to whether some or all of a payment of $11,600,000 by Primelife Corporation Limited, the employer of Mr Eduard Sent, to a trust of which he was a beneficiary ("the $11,600,000 Payment" or "the Payment") is assessable as income by the Commissioner of Taxation. It also relates to: (a) whether, if the $11,600,000 Payment is not assessable income, the arrangements leading to the Payment are caught by the anti-avoidance provisions of the taxation legislation; and (b) the imposition of administrative penalties by the Commissioner. The facts 2 In the relevant period Mr Sent was the Managing Director and Chief Executive Officer of the public company, Primelife Corporation Limited. His employment agreement with Primelife provided for a five-year term that commenced on 1 July 1998, and for monetary bonuses payable in certain circumstances. At the commencement of the agreement Mr Sent's remuneration comprised: (a) a base salary of $300,000 per annum; (b) an annual bonus of $300,000; and (c) an entitlement to three additional bonus payments ("Additional Bonus Payments") based on Primelife's profits and losses in the five financial years ending 30 June 1999 to 30 June 2003. 3 In October 2000 an earlier oral agreement, to increase Mr Sent's base salary to $600,000 per annum and to terminate the annual bonus of $300,000, was recorded in writing. Mr Sent's entitlement to the Additional Bonus Payments continued under this varied employment agreement. 4 In or about January and/or February 2001 Trinity Management Group Pty Ltd ("Trinity"), a company which described itself as an employee share plan administration company, was requested either by Primelife or by Mr Sent to provide advice as to "the optimal delivery mechanism" for payment of bonus amounts to Mr Sent. Trinity's report dated 15 February 2001, which was paid for by Primelife, was titled Recommendation for delivery of bonus for Managing Director. Trinity advised, amongst other things, that: (a) the bonuses could be delivered to Mr Sent in the form of Primelife shares through a special purpose executive share trust; (b) the trust could provide a minimum vesting period of 12 months before a participating executive would be allowed to cash the units; and (c) the tax impost on the participating executive could be deferred until final disposal of the underlying shares. 5 The Tribunal made the finding of fact that in a series of meetings leading up to June 2001, Primelife and Mr Sent agreed that he would waive his past and future bonus entitlements in return for the issue to him of five million fully paid ordinary shares in Primelife. 6 As at about October 2001 Mr Sent's entitlement to the three Additional Bonus Payments fell into three categories: (a) Bonuses that had accrued and were payable. In this category was an entitlement to the bonus titled the First Additional Bonus Payment which was based on Primelife's performance in the three financial years ending 30 June 1999-2001. This bonus was payable as that period was complete. (b) Bonuses that were accruing, relating to periods which had been part performed. Any bonuses earned were not payable until the period was complete. In this category were accruing entitlements to: (i) the Second Additional Bonus Payment based on Primelife's performance in the four financial years ending 30 June 1999-2002; and (ii) the Third Additional Bonus Payment based on Primelife's performance in the five financial years ending 30 June 1999-2003. Mr Sent was not yet eligible for these bonus payments and any bonus entitlement could not be calculated. (c) Bonuses relating to future periods which had not yet accrued in any sense. This category related to those portions of the Second and Third Additional Bonus Payments relating to Primelife's performance in the balance of the 2002 financial year (from October 2001 until 30 June 2002) and the whole of the 2003 financial year. 7 On 2 October 2001 Mr Sent and Primelife executed a Share Issue Deed, subject to shareholder approval. Recital A of the Deed recorded that Primelife wished to continue employing Mr Sent as Managing Director and Chief Executive Officer and Mr Sent wished to continue in that capacity. The Share Issue Deed provided: 2.1 Condition precedent Subject to the approval of shareholders of the Company at the 2001 annual general meeting on or about 30 November 2001 the execution of this Deed will have the following consequences: (a) all existing contracts, agreements and understandings between the Company or any of the Group and the Executive as far as they relate to any remuneration or bonuses (whether by way of money, ordinary shares or options in the company or otherwise) ("Financial Entitlements") payable to the Executive for him carrying out his role as the chief executive officer and managing director of the Company and of the Group shall cease immediately; (b) all accrued Financial Entitlements payable by the Company or any of the Group to the Executive other than holiday leave, sick leave, long service leave or superannuation entitlements is irrevocably waived by the Executive. 2.2 Share issue (a) In consideration of the Executive waiving his Financial Entitlements the Company will issue to the Executive or his nominee, 5,000,000 fully paid ordinary shares in the Company ("Shares"). (b) The Shares will be issued 10 business days after: i. The Record Date for the final dividend for the holders of ordinary shares in the Company for the financial year ended 30 June 2001; or ii. the 2001 annual general meeting of the Company (assuming the shareholders approve the issue of the Shares), whichever is the later. 8 In summary, the Share Issue Deed provided that in consideration for Mr Sent waiving his entitlements to any remuneration or bonuses payable to him, Primelife would issue him or his nominee five million fully paid ordinary shares in the company. 9 The Tribunal found that Mr Sent's bonus entitlements under his employment agreement were contingent and subject to what it described as "claw back". The expression "claw back" only makes sense as a recognition of the fact that Mr Sent's accruing entitlement to the Second or Third Additional Bonus Payments as at October 2001 might be reduced or even extinguished because of the company's performance in the balance of the 2002 financial year and/or in the 2003 financial year. 10 It is uncontroversial that by October 2001 Mr Sent's entitlement to the Additional Bonus Payments was of significant value. It is common ground that Primelife engaged independent experts PKF Corporate Advisory Services (Vic) Pty Ltd, and that PKF reported in October 2001 that: (a) for the 1999-2001 financial years Mr Sent's entitlement to Additional Bonus Payments totalled $7,246,572, of which one third, $2,415,524 was presently due and payable; and (b) for the 2002-2003 financial years Mr Sent could expect to become entitled to further Additional Bonus Payments ranging between $5,122,462 and $5,532,500. This was a total of $12,369,034 to $12,770,072. 11 PKF also opined that: (a) the fair value of five million fully paid Primelife ordinary shares was between $10,300,000 and $12,500,000; and (b) the proposed changes to Mr Sent's bonus arrangements and the proposed share issue to Mr Sent for the waiver of his bonus entitlements were fair and reasonable to the shareholders of Primelife. 12 By resolution at the Annual General Meeting on 30 November 2001 the shareholders of Primelife approved the issue of five million shares to Mr Sent or his nominee ("the Shareholder Resolution"). The resolution provided as follows: That the members approve of and authorise the issue to Eduard Sent, or his authorised nominee, of 5 million ordinary shares in the Company, in consideration of termination of his current executive service agreements with the Company and in satisfaction of all entitlements under that executive service agreement notwithstanding that this issue will or may result in Eduard Sent becoming entitled (within the meaning of the Corporations Act) to more than 20% of the voting shares in the Company. 13 On 4 December 2001 the Primelife Executive Share Trust ("the Trust") was created by a trust deed of that date. The trustee of the Trust was Primelife Share Plans Pty Ltd ("the Trustee"). Trinity was the advisor appointed by the Deed ("the Advisor"). Amongst other powers the Advisor had the power to appoint a new Trustee and to terminate the Trust. 14 The Tribunal made findings of fact that the terms of the Trust provided as follows: (a) that an Employer (an employer accepted by the Trustee as an employer for the purposes of the Trust) would settle money on the Trustee; (b) the monies settled by an Employer would be used to make loans to eligible employees (as defined) for the purpose of applying to the Trustee for units in the Trust; (c) the monies received by the Trustee for units in the Trust were to be used exclusively to acquire shares in the Employer (or the Employer's holding company); (d) the shares acquired through this process were to be allocated to particular share units; (e) the applications by eligible employees for share units were to be accompanied by applications for loans to acquire those units; (f) the issue of units in accordance with the application constituted an acceptance of the loan application; (g) the shares so allocated could not be sold by the Trustee. They could be disposed of by the Trustee by distribution to the unit holders of cancellation entitlements; (h) the cancellation entitlements were equal to an in specie distribution of such of the allocated shares referrable to either the units of a market value equal to the issue price of the units, or to all of the allocated shares; (i) the Trustee was able to set off the amount of any unpaid loan of a unit holder before paying a cancellation entitlement to that unit holder; (j) the units could not be cancelled at the instigation of a unit holder within 12 months of their issue; and (k) upon termination of the Trust any surplus trust property was able to be distributed at the discretion of the Trustee to or for the benefit of any eligible employee or any employee share scheme operated for the benefit of Primelife employees. 15 The Tribunal also found that while the terms of the Trust appeared to accommodate multiple participants, Mr Sent was the sole beneficiary under the Trust. 16 The Tribunal made the finding of fact that on or about 21 December 2001 Primelife deposited a cheque for $11,600,000 in the bank account of the Trust "in respect of" Mr Sent. On the same day a cheque for $11,600,000 drawn on the Trust bank account was paid to Primelife as the price for the issue of five million Primelife shares. The weighted average trading price of Primelife shares over the previous week at that time was $2.32 per share which gave the parcel of shares a value of about $11,600,000. 17 On 23 January 2002 the Trust issued five million units in the Trust to Mr Sent for $11,600,000, representing $2.32 per unit. The units vested one year from commencement of Mr Sent's participation in the Trust and represented an entitlement to the Primelife shares in the Trust. 18 The Tribunal found Mr Sent had a debt to the Trust for $11,600,000 as he had not paid the Trust the subscription price for the units. The Tribunal noted that the financial statements of the Trust confirmed that it had two assets, namely the five million Primelife shares and a debt of $11,600,000 due to it by Mr Sent. 19 The Tribunal found that in the absence of Mr Sent taking control of the Trust, the value of any benefit he would get from the Trust was limited by the Trustee's power to set off Mr Sent's outstanding loan. 20 Ignoring the loan alleged to have been made to Mr Sent, the Tribunal found that he had an interest in the Trust which had assets worth $11,600,000, enjoyment of which was subject to a contingency. The Tribunal found that this arrangement was in consideration of Mr Sent waiving his entitlements to all accrued, accruing and future bonus entitlements under the employment agreement. 21 The Tribunal found that the terms of the Trust did not include any provision by which Mr Sent could compel a change in trustee to an entity of his choice or under his control. It also found that Mr Sent did not control either the Trustee or the Advisor through any shareholding interest in either of them. 22 On 14 March 2002, Primelife reported to the ASX in its Appendix 4B – Half Yearly/Preliminary Final Report for the half year ending 31 December 2001 ("the Half Yearly Report"). It reported as follows: Issue of Shares to Managing Director On the 27 December 2001 Primelife issued 5,000,000 ordinary shares to Mr E Sent and his nominees in accordance with arrangements approved by Primelife's shareholders at a Annual General Meeting on the 30 November 2001 The Half Yearly Report was provided to the ASX under cover of a Directors Report of the same date signed by Mr Sent, together with a Director's Declaration by Mr Sent that the report was a true and fair view of the company's financial position and information for the period. 23 The Tribunal also found that on 1 December 2003 at the request of Mr Sent, Eskaton Pty Ltd which was a company controlled by him, replaced Primelife Share Plans as Trustee of the Trust. What if anything happened to the loan said to have been made by the Trust to Mr Sent was not clear to the Tribunal. 24 The Tribunal also found (although this finding is challenged by Mr Sent) that while it was not documented under the Trust Deed, or in any other evidence led in the proceeding, it is apparent that from the outset there was a plan to transfer control of the Trust to Mr Sent at the end of the deferral period. It found that Eskaton becoming the Trustee after two years was the execution of that plan. 25 Mr Sent did not include the $11,600,000 Payment in his assessable income in his tax return for the financial year ended 30 June 2002 ("the 2002 year"). Procedural background 26 On 20 November 2006 the Commissioner issued a notice of amended assessment for the 2002 year which treated the $11,600,000 Payment as part of Mr Sent's assessable income as either ordinary or statutory income. The Commissioner also imposed an administrative penalty for recklessness of $2,813,000 assessed at the rate of 50% of the tax shortfall amount. Mr Sent objected to the assessment (contending that no part of the $11,600,000 Payment should be included in his assessable income) and to the penalty. The Commissioner disallowed the objections and Mr Sent applied to review that decision in AAT proceeding 1843 of 2007. 27 On 3 March 2009, the Commissioner determined in the alternative that the anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (Cth) ("ITAA 1936") applied, and that an amount of $11,600,000 should therefore be included in Mr Sent's assessable income for the 2002 year. The Commissioner issued a further amended assessment and notice of assessment giving effect to this determination, and imposed an administrative penalty for recklessness of $2,813,000 assessed at 50% of the scheme shortfall. Mr Sent objected to this assessment and penalty. The Commissioner disallowed the objections and Mr Sent applied to review that decision in AAT proceeding 2579 of 2009. 28 The two proceedings before the AAT were heard together. On 25 March 2011 the Tribunal determined that: (a) $7,246,572 of the $11,600,000 Payment was assessable in the 2002 year as either: (i) ordinary income pursuant to s 6-5 of the Income Tax Assessment Act 1997 (Cth) ("ITAA 1997"); or (ii) statutory income pursuant to s 6-10 of the of the ITAA 1997 and s 26(e) of the ITAA 1936; and that questions of the exemptions relating to fringe benefits in ss 23L and 26(e) of the ITAA 1936 did not arise; (b) the remaining $4,353,428 of the $11,600,000 Payment was not assessable income; (c) Part IVA of the ITAA 1936 did not apply to include any part of the $11,600,000 Payment; (d) the appropriate administrative penalty was 25% of the tax shortfall amount because of Mr Sent's failure to adopt a reasonably arguable position; and (e) no administrative penalty imposed by the Commissioner had been previously remitted by the Commissioner and no further remission of penalty was appropriate. In effect the Tribunal varied the Commissioner's assessments, reducing by $4,353,428 the amount of income assessed to Mr Sent and reducing the administrative penalty applied from 50% to 25%. The administrative penalty imposed was to be applied to a reduced tax shortfall. The questions of law in the appeal 29 Both parties appeal from the decision of the Tribunal. The questions of law raised by the appeals can be categorised into the questions set out below: Whether the $11,600,000 Payment to the Trust, in whole or in part, is assessable income of Mr Sent in the 2002 year? (a) Whether, given the findings of fact made by the Tribunal and the admissions by Mr Sent, the Tribunal erred in law by finding that $7,246,572 constituted assessable income of Mr Sent in the 2002 year as ordinary income pursuant to subs 6-5(1) and (4) of the ITAA 1997; (Question 1 – Mr Sent's Appeal) (b) Alternatively to (a), whether, given the findings of fact made by the Tribunal and the admissions by Mr Sent, the Tribunal erred in law by finding that $7,246,572 constituted as statutory income pursuant to s 26(e) of the ITAA 1936 and s 6-10(3) of the ITAA 1997? (Question 2 – Mr Sent's Appeal) (c) Whether the Tribunal erred in law in failing to consider adequately, or at all, in its reasons for decision Mr Sent's submissions that the exemptions in ss 23L and 26(e)(iv) of the ITAA 1936 applied to exclude the amount of $7,246,572 from s 6-5 of the ITAA 1997 and s 26(e) of the ITAA 1936? (Question 3(a) – Mr Sent's Appeal) (d) Whether the Tribunal erred in law in finding that the application of ss 23L and 26(e)(iv) of the ITAA 1936 do not arise so as to exclude the amount of $7,246,572 from s 6-5 of the ITAA 1997 and s 26(e) of the ITAA 1936? (Question 3(b) – Mr Sent's Appeal) (e) Whether, given the findings of fact made by the Tribunal and the admissions by Mr Sent, the Tribunal erred in law by not finding that the additional amount of $4,353,428 paid by Primelife to the Trust constituted assessable income of Mr Sent in the 2002 year as ordinary income pursuant to ss 6-5(1) and (4) of the ITAA 1997; (Question 4 – Commissioner's Appeal) (f) Alternatively to (e), whether, given the findings of fact made by the Tribunal and the admissions by Mr Sent, the Tribunal erred in law by not finding that the additional amount of $4,353,428 paid by Primelife to the Trust constituted as statutory income pursuant to s 26(e) of the ITAA 1936 and s 6-10(3) of the ITAA 1997? (Question 5 – Commissioner's Appeal) (g) Whether the Tribunal erred in law in failing to consider adequately, or at all, in its reasons for decision the Commissioner's submissions that the payment of $4,353,428 by Primelife to the Trust constituted assessable statutory income of Mr Sent in the 2002 year pursuant to s 26(e) of the ITAA 1936 and s 6-10(3) of the ITAA 1997? (Question 6 – Commissioner's Appeal) Whether Part IVA applies? (h) Whether, given the findings of fact made by the Tribunal and the admissions by Mr Sent, the Tribunal erred in law in finding that Part IVA of the ITAA 1936 did not apply to include $4,353,428 of the $11,600,000 Payment in the assessable income of Mr Sent in the 2002 year? (Question 7 – Commissioner's Appeal) Penalties (i) Whether the Tribunal erred in law in finding that the Commissioner did not make a decision to remit any penalty? (Question 8 – Mr Sent's Appeal) (j) Whether the Tribunal erred in law by not finding that Mr Sent had failed to discharge the onus placed upon him pursuant to s 14ZZK of the Tax Administration Act 1953 (Cth) ("the TAA") of establishing that the assessment by the Commissioner of a 50% administrative penalty pursuant to s 284-75(1) and s 284-90, Item 2 of Sch 1 of the TAA on the basis that the shortfall amount had resulted from the recklessness of Mr Sent's agent, was excessive? (Question 9 – Commissioner's Appeal) (k) Whether the Tribunal erred in law by failing to address in its reasons for decision the Commissioner's submission that s 284-75(1) and s 284-90, Item 2, Sch 1 TAA applied on the basis that the shortfall amount resulted from the recklessness of Mr Sent's tax agent? (Question 10 – Commissioner's Appeal) (l) Whether, given the findings of fact made by the Tribunal, the Tribunal erred in law in finding that the Applicant was liable to pay an administrative penalty at the 25% level for failure to adopt a reasonably arguable position? (Question 11 – Mr Sent's Appeal) Other (m) Whether the Tribunal erred in making the finding at paragraph 52(d) of its decision. (Question 12 – Mr Sent's Appeal) summary of decision 30 For the reasons set out below I have made the following decisions: (a) Question 1 - Mr Sent's Appeal and Question 4 – Commissioner's Appeal. I find that the whole of the $11,600,000 Payment is assessable as ordinary income pursuant to s 6-5 of the ITAA 1997. (b) Question 2 - Mr Sent's Appeal, Questions 5 and 6 – Commissioner's Appeal. Because I have determined that the whole of the Payment is assessable as ordinary income, it is unnecessary to determine whether in whole or in part it is also assessable as statutory income pursuant to subs 26(e) of the ITAA 1936 and subs 6-10(3) of the ITAA 1997. It is also unnecessary to determine whether the Tribunal adequately considered the Commissioner's submissions in relation to whether $4,353,428 of the Payment is statutory income. (c) Questions 3(a) and (b) - Mr Sent's Appeal. The Tribunal adequately considered Mr Sent's submissions that the exemption in s 23L of the ITAA 1936 applied to exclude the Payment from being assessable as ordinary income by operation of s 6-5 of the ITAA 1936. While the reasons given by the Tribunal are inadequate I decline to set aside its decision. The decision that the exemption in s 23L does not apply is correct. Because I have decided that the whole of the Payment is assessable as ordinary income, it is unnecessary to determine whether the Tribunal adequately considered Mr Sent's submissions that the exemption in subs 26(e)(iv) of the ITAA 1936 applied to exclude the Payment from being assessable as statutory income by operation of subs 26(e) of that Act. It is also unnecessary to determine whether the Tribunal erred in finding that the exemption in subs 26(e)(iv) did not apply. (d) Question 7 – Commissioner's Appeal. Because I have found that the whole of the Payment is assessable as ordinary income it is unnecessary to determine whether Part IVA of the ITAA 1936 applies. (e) Question 8 - Mr Sent's Appeal. The Tribunal did not err in finding that the Commissioner did not make a decision to remit any penalty. (f) Question 9 – Commissioner's Appeal. The Tribunal erred in not finding that Mr Sent had failed to discharge the onus of establishing that the Commissioner's imposition of an administrative penalty of 50% of the shortfall amount was excessive. That penalty therefore still stands. (g) Question 10 – Commissioner's Appeal. Although unnecessary to decide because of my decision in relation to Question 9, I consider that the Tribunal erred in failing to address in its reasons for decision the Commissioner's submission that s 284-75(1) and s 284-90, Item 2, Sch 1 TAA applied on the basis that the shortfall amount resulted from the recklessness of Mr Sent's tax agent. (h) Question 11 - Mr Sent's Appeal. Although unnecessary to decide because of my decision in relation to Question 9, I consider that the Tribunal did not err in finding that Mr Sent was liable to pay an administrative penalty of 25% of the shortfall amount for failure to adopt a reasonably arguable position. (i) Question 12 - Mr Sent's Appeal. Although unnecessary to decide, I consider that the Tribunal did not err in making the finding that it did at paragraph 52(d) of its decision. Questions 1 and 4 - Whether the $11,600,000 Payment, in whole or in part, iS assessable as ordinary income? 31 The Tribunal found that $7,246,572 of the $11,600,000 Payment was assessable in the 2002 year as either ordinary income pursuant to s 6-5 of the ITAA 1997 or statutory income pursuant to other provisions. Question 1 is the part of paragraph 2(a) in Mr Sent's Amended Notice of Appeal that relates to ordinary income. The Amended Notice of Appeal states: Whether, given the findings of fact made by the Tribunal, the Tribunal erred in law in finding that the amount of $7,246,572 was properly assessable to the Applicant in the year ended 30 June 2002 pursuant to section 6-5 of the Income Tax Assessment Act 1997….? 32 The Tribunal also found that the remaining $4,353,428 of the Payment was not assessable in the 2002 year as ordinary income. The Commissioner appeals against this finding, arguing that all of the Payment is so assessable. Question 4 is the paragraph numbered 2.1 in the Commissioner's Notice of Appeal which states: Whether, given the findings of fact made by the Tribunal and the admissions made by Sent, the Tribunal erred in law by not finding that the payment of $4,353,428 by Primelife Corporation Limited ("Primelife") to Primelife Share Plans Pty Ltd as trustee of the Primelife Executive Share Trust ("the Trust") constituted assessable ordinary income of Sent pursuant to s 6-5(1) and (4) of the Income Tax Assessment Act 1997 ("ITAA97"), in the 2002 Year. 33 It is convenient to consider Questions 1 and 4 together as they boil down to the one question: - Whether some or all of the Payment is assessable as ordinary income? I shall deal with this question first. Relevant legislation 34 Section 6-5 of the ITAA 1997 relevantly provides: 6-5 Income according to ordinary concepts (ordinary income) (1) Your assessable income includes income according to ordinary concepts which is called ordinary income. (2) If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. … (4) In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. 35 This section includes in the assessable income of a taxpayer, income according to ordinary concepts derived during the relevant year. Under this section for a payment to be ordinary income of Mr Sent it must be an amount: (a) with the character of ordinary income in his hands; and (b) directly or indirectly derived by him. Subsection 6-5(4) provides for what is described as "constructive derivation". It operates to deem receipt to have occurred in certain circumstances, notwithstanding that no actual receipt by the taxpayer has occurred. Does the Payment have the character of ordinary income? 36 Mr Sent contends that none of the $11,600,000 Payment has the character of ordinary income. The Commissioner contends that all of the Payment has that character. 37 It is common ground that Mr Sent is a cash basis taxpayer rather than being assessed on an accruals basis. 38 Mr Sent argues that the notion of income in this context predicates a "gain", a "benefit" or something of "exchangeable value" derived in the form of "money or money's worth" from, amongst other things, the provision of services. He says that the amount must be able to be turned to his pecuniary account. On the facts as found he contends that there is no such gain or benefit by him of money or money's worth in the 2002 year. He argues that whether a particular gain or benefit is in the nature of income cannot be determined without some reference to its derivation, and he says that he did not derive any amount from the Payment in the 2002 year. He cites the following authorities: Federal Commissioner of Taxation v Executor Trustee and Agency Co of South Australia Ltd (1938) 63 CLR 108 at 155 ("Carden's case"); Federal Commissioner of Taxation v Cooke and Sherdan [1980] 42 FLR 403 ("Cooke"); Federal Commissioner of Taxation v McNeil (2007) 229 CLR 656 ("McNeil"); Federal Commissioner of Taxation v Montgomery (1999) 198 CLR 639. 39 To establish the absence of a "gain" or "benefit" by him of money or money's worth Mr Sent relies on findings of fact by the Tribunal that: (a) the $11,600,000 Payment was not made to him. It was made to and formed a part of the capital of the Trust; (b) the $11,600,000 Payment was made to the Trust. Mr Sent did not directly or indirectly control the Advisor or the Trustee through any shareholding in either of them. The terms of the Trust did not include a provision by which he could compel a change of Trustee to an entity of his choice or under his control; (c) the arrangement whereby he obtained an interest in the Trust was in consideration for waiving his bonus entitlements; (d) the bonus entitlements were contingent and subject to claw back; (e) any benefit or interest that he derived from the Payment to the Trust was properly referable to and a direct result of the subscription for units in the Trust in respect of which he owed the Trust the subscription price; and (f) by reason of express constraints in the Trust deed, any interest in the Trust could not be turned to his pecuniary account and was subject to a vesting period. 40 Further, Mr Sent argues that the Payment by Primelife to the Trust was made in respect of the surrender of rights by Mr Sent, forming part of the capital of the Trust, and hence was of a capital nature. To that extent he says it was not of the character of ordinary income. 41 Contrary to Mr Sent's submissions, I consider that the Payment has the character of ordinary income. In Cooke at 412 the Full Court comprised of Brennan, Deane and Fisher JJ held, citing Scott v Federal Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219, that: Whether a receipt is to be treated as income or not is determined according to "the ordinary concepts and usages of mankind" … except where [the] statute sweeps in particular receipts or amounts which would not ordinarily be taken to fall within the concept. 42 Ordinary income denotes a person's receipts and has a broad meaning: JP Hannan, A Treatise on the Principles of Income Taxation (1946) at 1-7 and the authorities cited. 43 In Reuter v Federal Commissioner of Taxation (1993) 24 ATR 527 at 540 ("Reuter"), in a statement approved by the Full Court in MIM Holdings Ltd v Federal Commissioner of Taxation (1997) 36 ATR 108 at 117 ("MIM Holdings"), Hill J held: Perhaps the most usual usage of the word "income" in ordinary speech is to describe that which comes in as a reward for services. Amounts such as salary, wages, commission, tips and the like, are universally regarded as income… In MIM Holdings the Full Court held at [117]: Amounts paid in consideration of the performance of services will almost always be income. The amount in issue was in consideration of Mr Sent waiving an entitlement to bonuses under his employment agreement –it was paid as a reward for services. 44 The fact that some of Mr Sent's bonus entitlements were contingent and subject to claw back in that they were based on Primelife's future performance, and may be viewed as having been paid before the services were provided, does not mean that the Payment loses its character as income. The timing of a payment as against the provision of the services is not determinative of its character. As Hill J held in Reuter in the passage at 540 cited above: So, too, for income tax purposes, it would be immaterial whether an amount which is a reward for services is paid to the taxpayer in advance of the service is being performed (e.g. a signing on fee) or after the services have been performed….What will matter is the character of the payment as a reward for services or, as it was put by Fullagar J in Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47, 57-8, whether the receipt is a "product" of the taxpayer's services. 45 Further, it is established that an amount that is substituted for another amount has the same tax character as the amount substituted or compensated for: Commissioner of Taxes (Vic) v Phillips (1936) 55 CLR 144, at 153 per Starke J and 156 to 157 per Dixon and Evatt JJ; Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 568 to 569 per Fullagar J ("Dixon"); Tinkler v Federal Commissioner of Taxation (1979) 40 FLR 116 at 117 per Brennan J and 122 per Deane and Fisher JJ; Tagget v Federal Commissioner of Taxation (2010) FCA 25 at [68] to [69] per Nicholas J ("Tagget"). As held in Dixon at 568, the substituting payment acquires "the character of that for which it is substituted…" 46 In this case the Payment was ultimately in substitution for income by way of bonuses that were earned but not received, together with bonuses that were likely to be earned but had not yet been received. An entitlement to five million Primelife shares was initially substituted for Mr Sent's bonus entitlements, and then that entitlement to shares was substituted for the Payment. The Payment maintained its character as income, being a reward for services. 47 The fact that a double substitution has occurred in this case does not alter the maintenance of its income character. For example, in Tagget a taxpayer contracted to provide services then and in the future to a developer. His reward under the contract was a particular lot of land, or in default, a cash sum. The developer did not pay the taxpayer either the land or the cash sum so the taxpayer sued. The proceeding was settled on the basis that the taxpayer receive another different lot of land. Nicholas J held at [68] to [69] that the initial payment comprised of a lot of land was of the character of income as a reward for services provided and to be provided. Notwithstanding the double substitution that then ensued the substitute lot of land retained the character of income. The Full Court comprised of Dowsett, Jessup and Gordon JJ upheld the decision: Tagget v Federal Commissioner of Taxation (2010) 188 FCR 128 ("Tagget (FC)"). 48 In any event, it is not correct to describe Mr Sent's entitlements as contingent or subject to claw back at the time of the Payment. Some of Mr Sent's bonus entitlements were contingent until 30 November 2001 insofar as they related to the future financial performance of Primelife. Some of the bonus entitlements could also be described as being subject to claw back until that date as Primelife's future performance could reduce his accruing entitlement. However, once the Share Issue Deed was executed and then approved by the shareholders on 30 November 2001, Mr Sent had an unconditional entitlement to be issued with five million Primelife shares in substitution of these bonus entitlements. It is even clearer that at the time the Payment was made on 21 December 2001 there was no longer any contingency as to the entitlement to the Payment or possibility of its claw back. 49 I also reject as without merit, Mr Sent's contention that because the Payment was paid in respect of the surrender of rights and formed a part of the capital of the Trust it was of a capital nature rather than having the character of income. Under the arrangement between Mr Sent and Primelife he was to continue as Managing Director and CEO and there was no payment for loss of office or the like. In the absence of such a basis it is a hopeless argument that giving up an entitlement to bonuses from employment has a capital nature. Counsel for Mr Sent advanced no authority for the proposition. 50 Further, the character of the Payment in the hands of the Trust is not determinative of its character in relation to Mr Sent. Where payment is "directed" by the taxpayer as contemplated by subs 6-5(4) it will often be the case that a payment might have a different character in the hands of the party to whom it was directed than the character it would have had in the hands of the taxpayer. One example of this is the situation where an employee directs an employer to pay his or her salary to a friend. That payment would have the character of a gift in the hands of the friend, but it would retain the character of income so far as the employee is concerned. 51 Mr Sent argues that the value of any benefit or interest that he derived from the Payment to the Trust was limited by the Trustee's power to set off his outstanding debt for the units, and that he therefore received no gain or benefit. However, as I set out later, I consider that derivation of the income occurred when the Payment was made on 21 December 2001. Accordingly, the dealings between Mr Sent, the Trust and Primelife after that date are not determinative of whether the Payment had the character of income at the time it was made. 52 Similarly, other post-derivation factors relied on by Mr Sent, such as the restrictions on his enjoyment of the monies under the Trust, the vesting period applicable to the units in it, do not assist to determine the character of the Payment at the time it was made. 53 It is also not to the point whether Mr Sent directly or indirectly controlled either the Advisor or the Trustee itself. That question goes to the issue of whether Mr Sent derived the income rather than to the character of the amount. 54 The $11,600,000 Payment is income according to ordinary concepts and usages. Was an amount of the Payment "derived" by Mr Sent? 55 Mr Sent argues that none of the Payment was derived by him pursuant to s 6-5 of the ITAA 1997. The Commissioner argues that all of the Payment was so derived. The Commissioner does so in reliance on subs 6-5(4), the constructive derivation provision, because the Payment was made to the Trust and not directly to Mr Sent. 56 It is common ground that the amount of any income derived is to be determined by the application of ordinary business and commercial principles, and the accounting method to be adopted is that which gives the most correct reflex of the taxpayer's true income. 57 Mr Sent argues that the fact that he is a cash receipt taxpayer is important in determining if income is derived in the 2002 year. He cites the Full Court in Tagget (FC) which held at [31]: A taxpayer who files returns on a cash receipts basis is assessed on the cash received by him or her in the year of assessment because it is the receipt of the cash which constitutes a derivation of income for the purposes of s 6-5(2) of ITAA 1997: see Federal Commissioner of Taxation v Dunn (1989) 85 ALR 244, 252 and Barratt at 224-225. In the case of such a taxpayer, it will not be to the point that the right to receive the income accrued in an earlier year. Neither will it make a difference that, in some earlier year, a promise to pay the money may have been made by reference to subsequently occurring events. 58 In support of his contention that s 6-5 does not apply to treat him as having derived any part of the Payment, Mr Sent relies on findings of fact that: (a) he was the Managing Director and CEO of Primelife which was a public company; (b) the arrangement, that involved the execution of the Share Issue Deed, required shareholder approval; (c) the Payment was made to the Trust and not to him. He entered into a substituted arrangement; (d) the arrangement involved the settlement of monies upon the Trustee of the Trust. The settled sum was used to acquire shares in Primelife which could not be disposed for a period; (e) the Trust made a loan to him which was used to subscribe for units in the Trust which were subject to a vesting period. The Trustee was able to set off the amount of any unpaid loan before paying entitlements to him as a unit holder; (f) the terms of the Trust did not include any provision by which he could compel a change in trustee to an entity of his choice or under his control; (g) he did not directly or indirectly control through any shareholding either the Advisor to Primelife or the Trustee; (h) the units could not be cancelled at his instigation as the unit holder; (i) the terms of the Trust accommodated multiple participants (I note in this regard that the Tribunal also found that Mr Sent was the only participant); (j) the value of any benefit that he could obtain from the Trust would have been limited by the Trustee's power to set off his outstanding loan or debt in respect of the units against his entitlements under the Trust; (k) he had an interest in the Trust the enjoyment of which was subject to a contingency; and (l) he was provided with an opportunity to purchase a parcel of units in the Trust which he did not control and in respect of which he might not enjoy a benefit for at least one year. This was in substitution for bonus entitlements in respect of work yet to be performed which entitlements were contingent on the financial performance of Primelife in the future. 59 Mr Sent also seeks to rely on a purported finding of fact by the Tribunal that the bonus entitlements were extinguished rather than paid in exchange for the issue of shares to the Trust. I do not accept that the Tribunal made a finding of fact that Mr Sent's bonus entitlements were "extinguished" in the way he contends. The Tribunal used various expressions in the decision to describe the arrangement recorded in the Share Issue Deed. These expressions included "waived", "extinguished", "replaced" and "discharge and abandonment". When the Tribunal used these expressions it used them in the same sense as the Share Issue Deed. The Share Issue Deed recorded that Mr Sent agreed to waive his bonus entitlements in consideration for the issue to him or his nominee of five million Primelife shares. Nothing turns on the Tribunal's use of the different expressions and its findings are clear that the shares were to be issued in exchange for the bonus entitlements. 60 He cites various authorities in support of the contention that he did not derive an amount of income, including Brent v Federal Commissioner of Taxation (1971) 125 CLR 418 at 423 to 424; 71 ATC 4195 at 4200 ("Brent"); Ballarat Brewing Co Ltd v Federal Commissioner of Taxation (1951) 82 CLR 364; and Arthur Murray (NSW) Pty Ltd v Federal Commissioner of Taxation (1965) 114 CLR 314 ("Arthur Murray"); Farnsworth v Federal Commissioner of Taxation (1949) 78 CLR 504; and Carden's case. In reliance on these cases he argues that the findings of fact make clear that no amount has "come home" to him in a realized or immediately realisable form, and that no amount is available for his separate use, benefit or disposal. He contends that any gain said to be made by him is affected by legal restrictions by reason of the Trust, and may not properly be counted as a gain fully made. 61 In his submission, an amount is not considered to be derived if the right to receive it is contingent, or if the amount due to the tax payer cannot be ascertained. He relies in this regard on the Tribunal's findings of fact that two thirds of the bonus payments due to him were subject to final calculation after the close of the 2002 and 2003 years, and were subject to eligibility conditions and claw back. 62 Mr Sent also relies on the Tribunal's findings of fact that the Payment was made to the Trust and not him, and argues that any benefit that he could derive from the Trust was subject to the Trustee's discretion. He argues that the Tribunal's findings that he did not directly or indirectly control the Trustee or the Advisor to Primelife through a shareholding in them, and that the entitlements under the Trust were non-transferable and subject to a vesting period, are restrictions such that he has not fully made any gain. The operation of subs 6-5(4) 63 Mr Sent denies that there was any amount applied or dealt with by Primelife on behalf of or as directed by Mr Sent, as required by subs 6-5(4). He says that those words predicate an entitlement or degree of control over Primelife to be able to require it to carry out that application or dealing that he did not have. He argues that Primelife is a public company with an independent board and that he did not participate or vote in the meetings regarding his entitlements. 64 At best for the Commissioner, counsel for Mr Sent contends that there was a request by Mr Sent to pay the relevant amount to the Trust, but not a direction. He cites Brent per Gibbs J at 318 as authority for the proposition that a request by a taxpayer is insufficient to require that income be treated as derived under subs 6-5(4). He argues that for it to be established that income was derived by Mr Sent pursuant to the section the Commissioner must prove that Mr Sent had the power and authority to direct Primelife to make the Payment. 65 Contrary to Mr Sent's submissions, I consider that subs 6-5(4) operates to deem that he did derive ordinary income from the Payment. The subsection allows two alternative bases under which income is taken to be derived by the taxpayer, which are: (a) when the amount is applied or dealt with in any way on behalf of the taxpayer; and (b) when the amount is applied or dealt with in any way as the taxpayer directs. 66 The legislative intent of the provision is clear. In the absence of a provision such as subs 6-5(4) it would be a simple matter for a taxpayer to avoid income tax on amounts that if received by him would be income, merely by arranging for those amounts to be paid to another person, even though the taxpayer is receiving some benefit from the other person's receipt of the amount. 67 In Permanent Trustee Co of NSW v Commissioner of Taxation (1940) 6 ATD 5 at 12 ("Permanent Trustee Co of NSW") Rich J held in relation to an earlier constructive derivation provision - s 19 of the ITAA 1936 - that: The object is to prevent a taxpayer escaping tax, though his resources may have actually been increased by the accrual of the income and its transformation into some form of capital wealth, or its utilization for some purpose. This passage was noted with approval in Brent at 430. 68 In McNeil at [15] the High Court per Gummow ACJ, Hayne, Heydon and Crennan JJ held that: As an Australian resident, the assessable income of the taxpayer included income according to ordinary concepts derived directly or indirectly from all sources; in determining the existence of a derivation and when it occurred, the taxpayer was taken by s 6-5(4) "to have received the amount as soon as it [was] applied or dealt with in any way on [her] behalf or as [she directed]". 69 McNeil related to the characterisation for tax purposes of a grant of "sell-back rights" by a company to a trustee to be held on trust for a shareholder/taxpayer and later sold on her behalf for her benefit. The Court found that the grant of sell-back rights resulted in a derivation of ordinary income by the taxpayer. This finding was made notwithstanding that the sell-back rights were the property of the trust. The Court held that the derivation occurred when the sell-back rights were granted to the trustee on behalf of the taxpayer, not when they were sold and the money received by the taxpayer. The Court found that it was at the time of the grant to the trust that the amount in issue was applied or dealt with on the taxpayer's behalf as required by subs 6-5(4). Mr Sent seeks to distinguish McNeil, and I accept that there are differences between it and the present case. Nevertheless, applying long-standing principles regarding derivation of income as it does, McNeil is good authority as to the point of derivation in this case. 70 In Federal Commissioner of Taxation v White (2010) 79 ATR 498 ("White") Gordon J usefully summarised the principles relevant to derivation of income. That the amount in question had the character of income was not in dispute. Referring to the passage from McNeil cited above, her Honour held at [25]: That passage is consistent with long-established principles. Although items of income are to be money or to be reckoned as money (FCT v Cooke (1980) 10 ATR 696 at 703; 42 FLR 403 at 413; 80 ATC 4140 at 4147; 29 ALR 202 at 211), income does not have to be received as money. It is sufficient if it is received in the form of money's worth: Cooke (at ATR 703; FLR 413; ATC 4147; ALR 211) citing Cross v London & Provincial Trust Ltd [1938] 1 All ER 428. The amount must necessarily "come in": J P Hannan, A Treatise on the Principles of Income Taxation (1946) at 36. However, it is not necessary that an item of income be paid over to the taxpayer; it is sufficient, according to ordinary concepts and usages, that the item is applied or dealt with on behalf of or at the direction of the taxpayer: see s 6-5(4) of the ITAA 1997 and Cooke (at ATR 703; FLR 413; ATC 4147; ALR 211). That is, it has to "come in", but not necessarily to the taxpayer directly if it is constructively received under subs 6-5(4). 71 White related to a trust structure which is conceded by counsel for Mr Sent to be very similar or identical to the structure before me. Under the arrangement the employer paid amounts of an income character into a trust at the direction of or on behalf of the employee taxpayer. Gordon J held that subs 6-5(4) applied to treat the amount received by the trust as income derived by the taxpayer, and that derivation occurred at the time of the payment to the trust. Her Honour held at [28] that: … as an employee of Kalix, Mr White derived income as a reward for services and, by agreement with Kalix, directed the manner in which that reward (income) was to be dealt with on his behalf. If Kalix had paid the whole of the amount to Mr White directly (rather than through the employee incentive share trust plan), it would be income according to ordinary concepts and usages. It was and remains a reward for his services. 72 Mr Sent also seeks to distinguish White from the present case. He argues that Mr White indirectly held all of the shares in the employer company and was a sole director, whereas Mr Sent was one of many shareholders in a public company and just one director on an independent board. He argues that Mr White was able to control his company while Mr Sent could not, and that Mr Sent did not even vote on the arrangements in question because he had a financial interest. He says that in White the Tribunal made a finding of fact that there was a "direction", and that the Tribunal did not do so in the present case. Mr Sent also submits that the taxpayer in White had provided the services and had earned the income, whereas some of Mr Sent's bonus entitlements related to service to be performed in the future. In my view White is on all fours with this case, as Mr Sent did give a "direction" within subs 6-5(4) and also consider that there was nothing further for Mr Sent to do to earn the Payment. . 73 The upshot of Mr Sent's contentions is that the Court should disregard the Payment made at his direction or on his behalf to the Trust, and that the taxation consequences should be assessed by reference to later separate but financially dependent dealings. The view taken by Edmonds J in Business and Research Management Ltd (in liquidation) v Federal Commissioner of Taxation (2008) 173 FCR 204 ("BARM") is relevant to this approach. At [105] to [107] his Honour rejected submissions which sought to conflate separate, albeit financially dependent, transactions and have them taxed by reference to the end economic result of the conflation. Having identified that the income was derived at an early point in the transactions in question, his Honour refused to take the later transactions into account as they occurred after derivation. 74 Although Mr Sent's entitlement to receive five million Primelife shares was unconditional once the Share Issue Deed was entered into and approved by the shareholders, it was not at that point that the income was derived. As explained by Professor R W Parsons in Income Taxation in Australia (1985) at [2.15]: Generally where there is a right to some benefit or to property other than money there cannot be a derivation, whether the taxpayer is on accruals or cash, until the benefit or property has come to be vested in the taxpayer. The benefit has to have "come in", although as the High Court held in Carden's case at 155, per Dixon J (with whom Rich and McTiernan JJ agreed), "derived" does not necessarily mean actually received. As found in White and McNeil, the relevant point is the point of payment to the trust. 75 The application of the principles in McNeil, White and BARM to the facts found by the Tribunal, support the finding that income was derived by Mr Sent at the date of the Payment to the Trust. The following findings of fact are of importance to my decision in this regard: (a) As early as February 2001 the employee share plan management company, Trinity, had advised Primelife in writing that Mr Sent's bonus entitlements could be paid to him in the form of Primelife shares through a special purpose executive share trust. In a series of meetings leading up to June 2001, Primelife and Mr Sent agreed that he would waive his past and future bonus entitlements in exchange for five million Primelife shares. (b) On 2 October 2001 Mr Sent or his nominee became entitled by execution of the Share Issue Deed to five million Primelife shares (valued by PKF for Primelife in the range of $12.36 million - $12.77 million) in consideration of waiving his bonus entitlements under his employment agreement, subject to shareholder approval. (c) On 30 November 2001 the shareholders of Primelife approved the agreement required in the Share Issue Deed - that is for the issue of five million shares to Mr Sent or his nominee in satisfaction of the bonus entitlements. (d) The Trust was not created until 4 December 2001. (e) On 21 December 2001, instead of issuing five million shares to the Trust with a value of $11,600,000, Primelife deposited a cheque for $11,600,000 in the Trust's bank account. On the same day a cheque was drawn on the Trust bank account for $11,600,000 and paid to Primelife as the issue price of five million shares. This payment was calculated by reference to the weighted average price of five million Primelife shares. (f) the Payment of $11,600,000 to the Trust was "in respect of" Mr Sent. (g) Mr Sent was not issued with units in the Trust until 23 January 2002, thereby incurring an $11,600,000 debt to the Trust for his units at that time. 76 I also note that on 14 March 2002 Primelife made its Half Yearly Report to the ASX. This report - signed as true and correct by Mr Sent - states that on 27 December 2001 Primelife issued five million shares "to Mr Sent and his nominees in accordance with arrangements approved by Primelife's shareholders at a[n] AGM on 30 November 2001." The nomination of the Trust by Mr Sent 77 The Tribunal noted at paragraph 39 of its decision that: It is clear that on 21 December 2001… Primelife deposited a cheque for $11,600,000 in the Trust's bank account in respect of [Mr Sent]. (Emphasis added) 78 Mr Sent denies that he nominated the Trust to receive the Payment, and does not accept that the Tribunal found that he did so. I consider that on a fair reading of the Tribunal's reasons for decision it implicitly made the finding that Mr Sent nominated the Trust to receive the Payment. Its finding that the Payment was made in respect of him could, on the facts found, only be because he nominated the Trust. 79 The Share Issue Deed provided that five million Primelife shares were to be issued to Mr Sent or his nominee. The Shareholder Resolution of 30 November 2001 provided for Primelife to provide the shares to Mr Sent or his nominee. It is incontrovertible that Mr Sent had an unconditional entitlement at that date to the shares - which were valued at $11,600,000. Primelife could only perform its obligation under the Deed and the Resolution by issuing shares to him or to any entity that he nominated. The identity of the nominee was for Mr Sent to select, by himself or through his agents. The Tribunal's decision noted its finding as to this selection by determining that the Payment was "in respect of" Mr Sent. 80 While a finding in express terms by the Tribunal that Mr Sent nominated the Trust to receive the Payment would have been clearer and therefore preferable, it is settled that the Court should not be concerned with looseness of language in the decision of an administrative tribunal, or try to construe the decision too minutely or finely: Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287; Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259 at 272. 81 It would have been difficult for the Tribunal to have found otherwise than that Mr Sent nominated the Trust, given: (a) in the absence of a nomination he had an unconditional right to have the shares issued directly to him and there was nothing further for him to do to "earn" the shares; (b) the Payment made to the Trust (in substitution for the shares) was made for his benefit; (c) on a fair reading of paragraph 33 of the Tribunal's decision, and as reported in the Half Yearly Report to the ASX, the Payment was made in discharge of Primelife's obligations under the Share Issue Deed and Shareholder Resolution; and (d) importantly, both Mr Sent and Mr Kemp, a non-executive director of Primelife he called, gave evidence that he had nominated the Trust to receive the shares. There was no evidence to the contrary. 82 Both the Tribunal in its decision and Mr Sent in his written submissions at various points, refer to the Payment by Primelife to the Trust as a substitution for his entitlement to shares. He nominated the Trust for the purpose of the share issue, and in the absence of the nomination the shares would have been issued directly to him and the receipt taxable. It is immaterial that the substitution was made. The amount maintained its character as income, and the substitution of it for another form of payment could not affect the point of derivation of that income. Meaning of "direction" in subs 6-5(4) 83 I reject Mr Sent's submission that for subs 6-5(4) to be enlivened it is necessary for the Commissioner to establish that he had a legal right or entitlement to enforce a direction to Primelife to pay the monies to the Trust, or be in a position to control Primelife so that it did so. Brent is not authority for the proposition that a mere request is insufficient. That case involved a taxpayer who did not ask for a payment due to her, and a company that then refrained from making it. It stands for the proposition that a request to a debtor not to pay does not constitute applying or dealing with an amount under subs 6-5(4). All that subs 6-5(4) requires is that there be a request by the taxpayer that is acted upon, regardless of whether the employee has a legal right to require performance of the request. 84 To read subs 6-5(4) as Mr Sent proposes reads into it a limitation not required by its words. Counsel for Mr Sent did not provide any authority in support of such a reaching. My view as to the meaning to be given to the provision is confirmed in the Explanatory Memorandum to ITAA 1997. It provides that: Subclause 6-5(4) uses the word derived to describe when an amount with an income character comes home to you and thus becomes ordinary income…. Example: On your instructions, your employer pays part of your wages to a health fund to meet your liability to pay health insurance contributions to the fund. You are taken to have received the amount when your employer paid it to the fund and, therefore, to have derived it as ordinary income then. If Mr Sent's reading was correct, the example given in the Explanatory Memorandum would be incorrect as the employee in the example would not have the authority to require the employer to pay part of her salary to the health insurer. Operation of "on behalf of" limb of subs 6-5(4) 85 I also note that, utilising the other limb of the subsection, an amount of income is derived if it is applied or dealt with "on behalf of" the taxpayer under subs 6-5(4) - whether or not the taxpayer makes a direction. For example, McNeil is a case where only the "on behalf of" limb was relied on. 86 The Tribunal found that the Payment was made in respect of Mr Sent. The issue of shares to the Trust was intended to be for his benefit and was in performance of Primelife's obligations under the Share Issue Deed. The Tribunal found that Mr Sent was the only participant in the Trust. One may well ask, if it wasn't on Mr Sent's behalf on whose behalf was the Payment to the Trust made? One may also ask why Primelife would choose the Trust as the entity to whom the Payment was made unless it was doing so on his behalf. As I identify at [81], it is clear from his evidence and from other facts found that Mr Sent nominated the Trust to receive the shares. The Payment was just a substitution for the shares. 87 Indeed, at paragraph 68 of his written submissions dated 29 August 2011 (in the context of his contention that the fringe benefits regime applies to the Payment) Mr Sent accepts that the Payment was a benefit paid to the Trust which was referable to him. The submission states "[a]t all times it was possible to identify the Taxpayer as the relevant employee that would benefit from such a contribution" to the Trust. Counsel for Mr Sent sought to explain away this contention by saying he was referring to a different benefit. I reject this. 88 It is clear that the Payment was both directed and made on behalf of Mr Sent. The effect of the conditions in the Trust and any contingencies in the Payment 89 Mr Sent contends that he did not derive any income because his right to receive an amount was subject to eligibility conditions and claw back. Insofar as the eligibility conditions and claw back are related back to contingencies in Mr Sent's bonus entitlements I do not accept this for the reasons I set out at [48]. On 30 November 2001- when the agreement in the Share Issue Deed was approved by the Shareholder Resolution - his entitlement became unconditional. At that point he was not required to do anything further to "earn" the shares: BARM at [116]. That there is no contingency associated with the Payment is at least clear on 21 December 2001 when it was actually made to the Trust without condition. 90 I also reject Mr Sent's contention that he did not derive income from the Payment because of restrictions on his ability to receive a benefit from the Trust. The restrictions he relies on include the absence of direct or indirect control by Mr Sent over the Trustee, the absence of a provision whereby he could compel a change in Trustee to one of his choice, the existence of a vesting period, his inability to cancel the units, and the Trustee's power to set off his loan against any benefit. I do not accept that these matters bear on whether he derived income when the Payment was made on 21 December 2001. The dealings between Mr Sent, the Trust and Primelife after that date, which include his later obtaining units in the Trust on 23 January 2002, are all just dealings with income already derived. They do not assist in determining whether Primelife applied or dealt with the Payment on behalf of or at the direction of Mr Sent. As Gordon J held in White at [29]: What the …[trust] then decides, or is bound, to do with that sum is not relevant to the issue of whether Mr White derived an amount as income: McNeil CLR 656 at 662 [15], 663 [18] and 663 [20]…. Mr Sent's debt to the Trust 91 Mr Sent seeks to rely on the finding by the Tribunal that the Trust made a loan to him which was used to subscribe for units in the Trust. He contends that no amount of income was derived by him because he had incurred a $11,600,000 debt to the Trust in acquiring his units and that the value of any benefit he could obtain from the Trust was limited by the Trustee's power to set off that outstanding loan. However, any liability that he incurred to acquire the units is a dealing which is post-derivation. It is a result of a decision made by him after the income had "come in": In White Gordon J also considered a similar post-derivation dealing to be irrelevant. Her Honour held at [28]: The fact that at Mr White's direction he incurred a liability is a decision made by him after the income had "come in". Connection between the Payment and the Share Issue Deed 92 Counsel for Mr Sent also makes the surprising argument that the $11,600,000 cheque paid by Primelife to the Trust had nothing to do with the Share Issue Deed. He argues that the Payment was merely an employer establishing a trust for the benefit of employees and had nothing to do with Mr Sent's bonuses. On this submission the Share Issue Deed has never been performed, and to this day Primelife's obligations under it are extant. This argument is utterly inconsistent with the facts found by the Tribunal and I do not accept it. It is also inconsistent with Mr Sent's evidence to the Tribunal. I note too that counsel for Mr Sent did not seek to explain what Mr Sent had done since 2001 to require the performance of the Share Issue Deed – which gave Mr Sent valuable rights – if it had not actually been performed. Whether only $7,246,572 of the $11,600,000 Payment should be treated as assessable as ordinary income? 93 In its decision the Tribunal found that $7,246,572 - attributable to bonus entitlements arising from his employment to the date of the Payment - was income derived by Mr Sent, but that the $4,353,428 balance of the Payment was not. 94 The Tribunal reasoned as follows: 58 To the extent of the bonus entitlements cancelled which were referrable to services already provided by [Mr Sent] in the present circumstances, the decision in Commissioner of Taxation v White governs the outcome. The amount of $7,246,572 is assessable as income derived…. 59 To the extent that the $11,600,000 was not referrable to services that had been provided and was referrable to cancellation of bonus entitlements that might accrue in the future (if services are provided and if conditions precedent to any bonus entitlement are satisfied), the decision in White does not govern the matter. 60 In these circumstances, there is no swapping one monetary amount, which would be assessable, for some other advantage which would be equally assessable. Payment of some millions of dollars in advance of the services being provided would raise a presumption that if the services were not provided the amount would be repayable. Accordingly, Arthur Murray principles would apply and the amount would not be assessable. Therefore, the substitute arrangement would not be tainted with the income character of the original arrangement. 61 In the present circumstances, [Mr Sent] was provided with an opportunity to purchase a parcel of units in a trust he did not control and in respect of which he might not enjoy any benefit for at least one year. This was in substitution for bonus entitlements, in respect of work yet to be performed, which were contingent on the financial performance of the company in the future. 95 As I now set out, I consider that the Tribunal erred in finding that only $7,246,572 of the Payment is assessable as ordinary income derived by Mr Sent. The whole of the Payment is assessable on that basis. 96 At paragraph 60 of its decision the Tribunal found that not all of the $11,600,000 Payment was in substitution for a bonus entitlement assessable in Mr Sent's hands. Referring to the principle in Arthur Murray - which relates to derivation of income - the Tribunal decided that $4,353,428 was not assessable. It is difficult to discern the basis of the Tribunal's decision – that is, whether the two components of the Payment have a different character, whether one component is derived and one is not, or whether both of these grounds form the basis of its decision. 97 Whether $4,353,428 was derived by Mr Sent is not central to whether it has an income character. The Tribunal is in error when it states that "the substitute arrangement would not be tainted with the income character of the original arrangement." The substitution principle I refer to at [45] relates to the character of an amount rather than whether the amount is derived. 98 With regard to its character as income, the whole of the Payment was in substitution for bonus entitlements that were clearly a reward for services: see [41] to [48]. It is immaterial that the $4,353,428 component of the Payment was paid in advance of the services to be rendered and that prior to entering the Share Issue Deed, the reward was contingent on conditions being met. It remains a "product" of Mr Sent's services: Reuter at 540; MIM Holdings at 4430, Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 57 to 58 per Fullagar J. There is therefore no basis for the Tribunal's apparent findings that different components of the Payment have a different character, or that $4,353,428 of the Payment was not of an income character. 99 The Tribunal is also wrong in the approach it takes to whether the whole of the Payment was derived by Mr Sent, and it incorrectly applies the principle in Arthur Murray. In that case the amounts in question were pre-payments of tuition fees for dancing lessons to be provided by a dancing school. Any prepayment was refundable if the lessons were not provided, and the school kept its accounts on the basis that such amounts had not been earned until the lesson had been provided. The High Court, per Barwick CJ, Kitto and Taylor JJ, held at 319: In our opinion it would be out of accord with the realities of the situation to hold, while the possibility [of repayment to dance students] remains, that the amount received has the quality of income derived by the company. It held at 320: Nothing in the Act is contradicted or ignored when a receipt of money as a prepayment under a contract for future services is said not to constitute by itself a derivation of assessable income. 100 This is an uncontroversial proposition, and an example of the general principle that where the right of the taxpayer to an amount is contingent, there will be no derivation of income before the contingency is satisfied: Barrat v Commissioner of Taxation (1992) 36 FCR 222, at 231 ("Barrat") per Gummow J, Northrop and Drummond JJ agreeing. 101 If Mr Sent had been made a direct payment of his future bonus entitlements, subject to the condition that his services be provided in the future (and if that amount was repayable if he did not do so), then it might be that the payment would not be assessable income on the basis of the principle in Arthur Murray - because it was not yet derived. As put by the Full Court in Barrat, the right to the payment may then have been contingent and the contingency would not have been satisfied. However these are not the facts in this case as found by the Tribunal. 102 At least up until Primelife and Mr Sent entered into the Share Issue Deed it is uncontroversial that Mr Sent's entitlement to receive future bonuses under his employment agreement was contingent on his continued employment and on the financial performance of Primelife. Once the Share Issue Deed was entered into and approved by the shareholders his contingent entitlement was replaced by an unconditional right to be issued with five million Primelife shares. The contingencies associated with his bonus entitlements were no longer operative after 30 November 2001. Even more clearly, any contingencies were no longer operative on 21 December 2001 when the Payment was actually made without any conditions related to future financial performance being attached. 103 There is no provision in the Share Issue Deed under which Primelife could claw back any of the shares if Primelife later suffered poor financial performance. It was not a condition of the Deed that Mr Sent continue in his employment and he was not required to do anything more to earn the shares. 104 The Tribunal was incorrect in stating a presumption that if future services were not provided by Mr Sent the amount of the bonus entitlement related to those services would be repayable. The Share Issue Deed contains no such provision and there is no other evidence to support such a view. No such presumption arises given the unconditional nature of Mr Sent's right to the issue of shares after 30 November 2001, and given the unconditional Payment actually made to the Trust on 21 December 2001. 105 This unconditional right to shares under the Deed was then substituted for the Payment. 106 Had the shares been issued directly to Mr Sent it is unarguable that he would have been assessed on their value. If the cheque for $11,600,000 had been paid directly to Mr Sent then it too would clearly have been assessable. In either case receipt would be unconditional and there was nothing more to do to "earn" the amount. Because it would be unconditional the principle in Arthur Murray would not apply. The same is true if, as in this case, the unconditional Payment by Primelife to the Trust is taken to have been received by Mr Sent by operation of the constructive derivation provision in subs 6-5(4). Once the Payment was made on Mr Sent's behalf or at his direction the entirety of it was assessable. Conclusion regarding Questions 1 and 4 107 In Permanent Trustee Co of NSW at 13 Rich J made an observation which is apt to this matter. He held that: To see whether income has been derived one must look to realities. In Arthur Murray the High Court per Barwick CJ, Kitto and Taylor JJ noted at 318 that: The ultimate inquiry in either kind of case, of course, must be whether that which has taken place, be it the earning or the receipt, is enough by itself to satisfy the general understanding among practical business people of what constitutes a derivation of income. In this case, when looking to either the realities or to the general understanding among practical business people, I can reach no other conclusion than that the $11,600,000 Payment has the character of income and was applied or dealt with either at Mr Sent's direction or on his behalf. Questions 2, 5 and 6 - Whether the $11,600,000 Payment, in whole or in part, iS assessable as statutory income? 108 Question 2 is the part of the paragraph numbered 2(a) in Mr Sent's Amended Notice of Appeal which relates to statutory income, which states: Whether, given the findings of fact made by the Tribunal, the Tribunal erred in law in finding that the amount of $7,246,572 was properly assessable to [Mr Sent] in the year ended 30 June 2002 pursuant to…section 26(e) of the Income Tax Assessment Act 1936? 109 Question 5 is the paragraph numbered 2.2 in the Commissioner's Notice of Appeal. It states: Alternatively to 2.1, whether given the findings of fact made by the Tribunal and the admissions made by Sent, the Tribunal erred in law by not finding that the payment of $4,353,428 by Primelife to the Trust constituted assessable statutory income of Sent pursuant to s 26(e) of the Income Tax Assessment Act 1936 ("ITAA36") and s 6-10(3) ITAA97? 110 Question 6 is the paragraph numbered 2.3 in the Commissioner's Notice of Appeal which states: Alternatively to 2.2, whether the Tribunal erred in law by failing to address in its reasons for decision the submission made by the Commissioner that the payment of $4,353,428 by Primelife to the Trust constituted assessable statutory income of Sent pursuant to s 26(e) ITAA36 and s 6-10(3) ITAA97 in the 2002 Year? 111 Given my finding that the Payment is assessable as ordinary income, it is unnecessary to decide the alternative question as to whether the whole or any part of the Payment is assessable as statutory income pursuant to subs 26(e) of the ITAA 1936 and subs 6-10(3) of the ITAA 1997. It is also unnecessary to determine Question 6, which is whether the Tribunal adequately considered the Commissioner's submissions that payment of $4,353,428 by Primelife to the Trust was assessable statutory income. Questions 3(a) and (b) - the operation of the exemptions in sections 23L and 26(e)(iv) of the ITAA 1936. 112 Question 3(a) is the paragraph numbered 2(b) in Mr Sent's Amended Notice of Appeal which states: Whether the Tribunal erred in law in failing to consider adequately, or at all, in its reasons for decision the submissions made by [Mr Sent] that the exemptions in section 23L and section 26(e)(iv) [of the ITAA 1936] applied so as to exclude the amount of $7,246,572 from the scope of sections 6-5 [of the ITAA 1997] and 26(e)? 113 Both parties' submissions proceeded on the basis that Question 3(b) is also before me. This question is found in ground 4.2 of Mr Sent's Amended Notice of Appeal which states: The Tribunal erred in law in concluding that the application of the exemptions in sections 23L and 26(e)(iv) do not arise. 114 If ss 23L or 26(e)(iv) of the ITAA 1936 applies then the Payment in whole or in part is a "fringe benefit" and not assessable as either ordinary income or statutory income. Given my finding that the Payment is assessable as ordinary income it is unnecessary to decide: (a) whether the Tribunal considered adequately or at all Mr Sent's submissions as to whether subs 26(e)(iv) exempts the Payment from being assessable to Mr Sent as statutory income; and (b) whether the Tribunal erred in finding that subs 26(e)(iv) did not arise so as to exempt the Payment from being assessable to Mr Sent as statutory income. 115 However, the remaining two questions still require to be determined, namely whether the Tribunal erred in law in: (a) failing to consider adequately or at all Mr Sent's submissions that s 23L of the ITAA 1936 applied to exclude the Payment, (in whole or in part) from being assessable ordinary income under s 6-5; and (b) finding that s 23L did not arise so as to exempt the Payment, (in whole or in part) from being assessable ordinary income under s 6-5. Relevant legislation 116 The dispute between the parties as to the application of s 23L of the ITAA 1936 is narrow, and turns on whether the Payment constitutes a "non-cash benefit" on the facts found by the Tribunal. 117 Section 23L provides that if a taxpayer derives income by way of the provision of a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 (Cth) ("the Fringe Benefits Act") that income is exempt income and not assessable to the taxpayer. 118 It is common ground between the parties that the Payment falls within the definition of fringe benefit in subs 136(1) of the Fringe Benefits Act, subject to the exclusion in subs (f) of the definition. Subsection (f) of the definition specifically excludes from being a fringe benefit a payment of "salary or wages" in respect of employment. 119 "Salary or wages" is defined in subs 136(1) of the Fringe Benefits Act to include a payment in respect of employment from which an amount must be withheld under one of the listed provisions in Schedule 1 to the TAA. The listed provisions include s 12-35 which relates to payment to an employee and s 12-40 which relates to payment to a company director. Both provisions apply in this case because Mr Sent is both a company director and an employee of Primelife. 120 Section 11-5 of the TAA contains a constructive payment provision, analogous in its operation to subs 6-5(4) of the ITAA 1997, which operates to deem payment to be made to the taxpayer if paid on behalf of or as directed by him. It provides: (1) In working out whether an entity has paid an amount to another entity, and when the payment is made, the amount is taken to have been paid to the other entity when the first entity applies or deals with the amount in any way on the other's behalf or as the other directs. (2) An amount is taken to be payable by an entity to another entity if the first entity is required to apply or deal with it in any way on the other's behalf or as the other directs. 121 Section 12-10 in Division 11 of the TAA (which is in the same division as s 11-5) provides: This Division does not apply to a payment in so far as it consists of providing a non-cash benefit. 122 "Non-cash benefit" is defined in s 995-1 of the ITAA 1997, which definition applies also to the TAA: see s 3AA of the TAA. The definition provides: non-cash benefit is property or services in any form except money. If a non-cash benefit is dealt with on behalf of an entity, or is provided or dealt with as an entity directs, the benefit is taken to be provided to the entity. 123 As already indicated, the area of dispute between the parties is whether or not the Payment is a "non-cash benefit". Mr Sent contends that the Payment is a "non-cash benefit" while the Commissioner contends it is not. It is common ground that if the Payment is a non-cash benefit it is not a payment of salary or wages as defined in s 136(1) of the Fringe Benefits Act, it is within the definition of a "fringe benefit", and not assessable to Mr Sent as ordinary income. Whether the finding that s 23L did not arise constitutes an error of law. 124 At paragraph 58 of its decision the Tribunal found: The amount of $7,246,572 is assessable as income derived. Accordingly questions of ss 23L and 26(e) do not arise. It made a finding in the same terms at paragraph 118 of its decision. 125 On a fair reading of the Tribunal's decision I consider that the finding that "[a]ccordingly questions of ss 23L…do not arise" is a finding that s 23L does not apply to exempt the relevant amount of the Payment from being assessable as ordinary income. I do so because this is the only sensible meaning to give the words, having regard to the parties' submissions to the Tribunal on the application of s 23L. Consistently with this reading, both parties submit that this question of law is whether s 23L applies so as to exempt the Payment from being assessable to Mr Sent as ordinary income. The parties agree that this question turns on the narrow issue as to whether the amount in question is a "non-cash benefit". 126 Mr Sent argues that he did not receive any cash or monetary payment as it actually went to the Trust. He denies that the constructive receipt provision in s 11-5 deems him as having been provided with the monetary payment in fact made to the Trust. In this regard he makes the same arguments he advances in relation to the operation of the analogous constructive derivation provision in subs 6-5(4). I have already set out these arguments at and will not detail them again. In summary, he says that the Payment was not made on his behalf or as directed by him and that s 11-5 does not operate to deem him as having received it. He contends that he had no ability to control Primelife to "direct" the Payment, and could not even vote on the question. He denies that Primelife dealt with the Payment on his behalf. He argues that because he did not actually receive the monetary amount, if he is found to have received any benefit from the Payment it can only be a non-cash benefit. 127 However, by operation of the constructive payment provision, s 11-5, Mr Sent did receive a monetary payment. The Tribunal found that on 21 December 2001 Primelife deposited a cheque for $11,600,000 in the bank account of the Trust in respect of Mr Sent. The deposit was a sum of money. "Money" has a broad meaning and includes amounts paid into a bank account, whether by cheque or otherwise: see Explanatory Memorandum accompanying A New Tax System (Pay as You Go) Bill 1999 at 1.135; Conley v Commissioner of Taxation (1998) 81 FCR 24 at 27 to 29. Mr Sent did not contend to the contrary. It is therefore unarguable that, by way of the Payment, the Trust received a monetary payment rather than a non-cash benefit. The question is what if any payment or benefit Mr Sent received. 128 It does not matter that the Payment was made to the Trust and not directly to Mr Sent as the Payment was made on behalf of Mr Sent, or was provided or dealt with as he directed as required by s 11-5. I take this view for the same reasons as I set out at [66] to [87] in relation to the operation of subs 6-5(4). The Payment is deemed to have been made to Mr Sent which is a payment of money rather than a non-cash benefit. The Tribunal was correct in finding that s 23L does not apply. Whether any failure by the Tribunal to consider adequately or at all the exemption in section 23L constitutes an error of law 129 In Dennis Willcox v Federal Commissioner of Taxation (1998) 79 ALR 267 ("Dennis Willcox") the Full Court of Woodward, Jenkinson and Foster JJ held at 276-277 that a particular submission was not referred to at all in the Tribunal's reasons. It held this to be an error of law both because it may constitute a failure to consider a submission "worthy of serious consideration", and also because the absence of reasons meant that the Court on appeal could not determine whether an error of law vitiated the decision. Mr Sent relies on this authority in seeking to set aside the Tribunal's finding on this point. As I have said, the finding at paragraphs 58 and 118 is a finding that s 23L did not operate to exempt $7,246,572 of the Payment from being assessable to Mr Sent as income. As such this is not a case in which one of Mr Sent's contentions has been ignored. It was considered and rejected. 130 However, the failure of the Tribunal to provide adequate reasons in the present case is obvious. The decision at paragraphs 58 and 118 baldly states its conclusion, rather than the reasons the Tribunal had for reaching it and what facts it considered material to that conclusion. Section 43(2) of the AAT Act imposes an obligation on the Tribunal to provide reasons. It provides: Subject to this section and to sections 35 and 36D, the Tribunal shall give reasons either orally or in writing for its decision. There is no doubt that this section obliges the Tribunal to provide reasons which are adequate. 131 Section 43(2B) provides: Where the Tribunal gives in writing the reasons for its decision, those reasons shall include its findings on material questions of fact and a reference to the evidence or other material on which those findings were based. Although apparently more prescriptive, this section only obliges the Tribunal to set out the facts and the reasoning for those matters material to its decision, not all matters that might objectively be considered material: Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 ("Yusuf") at [69] per McHugh, Gummow, and Hayne JJ with Gleeson J agreeing. Yusuf dealt with s 430 of the Migration Act 1958 (Cth) which while not identical, is analogous to s 43(2) of the AAT Act. 132 One of the most important aims of the obligation to provide adequate reasons is that they be of sufficient quality to enable a party dissatisfied with a decision to determine whether some reviewable error has been made: Comcare Australia v Lees (1997) 151 ALR 647 ("Lees") at 656 per Finkelstein J; Yusuf at [69]. 133 The authorities are not clear that a decision of the Tribunal is liable to be set aside on the ground that it did not comply with its statutory obligation to provide adequate reasons: For example, see the oft quoted decision of Brennan J (in obiter, and dissenting but not on this point) in Repatriation Commission v O'Brien (1985) 155 CLR 422 at 445-6. The Full Court then held in Dornan v Riordan (1990) 24 FCR 564 ("Dornan") at 573 per Sweeney, Davies and Burchett JJ that a substantial failure by a Tribunal to provide adequate reasons in circumstances where reasons are a requirement of the exercise of the Tribunal's decision making power constitutes an error of law, and that the proper order is that the decision be set aside. Dornan has since been the subject of criticism: see Lees at 656-657 per Finkelstein J; Civil Aviation Safety Authority v Central Aviation Pty Ltd [2009] FCA 49 ("Central Aviation") at [31] per Perram J; Kennedy v AFMA (2009) 182 FCR 411 at [61] to [74] per Tracey J; Kocak v Wingfoot Australia Partners Pty Ltd & Goodyear Tyres Pty Ltd [2011] VSC 285 at [94] to [101] per Cavanough J. Tracey J considered that the decision of the High Court in Re Minister for Immigration and Multicultural Affairs; ex parte Palme (2003) 216 CLR 212 ("Palme") per Gleeson CJ, Gummow and Heydon JJ at [43] to [48] meant that the judgement in Dornan is no longer good law. 134 The distinction between the reasons for the decision and the decision itself is an important one: Yusuf at [30] per Gaudron J, Palme at [43] to [48]. The complaint regarding inadequacy of reasons in this case, in which Mr Sent seeks to have the decision set aside does not properly appreciate this distinction. Without expressing a concluded view, I am inclined to the view that Dornan is no longer binding, but in this case it is unnecessary for me to enter the fray. 135 It is unnecessary because the more critical question in this case is whether the failure to provide adequate reasons is such as to justify the Court in setting aside the Tribunal's decision on this point, or is a "substantial failure" as required in Dornan. In Civil Aviation Safety Authority v Central Aviation Pty Ltd (2009) 179 FCR 554 the Full Court held at [55] per Bennett, Flick and McKerracher JJ: Notwithstanding the divergence in authority, a failure to comply with s 43(2) of the AAT Act should not inevitably lead to an order pursuant to s 44(5) that the Tribunal's decision should be set aside in its entirety or, alternatively, lead to the reasons alone being set aside and an order being made for reasons to be provided. The appropriate order to be made pursuant to s 44 will depend upon the facts and circumstances of each individual case and the exercise of the discretion thereby conferred. 136 I consider that in this case, the inadequacy in the reasons does not justify setting aside the decision. Following the approach set out in Dornan, I consider that the failure to provide adequate reasons is not a substantial one which operates to vitiate the decision. 137 I note that in Dornan the Full Court at 573 relied on Re Poyser & Mills' Arbitration [1964] 2 QB 467 at 477 to 478 per Megaw J and Pettitt v Dunkley [1971] 1 NSWLR 376 (per Asprey JA at 382, and Moffitt JA at 389 with whom Manning JA agreed at 385). The judgments in these matters were underpinned by the consideration that in the absence of reasons, it was difficult for the appellant and the Court to discern whether the decision involved an error of law. That is not so in this case. It is clear from the contentions made by Mr Sent in relation to Question 3(b) that he had no difficulty in discerning whether a reviewable error had been made. He contended, albeit unsuccessfully, that an error of law had occurred as the Payment constitutes a non-cash benefit, and that s 23L therefore exempted it from being assessable as income. 138 Further, while the Tribunal did not in terms set out its view that the operation of s 11-5 of the TAA deemed the Payment actually made to the Trust to have been made to Mr Sent, it did consider the same issue in relation to subs 6-5(4) of the ITAA 1997. It found that the Payment was dealt with on Mr Sent's behalf or as he directed. The Tribunal is compelled to the same conclusion as to the application of s 11-5 to the facts found by it as it reached in relation to subs 6-5(4). 139 Put another way, the decision by the Tribunal as to whether the Payment is a non-cash benefit required the Tribunal to decide whether the Payment was made on Mr Sent's behalf or as he directed. It had already made that decision in another statutory context. It is possible on a fair reading of the Tribunal's decision to apply its reasons as to the application of s 6-5(4) to the application of s 11-5. The Tribunal's failure to expressly provide reasons in relation to s 23L is also a less substantial one having regard to the fact that it has plainly set out its view that the Payment was made on Mr Sent's behalf or as he directed. 140 Finally, even if the Tribunal had substantially failed to provide reasons and it were appropriate to set aside the decision, the Court has a discretion as to whether to remit the question to the Tribunal or determine it. Subsection 44(4) of the AAT Act empowers the Court to "hear and determine the appeal and make such orders as it thinks appropriate by reason of its decision". Where appropriate the Court may make a decision in substitution for that under review: Harradine v Secretary, Department of Social Security (1989) 25 FCR 35; Secretary, Department of Community Services and Health v Theologidis (1991) 33 FCR 186. 141 If it were necessary to set aside the decision under review I would not remit it to the Tribunal. I would instead substitute a judgment to the effect that s 23L did not apply to exempt the Payment from assessable income. Remittal of this issue to the Tribunal is inappropriate in this case because the Tribunal has found all the necessary facts, the issue is narrow (namely whether the Payment constitutes a non-cash benefit), and the increase in cost and delay involved in remitter indicate that the Court should determine it. Question 7 - Whether Part IVA of the ITAA 1936 applies to $4,353,428 of the Payment? 142 Question 7 is the paragraph numbered 4.1 in the Commissioner's Notice of Appeal which states: Whether, given the findings of fact made by the Tribunal and the admissions made by Sent, the Tribunal erred in law in finding that Part IVA ITAA36 ("Part IVA") did not apply to include the amount of $4,353,428 in Sent's assessable income in the 2002 Year on the bases that: [various bases then set out] 143 Because I have found that the whole of the Payment is assessable as ordinary income it is unnecessary to determine the Commissioner's alternative submission that Part IVA of the ITAA 1936 applies to part of it. Question 8 - Whether the Tribunal erred in finding that the Commissioner did not make a decision to remit any penalty? 144 Question 8 is the paragraph numbered 2(c) in Mr Sent's Amended Notice of Appeal which states: Whether, given the findings of fact made by the Tribunal, the Tribunal erred in law in finding that the Commissioner did not make a decision to remit any penalty? 145 As I set out at [26] and [27], in November 2006 the Commissioner issued an amended assessment treating the $11,600,000 Payment as assessable as either ordinary or statutory income. He imposed an administrative penalty for recklessness of $2,813,000 at the rate of 50% of the tax shortfall amount ("the 2006 penalty"). In March 2009 the Commissioner issued an alternative assessment treating the Payment as a Part IVA Scheme, imposing another administrative penalty of $2,813,000 at the rate of 50% of the scheme shortfall amount ("the Scheme penalty"). 146 Mr Sent argues that two pieces of evidence show that the Commissioner remitted one of the two 50% penalties imposed. That the Commissioner has the power to remit a penalty under s 298-20 of the TAA is uncontroversial. The Commissioner denies that he remitted any penalty. 147 The Tribunal made a finding that there was no remission of any penalty. It found as fact that the Commissioner had not turned his mind to the question of remission, and that the required decision making process by the Commissioner had not been undertaken. Mr Sent contends that the finding is an error of law by the Tribunal as it was not supported by probative evidence or involved an inference that was not reasonably open on the facts. 148 I note that this question is no longer of significance because the effect of my decision on Questions 1 and 4 is that Part IVA does not apply. The thrust of Mr Sent's contention is that it is the Scheme penalty that the Commissioner remitted. Because Part IVA is inapplicable, such a penalty is no longer applicable. Even so, I set out my decision on this question as follows. 149 Whether the Commissioner exercised his power to remit a particular penalty is a question of fact. For Mr Sent to establish that the Tribunal made an error of law in finding that it did not make such a decision there must be no evidence which was capable, as a matter of law, of sustaining its finding or supporting its inferences: Fisse v Secretary, Department of the Treasury (2008) 172 FCR 513 ("Fisse") at [42] to [50] per Buchanan J and [152] per Flick J; Minister for Immigration and Multicultural Affairs v Al Miahi [2001] FCA 744 at [34] per Sundberg, Emmett and Finkelstein JJ. The hurdle is high for the party seeking to establish that there is no evidence capable of sustaining a finding or supporting an inference. For example in Fisse Buchanan J considered at [76] that the evidence provided only slender support for the relevant finding of fact and also considered that the Tribunal's finding on the evidence was erroneous. Nevertheless his Honour refused to find an error of law as the finding was capable of being made on the evidence. 150 It is also clear that there is no error of law in simply making a wrong finding of fact: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 356 per Mason CJ (with whom Brendan J agreed, Deane J agreed generally and Toohey and Gaudron JJ agreed on this point). Mason CJ cited with approval the decision of Jordan CJ in Australian Gas Light Company v Valuer General (1940) 40 SR (NSW) 126 at 137 to 138 in which his Honour held: (3) A finding of fact by a tribunal of fact cannot be disturbed if the facts inferred by the tribunal, upon which the finding is based, are capable of supporting its finding and there is evidence capable of supporting its inferences… (4) Such a finding can be disturbed only (a) if there is no evidence to support its inferences, or (b) if the facts inferred by it and supported by evidence are incapable of justifying the finding of fact based upon those inferences: 151 The first piece of evidence that Mr Sent relies on is a letter from the Commissioner ("the objection decision letter") in which the Commissioner set out his reasons for rejecting Mr Sent's objection to the 2009 assessment which assessed the arrangement as a Part IVA scheme. The letter is set out in a question and answer format and question 13 asks: Is the Commissioner required to reduce the penalty tax of $2,813,000 under sections 284-215 or 284-225 of the TAA 1953 or under any other provision of the TAA 1953, ITAA 1936 and ITAA 1997? The answer is provided: No. However, the Commissioner has exercised his discretion under section 298-20 of Schedule 1 of the TAA 1953 to remit the amount of the overall penalty of 50% of Mr Sent's shortfall amount under a previous assessment and the scheme shortfall amount under the Penalty Assessment the subject of this objection… The letter then describes the two penalties imposed and states: Pursuant to [a practice statement] the Commissioner has exercised his discretion to remit the overall cumulative penalty resulting from the imposition of the above penalties… to a reduced penalty amount. This was notified to the taxpayer on 20 March 2009. However, the cumulative bases for the penalty imposition are maintained. 152 The objection decision letter is somewhat ambiguous. Significantly, although it refers to a decision to remit a penalty, it does not identify which penalty. It refers to a decision to remit the "overall penalty" and to a reduced penalty amount resulting from a remission of the overall cumulative penalty, with the "cumulative bases" of the penalty being maintained. The Commissioner submits that the effect of the penalty assessment provisions was that he was required to impose two separate penalties for the alternative assessments he made. He submits that he only intended to recover one 50% penalty (rather than a 100% penalty), and he wrote an awkwardly worded objection decision letter advising Mr Sent of this. In oral submissions counsel for the Commissioner described it as the Commissioner trying to say: "I haven't specifically remitted either penalty but I am trying to indicate to you that I am not going to double collect." 153 The second piece of evidence Mr Sent relies on is the itemised record of the Australian Taxation Office described as a "running balance" for income tax, which it keeps in relation to every taxpayer. Taxpayers can access their running balance by logging on to the ATO website using an individual password. The running balance for Mr Sent includes the following entries: Process Date Effective Date Transaction description Debit amount Credit amount 16 Nov 2006 15 Dec 2006 Shortfall penalty relating to recklessness for Income Tax $2,813,000 20 Mar 2009 20 Apr 2009 Shortfall penalty relating to a scheme shortfall for Income Tax $2,813,000 20 Mar 2009 20 Mar 2009 Remission of shortfall penalty relating to a scheme shortfall for Income Tax $2,813,000 The third entry provides that there had been a remission of penalty, and that the penalty remitted was the Scheme penalty. I note though that if the running balance is read this way the Scheme penalty is remitted the same day it is imposed, which would be a strange outcome. 154 The Commissioner contends that the entries are just entries in his administrative records and that the balance reflects that he expects to receive only a 50% penalty. He argues that the making of a confusing and incorrect entry in his administrative records cannot create a remission of penalty in fact. 155 The Commissioner submits that he has not made a decision to remit any penalty, and that there was no evidence before the Tribunal of any decision in fact made to remit any penalty. Any decision to remit a particular penalty imposed on him is required to be an official act or consideration of the Commissioner, made after considering all the relevant circumstances: see R v Deputy Federal Commissioner of Taxation (SA); Ex parte Hooper (1926) 37 CLR 368 at 373 per Isaacs J in relation to an assessment decision. 156 It is uncontroversial that the Tribunal correctly appreciated the issue for its determination: see paragraphs 5 to 7 of its decision. The Tribunal considered the evidence relied upon by Mr Sent, namely the objection decision letter and the running balance. It also considered the Commissioner's submission that no determination to remit a penalty had in fact been made. It held: 104 While the communication of what the Commissioner has done might have been clumsy, there is sufficient information to suggest that the Commissioner has not turned his mind to the process of remission and is not made any decision to do so. 105 The process of remission is, in presently relevant respects, similar to that of assessment. Just as an assessment is a decision-making process of the Commissioner, a remission requires a decision-making process and the steps to give effect to it. Here the decision-making process has not been undertaken. 157 The question is whether the evidence is capable of sustaining this finding and supporting the Tribunal's inferences. In my view it is. It is open on the evidence for the Tribunal to decide that the running balance account is just an administrative record. Similarly, it is open to the Tribunal to conclude that the letter does not set out the remission of any particular penalty and to read it as no more than an awkward attempt to explain the fact that the two penalties of $2,813,000 would not be cumulative. It is also open to the Tribunal to find that the objection decision letter and the running balance entries are not an official act or consideration of the Commissioner. The evidence is capable of sustaining the finding that the Commissioner did not turn his mind to the question of remission and that the required decision-making process was not undertaken. Question 9 - Whether Mr Sent failed to discharge the onus of establishing that a 50% penalty for the recklessness of his agent was excessive 158 The Commissioner's Notice of Appeal states: Whether the Tribunal erred in law by not finding that Sent had failed to discharge the onus placed upon him pursuant to s 14ZZK of the Tax Administration Act 1953 ("TAA") of establishing that the assessment by the Commissioner of a 50% administrative penalty pursuant to s 284-75(1) and s 284-90, Item 2, of Schedule 1 TAA on the basis that the shortfall amount had resulted from the recklessness of Sent's tax agent, was excessive. Relevant legislation and principles 159 Section 14ZZK of the TAA relevantly provides: On an application for review of a reviewable objection decision: … (b) the applicant has the burden of proving that: (i) if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; ... Consistently with this provision, the authorities provide that the taxpayer bears the onus of showing that a penalty imposed by the Commissioner is excessive: Hart v Federal Commissioner of Taxation (2003) 131 FCR 203 at [38] per Hill and Hely JJ. 160 Section 284-75 of Schedule 1 of the TAA provides the taxpayer is liable to an administrative penalty for a false or misleading statement where a shortfall amount results from the statement. Subsection 284-90(1) Item 2 of Schedule 1 of the TAA sets out how the base penalty amount for recklessness is calculated. It relevantly provides that the base penalty amount of 50% of the shortfall amount applies if the "shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a taxation law." Consideration 161 I consider that ss 284-75(1), 284-90(1) of Schedule 1 and s 14ZZK operates so that for Mr Sent to succeed before the Tribunal he was required to show that: (a) he did not act recklessly; and (b) his tax agent did not act recklessly. The Commissioner's appeal relates to the failure of the Tribunal to make any finding in relation to the recklessness of Mr Sent's tax agent. 162 The finding that Mr Sent did not himself act recklessly is not challenged by the Commissioner. It is uncontroversial that Mr Sent followed advice provided by Remuneration Strategies Group (a company which is related to Trinity) rather than the advice of a tax agent. 163 Mr Sent's 2002 tax return was not in evidence before the Tribunal, and the tax agent who prepared and filed his 2002 tax return was not called to give evidence. Mr Sent did not give evidence as to the instructions he gave his tax agent or the enquiries made of him by his tax agent in preparing and filing his tax return. The Tribunal made no finding in relation to the mental state of the tax agent. 164 As Mr Sent did not lead any evidence as to the mental state of his tax agent so as to show that the tax agent was not reckless, the Commissioner contends that he necessarily failed to discharge the onus under s 14ZZK of showing the penalty to be excessive. 165 The Commissioner contends the Tribunal made an error of law in not affirming the 50% penalty because of the failure of Mr Sent to discharge his onus. 166 To defeat the contention that he failed to discharge his onus Mr Sent submits that there was no evidence before the Tribunal as to the identity of the tax agent. In response, the Commissioner sought to tender Mr Sent's 2002 tax return in the hearing before me, over Mr Sent's objection. Evidence as to the identity of Mr Sent's tax agent 167 There was some evidence before the Tribunal as to the identity of the tax agent as Mr Sent gave evidence that De Luca Partners were his tax agents in 2002, and identified Mr Renato Penzo as the relevant person at that office: 168 Further, in his final submissions to the Tribunal, counsel for Mr Sent submitted: … I think that perhaps the evidence must be, looking at the tax return of Mr Sent for the year ended 30 June 2002, it says, "Agent details, contact Renato Penzo." So he had a tax agent that prepared his tax return, but in the circumstances he would have relied on the advice provided by the Remuneration Strategies Group. … But on the evidence, he had an accountant, Mr Penzo, as it turns out to be, and in preparing his tax return he must have relied on a conclusion reached by the Remuneration Strategies Group that that amount was un-assessable, otherwise he would have included in his tax return. 169 This amounted to a concession that Mr Penzo was the tax agent for Mr Sent in 2002. Even if it is not characterised as a concession, counsel for the Commissioner was entitled to understand from this submission coupled with Mr Sent's evidence, that the fact that Mr Penzo was his tax agent in 2002 was not in issue. The Commissioner could have applied to tender the tax return even at that late stage had counsel for Mr Sent made clear his position. The Tribunal is not bound by rules of evidence and I can see no good reason why in view of Mr Sent's evidence the tender would not have been allowed at that time. 170 The evidence given by Mr Sent, and the concession by his counsel, do not sit well with his submission to the Court that there was no evidence before the Tribunal as to the identity of his tax agent. In my view there was such evidence, and there was also a concession by counsel. In order to finally resolve the issue the Commissioner now seeks to admit Mr Sent's 2002 tax return into evidence. 171 Because a question of law arises after determination of the facts and depends on the facts so determined, it is only in unusual circumstances that the Court will admit fresh evidence in an appeal under s 44(1): Committee of Direction of Fruit Marketing v Australian Postal Commission; (1979) 37 FLR 457 at 459 per Franki J with whom Brennan J agreed; Servos v Repatriation Commission (1995) 56 FCR 377 at 385. 172 Such circumstances exist in this case because, despite the evidence and the concession below as to an otherwise uncontroversial fact, the contention is now made that there is no or insufficient evidence. The circumstances are unusual in part because it is clear that the identity of the tax agent was not seriously in issue below, and should not be contentious on appeal. 173 I note too that if I found that there is no evidence as to the identity of the tax agent I can remit this factual issue to the Tribunal to determine. If I were to do so only one conclusion would be possible. As one could expect from counsel's concession (when he apparently read from it) Mr Sent's 2002 tax return exhibited in the interlocutory application before me records Mr Renato Penzo as the tax agent. It is more cost effective and productive of less delay if this evidence is admitted rather than have this issue remitted to the Tribunal. 174 I admit Mr Sent's 2002 tax return into evidence and note that it records Mr Renato Penzo as his tax agent. Necessity to separately consider the tax agent's mental state 175 Mr Sent also contends that there was no error of law by the Tribunal because it is not necessary to consider the tax agent's mental state separately from his own where the evidence is that his tax agent had little to do with the tax arrangement. He says that as the advice received from Remuneration Strategies Group was that the Payment was not assessable as income in the 2002 year, it was unnecessary for him to make his tax agent aware of the transaction or lead evidence before the Tribunal as to his mental state. 176 He also says that many taxpayers submit tax returns without using tax agents. He contends that the effect of the Commissioner's argument is that such taxpayers are all liable to a penalty for recklessness because no evidence can be called as to the mental state of the tax agent. I reject this contention. The TAA only requires consideration of the tax agent's mental state if there is one. 177 Contrary to Mr Sent's submissions, subs 284-75(1) provides that Mr Sent is liable if either he or his agent makes a statement to the Commissioner which is false or misleading in a material particular. Subsection 284-90(1), Item 2 provides that a penalty of 50% may be imposed if the shortfall amount or part of it "resulted from recklessness by you or your agent as to the operation of a taxation law." 178 The extrinsic materials confirm this interpretation. The Revised Explanatory Memorandum to A New Tax System (Tax Administration) Bill (No. 2) 2000 provides, in relation to the relevant division of the TAA, at paragraph 1.30: Division 284 maintains the current position that a taxpayer is vicariously liable to any penalties arising from the conduct of an agent acting on behalf of the taxpayer. Where a taxpayer has a shortfall amount that is caused by an agent either failing to take reasonable care, behaving recklessly…the taxpayer will be liable to pay a penalty at the appropriate rate. 179 The authorities are also clear. In BRK (Bris) Pty Ltd v Federal Commissioner of Taxation (2001) 46 ATR 347 ("BRK") at [78] to [79] Cooper J found that the taxpayer was not reckless, but imposed a penalty of 50% because of the tax agent's recklessness. His Honour held: … reliance in this way on the tax agent carries with it the risk that the tax agent maybe "reckless" within the meaning of s 226H and that the tax consequences of such recklessness will be borne by the taxpayer as s 26H in fact provides. 180 Mr Sent seeks to distinguish BRK on the basis that the firm of accountants who were the advisors in that matter were also the tax agents, and that damning statements were made about their failures. They knew all aspects of the subject tax arrangement, whereas counsel submits Mr Sent's tax agent knew little and prepared the return on the basis of information given to him. Mr Sent also draws comfort from the remark by Cooper J at [79] that, "[t]his case is different to one where a tax agent prepares an income tax return on the basis of material provided by the taxpayer." I accept that there are factual differences between BRK and this case but I do not consider the differences to be of significance to my use of the authority. I take the case only as authority for the proposition that the Court must consider the mental state of the tax agent. In accord with the remarks of Cooper J, I accept that different levels of involvement by a tax agent in the preparation of a return will be relevant to whether his or her particular mental state amounts to recklessness or not. However in Mr Sent's case there is no evidence to establish that the tax agent has not been reckless. 181 In Federal Commissioner of Taxation v White (No 2) (2010) 80 ATR 373 ("White No 2") the taxpayer relied upon an expert financial advisor in relation to the subject tax arrangement, and although the return was filed by a tax agent there was no evidence that he relied upon his tax agent for advice in regard to the arrangement. The taxpayer did not give evidence about the instructions he gave the tax agent or the enquiries she made of him at the time she prepared and filed his tax returns. Gordon J found at [15] to [20] that it was necessary to call the tax agent to give evidence. Her Honour found that the taxpayer failed to discharge the onus of establishing that the tax agent was not reckless and imposed a 50% administrative penalty accordingly. 182 Mr Sent also seeks to distinguish White No 2. He points out that in White No 2 the Tribunal found that the taxpayer did not take reasonable care, whereas in this case there is a finding that Mr Sent did. He argues that reliance on this decision as authority will distort the operation of the penalty provision. I disagree. White No 2 stands for the straight-forward proposition that in relation to a penalty amount worked out under subs 284-90(1) Item 2 the conduct or state of mind of any tax agent is a necessary consideration. 183 I am not without sympathy for Mr Sent's contention that, where a taxpayer takes reasonable care to ensure that his tax affairs properly comply with the tax legislation, the state of mind of the tax agent is irrelevant unless the agent is the party that gave advice to the taxpayer. However, I reject it because subs 284-90(1) Item 2 is clear in its terms and effect. 184 The policy rationale for requiring the tax agent (if any) to establish that he or she was not reckless is obvious. Subsection 284-90(1) imposes graduated penalties on taxpayers for mental states ranging from intentional disregard, through recklessness to lack of reasonable care by the taxpayer or agent. It is directed at the aim of ensuring that both taxpayers and their tax agents take appropriate care in the preparation and filing of tax returns. In objecting to the decision to impose a penalty for recklessness by him or his agent, Mr Sent bore the onus of establishing that his agent was not so. Necessity to remit this issue to the Tribunal 185 Although the Tribunal failed to consider the Commissioner's submissions as to the recklessness of the tax agent, I do not consider it appropriate to remit to the Tribunal the question of the penalty for such recklessness. Mr Sent's evidence to the Tribunal supported by counsel's concession, was that Mr Penzo was Mr Sent's tax agent for his 2002 tax return. If there was any question remaining as to the identity of the tax agent it is resolved by the admission of the tax return into evidence. 186 No evidence was called from Mr Penzo as to his mental state. There was no evidence by Mr Sent as to Mr Penzo's mental state, instructions he gave Mr Penzo or enquiries Mr Penzo made of him at the time of preparing and filing the tax returns. 187 Only one outcome is possible on the issue and it is unnecessary to remit it to the Tribunal to determine: see Commissioner of Taxation v Zoffanies Pty Ltd 132 FCR 523 at [66]. Subsection 284-90(1) Item 2 is clear that it operates by reference to the recklessness of either Mr Sent or his tax agent. Mr Sent failed to discharge the onus that he bore pursuant to ss 284-90 and 14ZZK of establishing that the assessment by the Commissioner of a 50% administrative penalty for the recklessness of his tax agent was excessive. The penalty stands. Question 10 – Whether the Tribunal ADEQUATELY CONSIDERED the Commissioner's submission as to THE RECKLESSNESS OF MR Sent's tax agent 188 The Commissioner's Notice of Appeal states: Alternatively, whether the Tribunal erred in law by failing to address in its reasons for decision the submission made by the Commissioner that s 284-75(1) and s 284-90 Item 2, TAA, applied on the basis that the shortfall amount resulted from the recklessness of Sent's tax agent. 189 This question arises in the alternative to Question 9 and is strictly not necessary to decide. 190 The Commissioner submitted to the Tribunal that the 50% penalty applied was applicable by reference to either the recklessness of the taxpayer or his agent. As I held in relation to Question 9, both subss 284-75(1) and 284-90 Item 2 provide in terms that the mental state of the tax agent is relevant to the imposition of such a penalty. The Commissioner's submission regarding the tax agent's recklessness was not addressed by the Tribunal in its decision. There is no indication in the decision that the Tribunal considered the issue at all. 191 The failure of the Tribunal to consider the Commissioner's submissions in relation to this issue is a failure to carry out the duty imposed by s 43(2) of the AAT Act: Dennis Willcox at 276-277; Australian Securities and Investments Commission v Saxby Bridge Financial Planning Pty Ltd (2003) 133 FCR 290; [2003] FCAFC 244 at [143] per Branson, Jacobson and Bennett JJ. While I consider that the Tribunal made an error of law in this regard, I will not further detail my view because it is immaterial in light of my decision on Question 9. Question 11 – Whether a 25% penalty for failure to adopt a reasonably arguable position is appropriate 192 Mr Sent's Amended Notice of Appeal states: Whether, given the findings of fact made by the Tribunal, the Tribunal erred in law in finding that [Mr Sent] was liable to pay an administrative penalty at the 25% level for failure to adopt a reasonably arguable position. 193 The grounds to Mr Sent's Amended Notice relevantly state: In circumstances where the Tribunal made the findings of fact at paragraphs 99, 109 and 112 Tribunal erred in law in finding at paragraph 111 that [Mr Sent] was required to satisfy both the reasonable care and reasonably arguable tests or alternatively the Tribunal erred in law in finding at paragraphs 115-116 that [Mr Sent] did not have a reasonably arguable position. 194 It is common ground that Mr Sent actually raises two questions of law: (a) Whether, given its finding that Mr Sent took reasonable care and having regard to subs 284-215(2) of the TAA, the Tribunal erred in law in imposing a penalty on the basis of lack of a reasonably arguable position? (b) Whether, given its finding that Mr Sent took reasonable care, the Tribunal erred in law in finding that he did not in fact have a reasonably arguable position? 195 The 50% penalty imposed in 2006 was imposed under subs 284-75(1) of the TAA on the basis that the shortfall amount had resulted from the recklessness of Mr Sent or his agent in making a false or misleading statement. The Commissioner argued for this penalty at the Tribunal. For completeness I note also that the 50% Scheme penalty imposed in 2009 was imposed under ss 284-145 (1) and 284-155 of the TAA. Because I have found that Part IVA does not apply I will not deal with any question regarding the Scheme penalty. 196 The Commissioner also argued in final written submissions to the Tribunal, in the alternative, for a 25% penalty for lack of reasonable care under subs 284-75(1), and a 25% penalty for putting a position that was not reasonably arguable under subs 284-75(2). 197 The Tribunal set aside the 2006 penalty for recklessness on the basis that Mr Sent had acted with reasonable care. The Tribunal instead imposed a 25% penalty for lack of a reasonably arguable position, and it is this penalty which is the basis of these questions in the appeal. 198 It is no longer necessary to decide either part of this question given my decision in relation to Question 9 that the 50% administrative penalty for recklessness imposed by the Commissioner under subs 284-90(1) Item 2 still stands. The Commissioner does not seek to impose both the 50% penalty for recklessness and also the 25% penalty for lack of a reasonably arguable position. However, because of the possibility that my decision will be the subject of appeal I set out my views as follows. Complaint of lack of procedural fairness 199 Counsel for Mr Sent complained that Mr Sent was not accorded procedural fairness because of the late change in the basis of the penalties claimed by the Commissioner. He submits that the Commissioner's alternative case which included a claim for penalties imposed under subs 284-75(2) made after the close of evidence in the Tribunal, and even after Mr Sent had put on his final submissions, did not accord him with natural justice. 200 Counsel for Mr Sent also argues that the Commissioner is now seeking to introduce a new issue in this matter by seeking to impose a penalty pursuant to subs 284-75(2). I reject this contention. It is clear from the final submissions by the Commissioner to the Tribunal that this issue was before it. 201 It is established that the Commissioner is able to support an assessment on a ground not taken into account at the time the assessment was made: see Commissioner of Taxation v ANZ (1994) 181 CLR 466 at 479 and the cases cited. Further, by force of s 43 of the AAT Act and pursuant to s 177F of the ITAA 1936 the Tribunal is able to exercise its discretion to determine the case on the grounds it considers appropriate rather than as advanced by the parties, provided natural justice is accorded: Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 at 452, 453, 455 and 456. 202 The Commissioner denies that there was any lack of procedural fairness before the Tribunal. He submits that his final submissions were filed at 5:30 pm on Tuesday, 18 May 2010 and that the hearing did not resume until Thursday, 20 May 2010. In the interim the Commissioner digested Mr Sent's final submissions and made submissions in reply. He argues that the same course was open to Mr Sent's counsel. 203 The Commissioner contends, and I accept, that it was open to Mr Sent to raise the alleged lack of procedural fairness with the Tribunal but he did not do so. It was also open to Mr Sent to raise the alleged lack of procedural fairness before this Court as a question of law, but he did not do so. He did not seek to further amend his Amended Notice of Appeal to address this deficiency. My jurisdiction under s 44 of the AAT Act is only to determine questions of law raised in the Notice of Appeal and no relevant question is before me. I have no jurisdiction to deal with his concerns in this regard. The application of subs 284-215(2) Relevant legislation 204 The relevant provisions all appear in or in relation to Subdivision 284-B - Penalties relating to statements. Section 284-75 of Schedule 1 of the TAA relevantly provides: 284-75 Liability to penalty (1) You are liable to an administrative penalty if: (a) you or your agent makes a statement to the Commissioner …; and (b) the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and (c) you have a shortfall amount as a result of the statement. (2) You are liable to an administrative penalty if: (a) you or your agent makes a statement to the Commissioner …; and (b) in the statement, you or your agent treated an income tax law as applying to a matter or identical matters in a particular way that was not reasonably arguable; and (c) you have a shortfall amount as a result of the statement; and (d) Item 4, 5 or 6 of the table in subsection 284-90(1) applies to you. … (Emphasis added to subs (1)(b) and (2)(b)). Importantly, any liability to an administrative penalty only arises where there is a shortfall amount. 205 Subsection 284-80 sets out what a shortfall amount is. It relevantly provides: 284-80 Shortfall amounts You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been. Shortfall amounts Item You have a shortfall amount in this situation 1 A tax related liability of yours for an accounting period, or for a taxable importation, worked out on the basis if the statement is less than it would be if the statement were not false or misleading. … 3 A tax related liability of yours for an accounting period worked out on the basis of the statement is less than it would be if the statement did not treat an income tax law as applying in a way that was not reasonably arguable. … (Emphasis added to items 1 and 3). Item 1 defines a "shortfall amount" arising from a false and misleading statement, and Item 3 defines it when it arises from a statement in relation to taxation law that was not reasonably arguable. 206 Having ascertained the shortfall amount, the amount of the base penalty can then be worked out using s 284-90. It relevantly provides: (1) The base penalty amount under this Subdivision is worked out using this table: Base penalty amount Item In this situation: The base penalty amount is: 1 Your shortfall amount or part of it resulted from intentional disregard of a taxation law by you or your agent 75% of your shortfall amount or part 2 Your shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a taxation law 50% of your shortfall amount or part 3 Your shortfall amount or part of it resulted from a failure by your or your agent to take reasonable care to comply with a taxation law 25% of your shortfall amount or part 4 Your shortfall amount or part of it resulted from you or your agent treating an income tax law as applying to a matter or identical matters in a particular way that was not reasonably arguable, and that amount is more than the greater of $10,000 or 1% of the income tax payable to you for the income year, working out on the basis of your income tax return 25% of your shortfall amount or part … 207 A note to s 284-90 provides that s 284-215, which sets out various exceptions to the penalty provisions, may reduce or eliminate the shortfall amount. Subsection 284-215(2) relevantly provides: For the purposes of determining whether you are liable to an administrative penalty, you do not have a shortfall amount as a result of a statement that is false or misleading in a material particular to the extent that you and your agent (if any) took reasonable care in making the statement. It is upon this subsection that Mr Sent relies. Consideration 208 Mr Sent points to the finding by the Tribunal at paragraph 112 that he acted with reasonable care in taking advice from Remuneration Strategies Group. He relies on subs 284-215(2) to argue that because the Tribunal found that he had taken reasonable care no shortfall amount arises to allow imposition of a penalty under s 284-75. He submits that the Tribunal was therefore wrong in imposing a penalty for lack of a reasonably arguable position. 209 However, although this particular point was not argued before me, Mr Sent's argument must fail. Subsection 284-215(2) only provides a carve-out in relation to a penalty for a false or misleading statement if both the taxpayer and any taxpayer's agent took reasonable care in making such a statement. The evidence is that Mr Penzo of De Luca Partners was Mr Sent's tax agent in 2002, and there was no evidence before the Tribunal as to Mr Penzo's mental state or any relevant enquiries Mr Penzo made of Mr Sent. In the absence of this evidence it is impossible for Mr Sent to meet the requirements of s 284-215 by showing that both he and his tax agent took reasonable care. 210 Mr Sent submits that subs 284-215(2) provides that a taxpayer does not have a shortfall amount to the extent that the taxpayer took reasonable care. I accept this insofar as liability to a penalty arises under s 284-75(1) but not in relation to liability that arises under s 284-75(2). Subsection 284-215(2) expressly provides that it relates only to shortfall amounts resulting from a statement that is false or misleading. Importantly, it does not provide a carve-out in relation to liability to a penalty under subs 284-75(2) for making a statement that is not reasonably arguable. 211 That this is the correct interpretation is confirmed by extrinsic materials. Paragraph 1.110 of the Revised Explanatory Memorandum to the A New Tax System (Tax Administration) Bill (No. 2) 2000 provides: A taxpayer will be treated as not having a shortfall amount relating to a statement that was false or misleading where the taxpayer, or the agent if the agent made the statement, took reasonable care in making the statement. The shortfall amount is reduced only for the purposes of calculating the administrative penalty. The reduction in the shortfall amount does not reduce the amount of the underlying tax liability. This exclusion does not apply to shortfall amounts where the taxpayer failed to have a reasonably arguable position or to scheme shortfall amounts. (Emphasis added) 212 Subsection 284-90(1) provides for base penalty amounts of 75% of the shortfall amount for intentional disregard under Item 1, 50% for recklessness under Item 2, 25% for lack of reasonable care under Item 3, and 25% for lack of a reasonably arguable position under Item 4. When a penalty for lack of a reasonably arguable position is imposed under subs 284-75(2), Item 4 of s 284-90 is applied to work out the base penalty expressed as a percentage of the shortfall amount. The Commissioner submits, and I accept, that the calculation of a 25% base penalty for lack of reasonable care has no bearing on the potential for application of a 25% base penalty for lack of a reasonably arguable position under Item 4. 213 This interpretation is confirmed by the extrinsic materials. The Revised Explanatory Memorandum accompanying the A New Tax System (Tax Administration) Bill (No. 2) 2000, which introduced the penalty provisions, states at paragraph 1.59: It is possible that more than one shortfall section may apply in respect of a shortfall amount. For example, a taxpayer may be reckless in making a claim for a deduction, and so be liable for a penalty under item 2 of subsection 284-90(1), and also be liable for penalty under item 4 of subsection 284-90(1) for not having a reasonably arguable position in respect of the claim. 214 The Tribunal did not err in deciding that on a proper interpretation of the TAA a 25% penalty for failure to adopt a reasonably arguable position could be applied, notwithstanding its finding that Mr Sent had taken reasonable care. Whether Mr Sent in fact had a reasonably arguable position 215 Mr Sent contends that the Tribunal made an error of law in deciding at paragraphs 114 and 115 of its decision that he did not have a reasonably arguable position. Section 284-15 of Schedule 1 of the TAA defines whether a matter is reasonably arguable. It relevantly provides: (1) A matter is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that what is argued for it is likely to be correct as incorrect, or is more likely to be correct than incorrect. (2) To the extent that a matter involves an assumption about the way in which the Commissioner will exercise a discretion, the matter is only reasonably arguable if, had the Commissioner exercised the discretion in the way assumed, a court would be as likely as not to decide that the exercise of the discretion was in accordance with law. … 216 The principles concerning the operation of equivalent predecessor provisions are set out in Walstern v Federal Commissioner of Taxation (2003) 138 FCR 1 ("Walstern") per Hill J at [108]. These principles were adopted and applied by the Full Court in Pridecraft Pty Ltd v Federal Commissioner of Taxation (2005) 58 ATR 210 at [108]. The test is an objective one. Mr Sent's subjective views as to his own position are not to the point. I am required to decide whether Mr Sent's argument, even though found to be wrong, is about as likely as not to be correct when regard is had to "the relevant authorities". The fact that Mr Sent was found by the Tribunal to have taken reasonable care is relevant but not determinative, as reasonable care by itself is not enough. 217 Walstern requires that I balance the arguments of the Commissioner and Mr Sent. For Mr Sent's position to be reasonably arguable there must be room for it to be argued that it is correct, so that on balance his argument can objectively be said to be one that while wrong could be argued on rational grounds to be right. As Hill J stated: The case must thus be one where reasonable minds could differ as to which view, that of the taxpayer or that ultimately adopted by the Commissioner was correct. There must, in other words, be room for a real and rational difference of opinion between the two views such that while the taxpayer's view is ultimately seen to be wrong it is nevertheless "about" as likely to be correct as the correct view. A question of judgment is involved. 218 In Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468 at [70] per Stone and Allsop JJ a somewhat less strict approach was taken. The Full Court described the relevant test as whether the question was "open to debate in the sense of being arguable". This approach was approved by a differently constituted Full Court in Allen v Commissioner of Taxation (2011) 195 FCR 416 per Keane CJ, Greenwood and Middleton JJ at [75] to [76]. 219 Mr Sent argues that because he was found to have taken reasonable care in the provision of his 2002 tax return to the Commissioner, his position must be seen as reasonably arguable. This is not necessarily so. A tax return prepared by the taxpayer on the basis of bad advice may take a clearly unarguable position even though the taxpayer has taken reasonable care in obtaining the advice. Walstern provides that reasonable care by itself is not enough, and that the test is objective. 220 Counsel for Mr Sent referred in submissions to an advice received from experienced senior counsel to bolster his claim that his position is reasonably arguable. I was not taken to the advice in detail, but note that it does not expressly relate to Mr Sent and does not deal with whether a taxpayer with a pre-existing and unconditional right to payment of an amount as a reward for services, derives income if that amount is paid into a trust in respect of him. It is of limited assistance in relation to whether Mr Sent's position on this point is reasonably arguable. 221 I consider that the determination that the Payment is assessable as ordinary income is based on the application of long-standing principles including: (a) A reward for services has an income character; (b) A substitute for such a reward has the same tax character; (c) A cash-based taxpayer who earns an amount which is not subject to contingencies derives income; and (d) A taxpayer also derives income if the amount is dealt with on his behalf or as he directs. I note that the time for consideration as to whether Mr Sent has an arguable position is 2003 – when he lodged his 2002 return. This means that authorities such as McNeil, White and BARM I have referred to had not yet been handed down. This is not of great significance as these decisions applied long standing principles. 222 I have been troubled by the Tribunal's finding that $4,353,428 of the Payment was not assessable as ordinary income, as it might be argued to indicate that Mr Sent's position is reasonably arguable. I note though that Mr Sent's position is that none of the $11,600,000 Payment is assessable as ordinary income, and I note further that the Tribunal had no apparent difficulty in dismissing his appeal in relation to the majority of the Payment. It did so on the basis of the same principles as underpin my decision. 223 The Tribunal was plainly in error in finding a distinction between $7,246,572 of the Payment and its balance. The test as to whether a position is reasonably arguable or not is objective and the Tribunal's error does not alter my view that Mr Sent's position is objectively not reasonably arguable. 224 Mr Sent's position that none of the $11,600,000 Payment is assessable as income requires a real stretch, involving an unrealistic approach to the relevant transaction which is outside the general understanding among practical business people as to derivation of income. I do not consider that there is room for the conclusion that his position is about as likely to be correct on the authorities as the finding made, or open to debate. Question 12 Whether the Tribunal erred in making its finding at paragraph 52(d)? 225 At paragraph 52(d) of its decision the Tribunal found: … while it was not documented under the Trust Deed, or in any other evidence led in the proceeding, it is apparent that, at the outset, there was a plan to transfer control of the Trust to [Mr Sent] at the end of the deferral period; and Eskaton becoming the trustee after 2 years was the execution of that plan. Mr Sent contends that the Tribunal made an error of law in making its finding as there was no evidence to support the inference drawn. 226 If this finding constitutes an error of law it is not one which is material to the decision of the Tribunal. It is not referred to by the Tribunal as an element or factor in its decision. Further, the finding is of no significance to my decision. My conclusion that Mr Sent derived an amount of ordinary income when the Payment was made to the Trust does not depend upon the conclusion that there was a plan to transfer control of the Trust to an entity controlled by Mr Sent. It is therefore unnecessary to deal with the question but I will nevertheless set out my views. 227 In its decision the Tribunal notes that the plan referred to was not documented in any evidence. However, this does not deal with whether the plan could be inferred from other evidence. Although I have reached this conclusion with some reservation, I consider that there is sufficient evidence capable of supporting the Tribunal's inference for the finding to be open to it. 228 First, the Tribunal made the finding of fact that in February 2001 Trinity was asked to advise as to the optimal bonus delivery mechanism for existing bonus amounts for Mr Sent. Trinity's first report dated about January 2001 was titled Bonus Plan for the Managing Director and Employees of Primelife Group Ltd. It states that Trinity was asked to review the existing remuneration arrangements within Primelife, with a special focus on the arrangements of Mr Sent. The report set out in some detail Mr Sent's bonus entitlements and recommended that these be delivered to him by way of shares in an employee share trust which would defer tax indefinitely until final disposal of the shares. A later report by Trinity dated 15 April 2001 titled Recommendation for delivery of bonus for Managing Director again set out the plan for the delivery of bonuses to Mr Sent in the form of shares and the deferral of any tax liabilities until final disposal of the underlying shares. These facts are uncontroversial. 229 Second, the Tribunal made the finding at paragraph 26 of its decision that it was agreed between Primelife and Mr Sent to deliver Mr Sent his bonus entitlements through the issue of shares to the Trust. This finding is not challenged. It is clear that this was intended to deliver some substantial benefit to Mr Sent. This benefit was not achieved if any benefits were offset by a loan of the same value to the Trust. 230 Third, the effect of Mr Sent's evidence and submissions was that he exchanged an unconditional right to be issued shares worth approximately $11,600,000 (pursuant to the Share Issue Deed) for: (a) ownership of 5 million units in the Trust worth the same amount at issue but with delayed vesting and restrictions and limitations upon the benefits under the Trust; and (b) a debt to the Trust of $11,600,000. Such a transaction was uncommercial and disadvantageous for Mr Sent as he was $11,600,000 worse off than he had been on 30 November 2001 when the Shareholder Resolution approving the share issue was passed. Mr Sent did not satisfactorily explain in his evidence to the Tribunal why he would enter such a commercially disadvantageous arrangement when he had the benefit of an unconditional right to shares worth about $11,600,000 on 30 November 2011. 231 Fourth, the Tribunal found that in the absence of Mr Sent taking control of the Trust, the value of any benefit he could obtain from it was limited by the Trustee's power to set off his outstanding loan against any entitlements under the Trust. The Trust Deed provided that the Trustee could be removed by Trinity. 232 Fifth, the Tribunal made the finding of fact that on 1 December 2003 - at the request of Mr Sent - Eskaton Pty Ltd which is a company controlled by him replaced Primelife Share Plans as Trustee of the Trust. Mr Sent does not challenge the findings that he requested Trinity to transfer control of the Trust to Eskaton, that Trinity did transfer control of the Trust to Eskaton at his request, or that he controls Eskaton. He only challenges the finding that this was the plan from the outset. 233 It is open to the Tribunal to infer from these facts that a sophisticated businessman such as Mr Sent would not have agreed to the substantial, yet uncommercial and disadvantageous, change to his agreed remuneration unless there was some other plan. It was also open to the Tribunal to infer that the arrangement of payment to the Trust only made commercial sense if Mr Sent could later get the money from the Trust and have the loan forgiven by, for example, taking over the Trust. The finding is not an error of law as there is sufficient evidence capable of supporting the inference drawn by the Tribunal that there was a plan at the outset to later transfer control of the Trust to Mr Sent. Conclusion 234 The parties are required to consult and file short minutes of orders giving effect to these reasons within seven days. 235 The Commissioner has been successful in his appeal and in his defence of Mr Sent's appeal. I am unaware of any reason why costs should not follow the event, and accordingly the minutes should provide that Mr Sent pays the costs of the Commissioner in both appeals. If Mr Sent desires to make submissions to the contrary he must do so within seven days. I certify that the preceding two hundred and thirty-five (235) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy. Associate: Dated: 16 April 2012