FEDERAL COURT OF AUSTRALIA Bell v Commissioner of Taxation [2012] FCA 1042 Citation: Bell v Commissioner of Taxation [2012] FCA 1042 Appeal from: Christopher Bell v Commissioner of Taxation [2012] AATA 45 Parties: CHRISTOPHER BELL v COMMISSIONER OF TAXATION File number: VID 151 of 2012 Judge: GORDON J Date of judgment: 19 September 2012 Catchwords: INCOME TAX – capital gains tax – small business concessions – maximum net asset value test – meaning of "entity" – meaning of "liabilities of the entity that are related to the assets" – whether question of fact or question of law – Income Tax Assessment Act 1997 (Cth), Div 152 Legislation: A New Business Tax System (Capital Gains Tax) Bill 1999 (Cth) A New Tax System (Goods and Services Tax) Act 1999 (Cth) Administrative Appeals Tribunal Act 1975 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth) Tax Laws Amendment (2006 Measures No 7) Act 2007 (Cth) Cases cited: Abebe v Commonwealth (1999) 197 CLR 510 Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Bruce v Cole (1998) 45 NSWLR 163 Collector of Customs v Agfa-Gavaert Ltd (1996) 186 CLR 389 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 Comcare v Broadhurst (2011) 120 ALD 228 Commissioner of Taxation v Luxottica Retail Australia Pty Ltd (2011) 191 FCR 561 Commissioner of Taxation v Traviati [2012] FCA 546 Condell v Commissioner of Taxation (2007) 66 ATR 100 Coulton v Holcombe (1986) 162 CLR 1 Federal Commissioner of Taxation v Trail Brothers Steel & Plastics Pty Ltd (2010) 186 FCR 410 Industry Research and Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564 Kowalski v Repatriation Commission [2011] FCAFC 43 Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 Re Minister for Immigration and Multicultural Affairs; Ex parte Application S20/2002 (2003) 198 ALR 59 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 Secretary, Department of Family & Community Services v Edwards (2000) 105 FCR 220 Travelex Ltd v Federal Commissioner of Taxation (2010) 241 CLR 510 VWBF v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 154 FCR 302 Waterford v The Commonwealth of Australia (1987) 163 CLR 54 White v Commissioner of Taxation [2012] FCA 109 Zizza v Commissioner of Taxation (1999) 41 ATR 96 Heydon JD and Leeming MJ, Jacobs' Law of Trusts in Australia (7th ed, Butterworths, 2006) Date of hearing: 12 September 2012 Date of last submissions: 13 September 2012 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 114 Counsel for the Applicant: Dr B Orow Solicitor for the Applicant: WMB Lawyers Counsel for the Respondent: Dr P Bender Solicitor for the Respondent: Australian Taxation Office, Legal Services Branch IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 151 of 2012 BETWEEN: CHRISTOPHER BELL Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: GORDON J DATE OF ORDER: 19 SEPTEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties are to bring in orders to give effect to these reasons for decision by 4.00pm on 2 October 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth). IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 151 of 2012 BETWEEN: CHRISTOPHER BELL Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: GORDON J DATE: 19 SEPTEMBER 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT introduction 1 The Bell Family Trust (Trust) made a gross capital gain of $6,018,221 on the sale of certain units held in the Barry Plant Holdings Unit Trust (BPHUT) and the Plant Bell Unit Trust (PBUT) (collectively, the Units) during the 30 June 2007 year. The Applicant was presently entitled to 100% of the income of the Trust in the 2007 year. He was therefore assessable on all of the net income of the Trust for that year pursuant to s 97 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) and s 6-10 of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act). 2 This is an appeal from the Administrative Appeals Tribunal (the AAT). The issue before the AAT was whether certain small business concessions in Div 152 of the 1997 Act were available to the Trust (and hence flowed to the Applicant) to reduce the capital gain. The AAT decided the concessions were not available as the maximum net asset value (MNAV) test in s 152-15 of the 1997 Act was not satisfied. However, the AAT set aside the Commissioner's decision to impose an administrative penalty at the "recklessness rate" of 50% and instead imposed an administrative penalty at the "failing to take reasonable care rate" of 25%. 3 For the reasons that follow, the appeal should be dismissed. 4 The Applicant, Mr Bell, listed eight appeal grounds. Seven grounds related to three alleged liabilities which were said by the Applicant to reduce the net value of the CGT assets to below the $5 million threshold of the MNAV test. If that view was correct, the MNAV test was satisfied. Ground eight related to the AAT's decision to impose an administrative penalty on the basis of the Applicant's failure to take reasonable care. 5 The balance of these reasons for judgment are structured as follows: Content Para(s) A Background [6]-[8] B Legislative Framework [9]-[23] C AAT Decision [24]-[28] D Appeal Grounds [29]-[30] E Analysis [31] 1 The $2,018,000 debt [32]-[69] (a) Introduction [32]-[34] (b) Question of law? [35]-[44] (c) Statutory construction of s152-20 [45]-[53] (d) AAT Decision [54]-[55] (e) Connection between $2,018,000 debt and CGT assets [56]-[68] (f) Irrational, manifestly unreasonable or no evidence [69] 2 The Adelaide Bank accounts [70]-[112] (a) Introduction [70]-[72] (b) Appeal grounds [73]-[74] (c) Analysis [75]-[76] (d) Ground 6(a) – no evidence or inference not reasonably open [77]-[86] (e) Ground 6(b) – relevant and irrelevant considerations [87]-[90] (f) Ground 5 – relationship between the balance of the Offset Account and the Loan Account [91]-[100] (g) Ground 7 – manifestly unreasonable or irrational [101]-[102] 3 Imposition of administrative penalty [103]-[112] F Conclusion [113] a background 6 At all relevant times, the Applicant was: 1. a beneficiary of the Trust; 2. the sole shareholder and director of Laloma Pty Ltd, the trustee of the Trust (Trustee); 3. the appointer and guardian of the Trust; and 4. the recipient of all of the income distributed by the Trust during the 2007 year. 7 On 14 March 2007, the Trust made a gross capital gain of $6,018,221 on the sale of the Units. The Trust filed a tax return for the 2007 year and claimed the CGT discount, the small business concession and the retirement exemption under Div 152 of the 1997 Act to reduce its capital gains tax liability. 8 On 12 November 2008, the Commissioner commenced an audit of the Trust. On 21 August 2009, the Commissioner issued an amended assessment and penalty assessment to the Applicant for the 2007 year which denied the application of the small business concession. On 28 September 2009, the Applicant objected. On 14 July 2010, the Applicant's objection was disallowed. b Legislative framework 9 Division 152 of the 1997 Act (applicable at the relevant time) contained four small business concessions to reduce capital gains if prescribed conditions for relief were satisfied: s 152-1. The four concessions were the 15-year exemption (Div 142-B), the 50% reduction (Div 152-C), the retirement concession (Div 152-D) and the roll-over (Div 152-E). The Trust claimed the 50% reduction and the retirement concession. The application of those particular concessions was not in dispute. What was in issue was whether the conditions existed to utilise those concessions – namely whether the MNAV test was satisfied. 10 It is first necessary to consider who it is who must satisfy the MNAV test: the Trust or the Applicant. Section 152-10 of the 1997 Act provided as follows: (1) A *capital gain … you make may be reduced or disregarded under this Division if the following basic conditions are satisfied for the gain: … (c) you satisfy the maximum net asset value test (see section 152-15); … (Emphasis added.) 11 Whilst it is the Applicant who ultimately benefits from the application of the concessions, the Trust is the entity applying the MNAV test to determine if the benefit of those concessions flows through to the Applicant. So, for example, the basic conditions for relief under s 152-10 apply, inter alia, in respect of a capital gain "you" make if a CGT event happens in relation to a CGT asset of "yours" in an income year. Here, it was the Trust that made the capital gain from sale of the Units. It is the "you" in s 152-10 of the 1997 Act. Indeed, it was the Trust that lodged the return for the 2007 year which claimed the benefit of the concessions. 12 For the purpose of determining whether the MNAV test was satisfied in the 2007 year, the relevant operative statutory provisions were ss 152-15 and 152-20 of the 1997 Act. The relevant legislation was the compilation of the 1997 Act prepared on 18 April 2007 taking into account amendments up to Act No 56 of 2007. Section 152-15 was repealed and substituted by the Tax Laws Amendment (2006 Measures No 7) Act 2007 (Cth), being Act No 55 of 2007, and that amendment applied retrospectively to CGT events which occurred in the 2006-2007 income year or later income years: see Sch 2, item 68 of the Tax Laws Amendment (2006 Measures No 7) Act 2007 (Cth). 13 Section 152-15 of the 1997 Act, entitled "Maximum net asset value test", at the relevant time, provided: You satisfy the maximum net asset value if, just before the *CGT event, the sum of the following amounts does not exceed $5,000,000: (a) the *net value of the CGT assets of yours; (b) the net value of the CGT assets of any entities *connected with you; (c) the net value of the CGT assets of any *small business CGT affiliates of yours or entities connected with your small business CGT affiliates (not counting any assets already counted under paragraph (b)). Note: Some assets are not included in the definition of net value of the CGT assets: see subsections 152-20(2), (3) and (4). (Emphasis added.) 14 Again, the "you" was the Trust. The relevant CGT event was the entry into a contract of sale by the Trustee for and on behalf of the Trust on 14 March 2007: s 104-10(3)(a) of the 1997 Act. The $5,000,000 threshold needed to be satisfied "just before" that contract was entered into. 15 It is necessary to analyse s 152-15 carefully. It is a sum. The sum is to be made at a particular time – just before the CGT event. Here, that date was 14 March 2007. Next, the sum is made up of at least three, and possibly more, separate amounts: 1. the net value of the CGT assets of the Trust: sub-s (a); 2. the net value of the CGT assets of any entities connected with the Trust: sub-s (b). There may be more than one such entity and therefore more than one amount to be calculated; and 3. the net value of the CGT assets of any small business CGT affiliates of the Trust or entities connected with the Trust's small business CGT affiliates: sub-s (c). Again, there may be more than one such entity or small business affiliate and therefore more than one amount. 16 As those separate listed amounts reveal, it is necessary to separately identify the "you" in sub-s (a), any entities connected with that person or entity identified in sub-s (a), any small business CGT affiliates of that person or entity identified in sub-s (a) and entities connected with that person or entity's small business CGT affiliates. That task of separately identifying the various persons and entities (and calculating a separate amount for each) is important because the basis for the calculation of each varies. The net value of the CGT assets of an entity is addressed in ss 152-20(1) and (2). For an individual, s 152-20(2A) is also relevant. Then, in working out the net value of the CGT assets of a small business affiliate (or an entity that is connected with a small business affiliate of the taxpayer), ss 152-20(3) and (4) are relevant: cf White v Commissioner of Taxation [2012] FCA 109. 17 So, for example, the "net value of the CGT assets of an entity" was defined in s 152-20 of the 1997 Act at the relevant time as: (1) The net value of the CGT assets of an entity is the amount (whether positive, negative or nil) obtained by subtracting from the sum of the *market values of those assets the sum of: (a) the liabilities of the entity that are related to the assets; and (b) the following provisions made by the entity: (i) provisions for annual leave; (ii) provisions for long service leave; (iii) provisions for unearned income; (iv) provisions for tax liabilities. (Emphasis added.) 18 Certain assets were to be disregarded: see s 152-20(2). It is important to understand that at the relevant time (14 March 2007) the word "entity" was defined in s 960-100 as follows: (1) Entity means any of the following: (a) an individual; (b) a body corporate; (c) a body politic; (d) a partnership; (e) any other unincorporated association or body of persons; (f) a trust; (g) a *superannuation fund. … (3) A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity. … The meaning of "entity" was amended by the Tax Laws Amendment (Simplified Superannuation) Act 2007 (Cth) which commenced on 15 March 2007. Those amendments did not have retrospective operation and were not material. 19 In working out the net value of the CGT assets of an individual, an additional provision was relevant – s 152-20(2A). It provided: In working out the net value of the CGT assets of an individual, if: (a) a dwelling of the individual, an *ownership interest in such a dwelling or any relevant adjacent land, was used, during all or part of the ownership period of the dwelling, by the individual to produce assessable income to a particular extent; and (b) the individual satisfied paragraph 118-190(1)(c) (about interest deductibility) at least to some extent; include such amount as is reasonable having regard to the extent to which that paragraph was satisfied. Note: The net value of the CGT assets of the individual will be reduced by the same proportion of the individual's liabilities related to the dwelling, ownership interest or adjacent land. The result – a different test has to be satisfied if the "entity" was, in fact, an individual. 20 Similarly, a different test applied in working out the net value of the CGT assets of a small business affiliate (or an entity connected with a small business affiliate) of the "you" in s 152-15 than the test applied in respect of an individual or an entity. Sections 152-20(3) and (4) provided: (3) In working out the net value of the CGT assets of: (a) your *small business CGT affiliate: or (b) an entity that is *connected with your small business CGT affiliate; include only those assets that are used, or held ready for use, in the carrying on of a *business by you or another entity *connected with you (whether the business is carried on alone or jointly with others). (4) However, disregard assets under subsection (3) that are used, or held ready for use, in the carrying on of a *business by an entity that is *connected with you only because of your *small business CGT affiliate. … 21 A "small business CGT affiliate" was defined in s 152-25: (1) A person is a small business CGT affiliate of yours if: (a) you are an individual and the person is your *spouse or *child under 18 years; or (b) the person acts, or could reasonably be expected to act, in accordance with your directions or wishes, or in concert with you. (2) However, a person is not your small business CGT affiliate merely because of the nature of the business relationship you and the person share. … 22 The phrase "CGT asset" was defined in s 108-5 of the 1997 Act at the relevant time to mean: (1) A CGT asset is: (a) any kind of property; or (b) a legal or equitable right that is not property. (2) To avoid doubt, these are CGT assets: (a) part of, or an interest in, an asset referred to in subsection (1); (b) goodwill or an interest in it; (c) an interest in an asset of a partnership; (d) an interest in a partnership that is not covered by paragraph (c). Note 1: Examples of CGT assets are: • land and buildings; • shares in a company and units in a unit trust; • options; • debts owed to you; • a right to enforce a contractual obligation; • foreign currency. ... 23 Finally, the phrase "connected with another entity" was defined extensively in s 152-30. For present purposes, it is sufficient to note that an entity is connected with another entity if there is a relationship of control between the entities or through a third entity: s 152-30 of the 1997 Act. c AAT DECISION 24 At the centre of the AAT Decision was a table entitled "Table of assets and liabilities of the Trust and its connected entities". The table was set out at [4] of the AAT Decision as follows: Applicant's Contention $ ATO's Contention $ Bell Family Trust 36,000 shares in Barry Plant Group Pty Ltd 36,000 36,000 144 shares in Barry Plant Holdings Pty Ltd 144 144 170 'D' class units in [BPHUT] 4,069,831 4,069,831 50 ordinary class units in [PBUT] 2,394,019 2,394,019 Less amount due to [BPHUT] (2,018,000) (0) 6 shares in Plant Bell Pty Ltd 6 6 600 units in 1300 Phonewords Australia Unit Trust 600 Nominal Less liability to [BPHUT] (591,840) (0) Beneteau Antares Yacht 725,000 725,000 Less hire purchase debt (815,446) (815,446) Undrawn distribution due from [BPHUT] 334,686 334,686 Less advances on distributions (549,000) (Not asserted) Swagman Motor Home 370,000 370,000 Less hire purchase debt (415,445) (370,263*) Bell Investment Trust Doncaster property 126,789 126,789 Christopher Bell Property – Martha Cove, Safety Beach 1,650,000 1,650,000 Less mortgage loan (1,212,000) (1,212,000) Shirley Cotterill Cash held in Adelaide Bank account 166,288 1,252,112 Net assets 4,121,632 Exceeds $5m * The Commissioner accepts that the liability is $370,263 adjusted for the period from 9 March 2007 to 14 March 2007 to be estimated by [AAT]. 25 The table listed individuals and trusts and, no less importantly, assets and liabilities of those individuals and trusts. What the table did not do was identify how or why the persons and trusts listed in bold were connected with the Trust or the small business affiliates of the Trust. Indeed, it may be the position that the 1300 Phonewords Australia Unit Trust should be listed separately and not simply as an asset of the Trust. That issue does not need to be resolved. The need to understand the basis on which they were listed in the table has been earlier explained: see [16] above. It affects the calculation of the net value of the CGT assets of that person or entity and, in particular, what can and cannot be considered. It will be necessary to return to this issue later in these reasons for judgment. 26 The table also identified five disputed amounts the Applicant contended should have been included in calculating the MNAV: 1. a debt of $2,018,000, claimed to be owed by the Trust to the BPHUT; 2. a debt of $591,840 claimed to be owed to the BPHUT under a guarantee; 3. an amount of $549,000 allegedly owed to the BPHUT by the Trust on account of advances on distributions; 4. part of a Swagman Motor Home hire purchase debt owed by the Trust; and 5. the balance in an Adelaide Bank account (or accounts), being an account (or accounts) in the name of Ms Cotterill, the Applicant's spouse. Those amounts are in italics in the table. 27 In calculating the MNAV, the AAT excluded items 1 and 2, included item 3, included an amount of $370,000 in respect of item 4 and included $1,252,112 in respect of item 5. As a result, the AAT's MNAV calculation was set out at [35] of the AAT Decision as follows: 28 ASSETS AND LIABILITIES $ BELL FAMILY TRUST 36,000 shares in Barry Plant Group Pty Ltd 36,000 144 shares in Barry Plant Holdings Pty Ltd 144 170 'D' class units in [BPHUT] 4,069,831 50 ordinary class units in [PBUT] 2,394,019 Less amounts due to [BPHUT] (0) 6 shares in Plant Bell Pty Ltd 6 600 units in 1300 Phonewords Australia Unit Trust 600 Less liability to [BPHUT] (0) Beneteau Antares Yacht 725,000 Less hire purchase debt (815,446) Undrawn distribution due from [BPHUT] 334,686 Less amounts due to [BPHUT] (549,000) Swagman Motor Home 370,000 Less hire purchase debt (370,601) BELL INVESTMENT TRUST Doncaster property 126,789 CHRISTOPHER BELL Property – Martha Cove, Safety Beach 1,650,000 Less mortgage loan (1,212,000) SHIRLEY COTTERILL Cash held in Adelaide Bank account 1,252,112 NET ASSETS 8,012,394 29 The AAT then set aside the Commissioner's decision to impose a penalty on the recklessness scale of 50% and imposed a penalty of 25% on the basis that the Applicant failed to take reasonable care. d aPPEAL grounds 30 The Applicant complained about the AAT's treatment of three of the disputed amounts: 1. the debt of $2,018,000 claimed to be owed by the Trust to the BPHUT (the $2,018,000 debt); 2. a debt of $591,840 claimed to arise from guarantees given by the Trust and the Applicant to the BPHUT (the Guarantees); and 3. the balance in an Adelaide Bank account (or accounts), being an account (or accounts) in the name of Ms Cotterill (the Adelaide Bank accounts). 31 When the matter came on for hearing, the Applicant did not pursue his grounds of appeal in relation to the Guarantees. The remaining appeal grounds were as follows: 1. $2,018,000 debt: 1.1 the AAT erred in law by not finding that the debt incurred by the Trust was a liability that related to the Units (Ground 1); 1.2 further or alternatively, the AAT's decision was irrational and manifestly unreasonable (Ground 2), 2. Adelaide Bank accounts: 2.1 the AAT erred in law by not finding that the debit balance of $1,085,824 in the Adelaide bank account related to the credit balance of $1,252,112 (Ground 5); 2.2 the AAT erred in law in not characterising the Adelaide bank account as a single account or as in substance a single account with a credit balance of $166,288 (Ground 6); 2.3 further or alternatively, the AAT's decision was irrational and manifestly unreasonable (Ground 7), 3. Imposition of administrative penalty (Ground 8): 3.1 the AAT erred in law by finding that the position taken by the Applicant was not reasonably arguable and that the Applicant was liable to penalty on that basis; 3.2 further or alternatively, the AAT's decision was irrational and manifestly unreasonable. e Analysis 32 It will be necessary to deal, in turn, with the two disputed amounts – the $2,018,000 debt and the Adelaide Bank accounts – and then the question of the appropriate penalty. (1) The $2,018,000 debt (Grounds 1 and 2) (a) Introduction 33 The Applicant, as a director of the Trustee, resolved to distribute $2,018,000 from the capital of the Trust to himself as beneficiary to enable him to contribute $1,000,000 to his superannuation fund and to pay off the debt on his spouse's principal residence. The Trust did not have sufficient cash resources to pay the distribution. A Macquarie Bank loan facility available to Barry Plant Holdings Pty Ltd was made available to the Trust to the extent of $2,018,000 with repayment of that amount to be made by the Trust. Is that liability of the Trust "related to the [CGT] assets of the Trust"? The answer is no. 34 In the application of Div 152, the starting point is s 152-15: see [13] above. The "you" is the Trust. As noted above, the net value of the CGT assets of an entity (in this case, the Trust), is to be calculated in accordance with s 152-20(1): see [17] above. 35 This section of the reasons for judgment first considers whether the Applicant's appeal Grounds 1 and 2 raise questions of law, then turns to the proper construction of s 152-20 and, finally, considers the application of s 152-20(1) to the facts found by the AAT. (b) Question of law? 36 On an appeal to this Court, the Applicant is limited to appeal grounds which raise a question of law: s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). The Applicant submitted that whether facts fully found fall within the provisions of a statute properly construed is a question of law. The Commissioner contended that while that question is generally one of law, the rule is qualified when the statute uses words according to their ordinary meaning. 37 The distinction between matters of fact and questions of law in relation to statutory construction is vexed. Three cases are routinely cited. First, Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280. The Full Court propounded five statements of principle at 287: (1) The question whether a word or phrase in a statute is to be given its ordinary meaning or some technical or other meaning is a question of law … (2) The ordinary meaning of a word or its non-legal technical meaning is a question of fact … (3) The meaning of a technical legal term is a question of law … (4) The effect or construction of a term whose meaning or interpretation is established is a question of law … (5) The question whether facts fully found fall within the provision of a statutory enactment properly construed is generally a question of law … (Citations omitted). 38 In relation to the fifth principle, the Court stated at 288 that: This principle is qualified when a statute uses words according to their ordinary meaning and the question is whether the facts as found fall within those words. Where it is reasonably open to hold that they do, then the question whether they do or not is one of fact: Hope v Bathurst City Council at 8. Mason J there cited the observation of Kitto J in New South Wales Associated Blue-Metal Quarries Ltd v Commissioner of Taxation (Cth) at 512: The next question must be whether the material before the Court reasonably admits of different conclusions as to whether the ... operations fall within the ordinary meaning of the words as so determined; and that is a question of law ... If different conclusions are reasonably possible, it is necessary to decide which is the correct conclusion; and that is a question of fact ... 39 The Full Court held that the construction of a statute on an appeal involved a two-stage inquiry. First, it is a question of law whether the words used bear their ordinary meaning or some other, special meaning. Secondly, if the words bear their ordinary meaning, it is primarily a question of fact, not law, as to what that meaning is and whether, there being different conclusions reasonably open, a particular set of facts comes within that meaning. 40 The second decision is Collector of Customs v Agfa-Gavaert Ltd (1996) 186 CLR 389. The High Court took issue (at 396) with the second and fourth of the principles in Pozzolanic: … it is the distinction between the second and fourth of the five propositions formulated in Pozzolanic which creates the greatest difficulty. The second proposition states that the ordinary or non-legal technical meaning of a word is a question of fact while the fourth proposition states that the effect or construction of a term whose meaning or interpretation is established is a question of law. … With respect this distinction seems artificial, if not illusory. The meaning attributed to individual words in a phrase ultimately dictates the effect or construction that one gives to the phrase when taken as a whole and the approach that one adopts in determining the meaning of the individual words of that phrase is bound up in the syntactical construction of the phrase in question. … If the notions of meaning and construction are interdependent, as we think they are, then it is difficult to see how meaning is a question of fact while construction is a question of law without insisting on some qualification concerning construction that is currently absent from the law. (Citations omitted.) 41 The third decision is Industry Research and Development Board v Bridgestone Australia Ltd (2001) 109 FCR 564. In Bridgestone, the Full Court attempted to resolve the difficulty identified by the High Court in Agfa-Gavaert. Bridgestone considered, among other things, the meaning of the phrase "dealing with each other … from positions of comparable bargaining power" in s 39C of the Industry Research and Development Act 1986 (Cth). The Full Court pointed out at [51] the artificiality of dividing up the phrase so as to arrive at a series of individual words each of which could be given its ordinary, usual meaning. The expression needed to be taken as a whole and it was in that form that the ambiguity became clear. 42 The position here is the same. While it is the word "related" in s 152-20 of the 1997 Act which indicates a connection must be found, the word cannot be considered in isolation. In construing the relevant phrase ("the liabilities of the entity that are related to the assets"), the meaning of "the liabilities", "the entity" and "the assets" must all bear upon the meaning and construction of "related" in s 152-20. The word "related" must be read in context and taken as a whole. The entire section, indeed the entire division, is relevant. Much like the phrase in Agfa-Gavaert, the word and the phrase in issue in these proceedings is "not easily pigeon-holed in terms of the general rules summarised in Pozzolanic": Agfa-Gavaert at 396. 43 Both the Applicant and the Commissioner contended that the word "related" in s 152-20 ought to be given its ordinary meaning. The Applicant submitted that the word requires some kind of connection between the relevant liability and a CGT asset. The Commissioner referred to a dictionary definition and submitted that phrases such as "in relation to" or "relates to" are wide ones which signify some connection or association between two subject matters. The Commissioner cited Travelex Ltd v Federal Commissioner of Taxation (2010) 241 CLR 510 as authority for the proposition that the sufficiency of the connection or association will depend upon the subject matter of the enquiry, the statutory framework within which the enquiry is conducted (including legislative history) and the particular facts of the case in question. 44 In Travelex, the High Court considered, inter alia, the meaning of the phrase "in relation to rights" in s 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). While the views of the High Court as to the particular meaning of that phrase in s 38-190(1) are not determinative of this case, the judgment of French CJ and Hayne J at [25] reminds us it is necessary to look to "the subject matter of the inquiry, the legislative history, and the facts of the case" in order to determine the sort of relationship which is required. 45 As in Bridgestone, s 152-20 of the 1997 Act involves a composite phrase. Both parties have invoked legal principles of construction in support of their contended meanings but, in the end, the statute must bear only one meaning. It is to that issue that I now turn. (c) Sstatutory construction of s152-20 46 What then is proper construction of s 152-20? 47 As noted above, the "net value of the CGT assets" of an entity was an amount to be calculated in accordance with s 152-20. It was: … the amount … obtained by subtracting from the sum of the *market values of those assets [the CGT assets] the sum of: (a) the liabilities of the entity that are related to those assets [the CGT assets]; and … (Emphasis added.) 48 Phrases like "in relation to" and "related to" signify some connection between two subject matters. The subject matters are prescribed by the legislation. The relationship, connection or association between those two subject matters may be direct, indirect, substantial or real. The sufficiency of the connection between those subject matters depends on the subject matters, the statutory framework of the inquiry and the facts: Travelex at [25]. 49 Here, it is an inquiry about the connection between the CGT assets of an entity on the one hand and the liabilities related to those CGT assets on the other hand. What is the necessary relationship between the CGT assets of an entity on the one hand and the liabilities related to those CGT assets on the other hand required by s 152-20? 50 First, the language of s 152-20. As already noted, s 152-20 was directed at calculating the "net value of the CGT assets" of an entity for the purposes of the MNAV test. The entity was the Trust. The first subject matter is the "CGT assets" of that entity. Only CGT assets of that entity, the identified entity, are included. Other assets of the Trust are not included. 51 The phrase "CGT asset" was defined in s 108-5 of the 1997 Act. In relation to the Trust, the relevant CGT assets were those assets listed in the table under the heading "Bell Family Trust": see [24] above. Next, s 152-20 required the identification of the liabilities of the entity that are related to the CGT assets of that entity. In other words, the second subject matter is identified. It is the liability of the entity identified at the outset of the section – in this case, the Trust. However, it is insufficient for that subject matter – the liability – to be simply a liability of the entity. It must be a liability related to those assets. And those assets are the CGT assets identified as the first subject matter. Again, those liabilities are listed in the table under the heading "Bell Family Trust" and are identifiable by the "( )" around the number in the right hand column: see [24] above. 52 This necessary relationship between the CGT assets of the Trust and the liabilities of the Trust related to those CGT assets is not surprising. As the Explanatory Memorandum accompanying the A New Business Tax System (Capital Gains Tax) Bill 1999 (Cth) stated at [1.12], the purpose of the MNAV was to "treat the small business and all of its related entities as a single economic unit". As the Commissioner submitted, it would be inconsistent with the purpose of Div 152 of the 1997 Act if all liabilities of an entity were included in the MNAV calculation, even if they did not have a real relationship with the relevant assets. 53 It would not accord with the structure and purpose of the legislation if all liabilities of an entity, including those that did not have a sufficient connection with the CGT assets of the entity, were included in the calculation. Why? Because if they were included, the resulting calculation would not be the net value of the CGT assets but a net calculation of some other amount. It is difficult to identify what that other amount would in fact reflect. Or, put another way, the resulting calculation would not result in a true reflection of the economic value of the business in determining whether the MNAV test was met. 54 Accordingly, by reference to that statutory context and legislative purpose, to satisfy s 152-20, there must be a defined relationship or connection between the CGT assets of a particular entity and the liability or liabilities related to those CGT assets. As the Commissioner submitted, it must be real and substantial, not remote. What then were the facts in this case? (d) AAT Decision 55 The AAT found that: 1. in October 2006, the Trustee resolved that the Trust should make a distribution of capital of $2,018,000 to the Applicant as a beneficiary of that Trust: AAT Decision at [9]. That resolution was not reduced to writing: AAT Decision at [12]-[15]; 2. the Trust did not have sufficient cash reserves to make the distribution to the Applicant: AAT Decision at [9]. The Applicant, in his capacity as a director of the Trustee, considered that the Trust would either need to sell units in the BPHUT or the PBUT or borrow to make the distribution: AAT Decision at [9]; 3. in March 2007, with the consent of the other directors of Barry Plant Holdings Pty Ltd (the trustee of the BPHUT), the BPHUT drew down $2,018,000 from a facility it held with the Macquarie Bank and on-loaned those funds to the Trust: AAT Decision at [10]. The Trust was required to repay that amount to the BPHUT. The distribution was to be applied to discharge a mortgage over the Applicant's spouse's home and the remainder as a contribution to the Applicant's superannuation fund: AAT Decision at [7]. Macquarie Bank made payments directly to the Applicant's spouse's bank account with the Adelaide Bank and to the Applicant's superannuation fund: AAT Decision [10]; 4. the trustee of the BPHUT recorded the drawdown from the Macquarie Bank facility and the loan by it to the Trust: AAT Decision at [11]. The Trust did not, initially, record those steps correctly: AAT Decision at [11]. The AAT accepted, however, that the failure by the Trust to record the two transactions (the loan from the BPHUT and the distribution to the Applicant) was an error and that the transactions did, in fact, take place: AAT Decision at [11]; 5. the $2,018,000 debt was incurred to discharge the resolution and obligation to distribute capital of the Trust: AAT Decision at [19]; 6. the $2,018,000 debt related to the discharge of those obligations to distribute capital, not to CGT assets of the Trust: AAT Decision at [19]; and 7. the home was an asset excluded from the MNAV: AAT Decision at [30]. 56 The AAT identified the issue as whether the $2,018,000 debt, a liability of the Trust, was "related" to the Units, being the CGT asset of the Trust. It decided that it was not. The AAT characterised the liability as "related to a discharge of resolutions and obligations to distribute capital": AAT Decision at [19]. In the AAT's view, there was not a sufficient relationship to invoke s 152-20 of the 1997 Act. It explained that view at [19] as follows: The debts incurred to the [BPHUT] arose out of considerations that were independent of the assets of the [Trust] and too remote for the necessary relationship to exist. The requirement for a liability to be related to an asset taken into the [MNAV] test does not encompass every conceivable relationship, no matter how remote or tenuous. Incurring a debt so as to preserve or retain assets when the debt funds are used for purposes quite separate from the relevant assets is not a sufficient relationship for the purposes of s 152-20. If it were the scheme of the [MNAV] test would be readily frustrated by an entity with assets included in the test valued above the threshold, and no other assets or liabilities, who could borrow to pursue an objective that does not produce an asset to be included in the test and then claim the borrowings on the basis that assets would need to have been realised to pursue that objective. (Citation omitted.) (e) Connection between $2,018,000 debt and CGT assets 57 The AAT Decision correctly identified the entity (the Trust), and the two subject matters (the CGT assets of the Trust and the liability of the Trust to the BPHUT), required by s 152-20(1). Those assets and liabilities are listed in the table at [24] above under the heading "Bell Family Trust". 58 As was noted earlier, the Applicant, as a director of the Trustee, resolved to distribute $2,018,000 from the capital of the Trust to himself as beneficiary to enable him to contribute $1,000,000 to his superannuation fund and to pay off the debt on his spouse's principal residence. The Trust did not have sufficient cash resources to pay the distribution. A Macquarie Bank loan facility available to Barry Plant Holdings Pty Ltd (as trustee of the BPHUT) was made available to the Trust to the extent of $2,018,000 with repayment of that amount to be made by the Trust. 59 Before turning to consider the AAT's decision, two important matters should be noted. The Commissioner did not seek to challenge the AAT's findings that there existed a valid resolution to distribute capital of the Trust to the Applicant (as a beneficiary of the Trust) and that the obligation to distribute capital in accordance with the resolution had been discharged. Secondly, the Trust Deed was before the AAT. 60 In my view, the AAT Decision was wrong. It correctly identified the entity and the two subject matters (see [56] above). However, having made the findings of fact that there was a resolution to distribute capital of $2,018,000 by the Trust to the Applicant and that the obligation had been discharged, the AAT (and, it would seem, the parties) ignored or misunderstood the legal effect of those events. 61 It must be recalled that at the time of the resolution, the AAT found that the Trust did not have sufficient cash reserves to make the distribution to the Applicant and the Applicant, in his capacity as a director of the Trustee, considered that the Trust would either need to sell Trust assets (the units in the BPHUT or the PBUT) or borrow to make the distribution. 62 When the resolution to distribute capital was made, the Applicant had an immediate entitlement in respect of a portion of the corpus of the Trust: see cl 12.7(a) of the Trust Deed and Saunders v Vautier (1841) 4 Beav 115; 49 ER 282. The Applicant may have had no right or interest in any particular asset of the Trust. For present purposes, it is unnecessary to resolve that issue because of the AAT's unchallenged findings that the Trust did not have sufficient cash reserves to make the distribution to the Applicant and the Applicant, in his capacity as a director of the Trustee, considered that the Trust would either need to sell units in the BPHUT or the PBUT or borrow to make the distribution. As a result of the resolution, the Applicant was presently entitled to a portion of the corpus of the Trust to the extent of the distribution and entitled to call for it: Saunders v Vautier. 63 At the conclusion of the hearing, the Applicant referred the Court to the Trust Deed. Although the Trust Deed was before the AAT, the AAT did not make findings about the terms of the Trust Deed or their effect. Given the nature of the Deed and its terms, it is appropriate in this appeal to consider it pursuant to s 44(8) of the AAT Act and to make findings in respect of it pursuant to s 44(7): Comcare v Broadhurst (2011) 120 ALD 228 at [80]; Kowalski v Repatriation Commission [2011] FCAFC 43 at [28]; Condell v Commissioner of Taxation (2007) 66 ATR 100 at [14]. 64 Under cl 12.7(a) of the Trust Deed, the Trustee (with the consent of the Guardian of the Trust), was entitled out of the capital of the trust fund to raise any sum and pay that sum to any of the beneficiaries in such manner as the Trustee in its absolute discretion considered fit. The manner of its distribution was addressed in cll 4 and 5. Capital was able to be distributed in the same manner as the income of the Trust or by the transfer in specie of any asset of the Trust: cl 5.3. Clause 4.5 (dealing with the distribution of income) stated that upon a resolution being made, the beneficiary had an immediate vested indefeasible interest in and to that part or parts of the trust fund to which the determination or resolution relates. Here, the finding by the AAT was that the Trust resolved to distribution $2,018,000 of capital to the Applicant (as a beneficiary of the Trust). Although that resolution was not reduced to writing, the AAT found that the resolution was passed and was effective: AAT Decision at [15]. As mentioned above, the Commissioner did not seek to challenge these findings. 65 What then was the effect of the resolution? Absent the $2,018,000 debt to the BPHUT, the Trust would have held less CGT assets in an amount equal to the distribution, subject of course to the Trustee's right of indemnity. Indeed, so much was accepted by the Commissioner in his subsequent written submissions when he said: … if the borrowing from Barry Plant Holdings Pty Ltd had not been distributed by the … Trust just before the CGT event, then those borrowings would have been included as a CGT asset of the Trust in the tables. But the analysis at that time does not stop there. At the same time there would have been a corresponding liability – the right of the Applicant (as beneficiary) to call for that portion of the corpus (ie, the assets of the Trust) to meet the distribution of capital. The assets would not have been unencumbered: Saunders v Vautier and Heydon and Leeming, Jacobs' Law of Trusts in Australia (7th ed, Butterworths, 2006) at [2308]. 66 As is apparent, the $2,018,000 debt did not exist independently. The purpose of the debt was to meet the Trust's obligation to distribute capital, namely a portion of the corpus of the Trust, to the Applicant. The Trust Deed provided for that obligation to be met by the Trust borrowing and that is in fact what did occur. The $2,018,000 debt was necessary to meet the obligation and thereby protect or maintain the CGT assets of the Trust. Absent the $2,018,000 debt, the encumbrance over the assets of the Trust (the CGT assets) had to be met by sale or direct delivery up of those assets of the Trust sufficient to meet the distribution of capital. 67 Given the resolution and the distribution of capital by the Trust and its legal effect, there was and remained a direct relationship or connection between the CGT assets of the Trust and the $2,018,000 debt of the Trust. The Commissioner submitted the connection must be real and substantial, not remote. Here, the relationship between the $2,018,000 debt of the Trust and the CGT assets of the Trust and, in particular, the Units, was real and substantial. It was not remote. 68 As is self evident, the AAT came to a different conclusion. It also concluded at [19] that: ... [T]he Scheme of the [MNAV] test would be readily frustrated by an entity with assets included in the test valued above the threshold and no other assets or liabilities, who could borrow to pursue an objective that does not produce an asset to be included in the test and then claim the borrowings on the basis that assets would need to be realised to pursue that objective. 69 There are a number of answers to that concern. First, there must still be a relationship of a kind which satisfies s 152-20. Second, the steps taken by a trustee of a trust may well be different in nature and legal effect than the steps taken by non-trustee companies and other entities. And third, if there is a concern that the steps taken by a taxpayer are a scheme to "frustrate" the proper operation of the MNAV test, then the appropriate course is to seek to apply Pt IVA of the 1936 Act. There was no suggestion that Pt IVA applied here. (f) Irrational, manifestly unreasonable or no evidence 70 The Applicant submitted that the AAT's conclusion that there was no relationship between the $2,018,000 debt and the Units was irrational and manifestly unreasonably and/or was unsupported by evidence (Ground 2). Given the view I have formed about Ground 1, it is unnecessary to address Ground 2. (2) The Adelaide Bank accounts (Grounds 5, 6 and 7) (a) Introduction 71 The AAT found that: 1. there were two bank accounts in the name of Ms Cotterill, one with a credit balance of $1,252,112 (Offset Account) and one with a debit balance of $1,085,824 (Loan Account), not one bank account with a balance which was $166,288 in credit: AAT Decision at [32]; 2. the Loan Account reflected borrowings which had been used to purchase a home (owned by the Applicant's spouse): AAT Decision at [33]; and 3. the Offset Account and the Loan Account were linked, by the Bank, to enable interest earned on the Offset Account to be offset against interest owing on the Loan Account: AAT Decision at [32]. 72 Indeed, the Adelaide Bank records disclosed two separate account numbers with two separate account balances – the Offset Account and the Loan Account: AAT Decision at [32]. The records also disclosed transfers between the Loan account and the Offset account and recorded the interest that would have accrued but was saved by reason of the Offset: AAT Decision at [32]. It was common ground that the Applicant did not adduce any evidence before the AAT of the terms and conditions governing the two accounts. After the hearing, the Applicant sought to adduce evidence of the terms governing the Adelaide Bank accounts. The Court has a limited jurisdiction to receive further evidence (s 44(8) of the AAT Act) and to make further findings of fact (s 44(7) of the AAT Act). That jurisdiction ought not to be exercised in the present case. The Applicant is bound by the case he ran below: Coulton v Holcombe (1986) 162 CLR 1 at 7-8. 73 In relation to the Loan Account, the AAT concluded it related to the purchase of a house held by the Applicant's spouse, that that asset was not included in the MNAV calculation and, accordingly, the balance of the Loan Account was not included in the MNAV calculation: AAT Decision at [33]. In relation to the Offset Account, the AAT concluded the balance of the Offset Account was a cash asset that should be included in the MNAV calculation: AAT Decision at [34]. (b) Appeal grounds 74 The Applicant raises two questions: Grounds 5 and 6. First, what is the character of the Adelaide Bank account: is it two accounts (one in credit and one in debit) or is it one account (with a credit balance of $166,288) (Ground 6)? Second, as with the $2,018,000 debt, is the balance of the Debit Account of $1,085,824 "related" to a CGT asset (Ground 5)? 75 It is appropriate to consider Ground 6 – the character of the accounts – first. Ground 5 only arises if the conclusion that there are two separate accounts is correct. (c) Analysis 76 The AAT made findings, referred to at [70] above, that there were two bank accounts – the Loan Account and the Offset Account. The accounts were linked by the bank in order to enable the interest earned on the funds in the Offset Account to reduce the interest liability on the debt owed under the Loan Account. At the time the Trust filed its tax return, the Offset Account was $1,252,112 in credit while the Loan Account was $1,085,824 in debit. The Offset account therefore contained sufficient funds to fully offset the liability for interest arising under the Loan Account. 77 The Applicant sought to disturb the AAT's findings of fact. The Applicant contended that the AAT erred in characterising the facility as two separate accounts, in failing to characterise the facility as a single account with a credit balance and in finding that the Loan Account balance related to the purchase of the spouse's residence (Ground 6). Finally, the Applicant also contended that the AAT's decision was manifestly unreasonable and irrational (Ground 7). (d) Ground 6(a) – no evidence or inference not reasonably open 78 The Applicant submitted that the finding that the Adelaide Bank account had two balances (or was, in fact two accounts with two balances) was a finding of fact not supported by probative evidence or involved an inference that was not reasonably open. 79 The Applicant referred to Federal Commissioner of Taxation v Trail Brothers Steel & Plastics Pty Ltd (2010) 186 FCR 410. In that case, the majority of the Court stated at [13] that: … what is "on a question of law" for the purposes of s 44 of the AAT Act has been analysed in many cases and includes: (1) whether the AAT has identified the relevant legal test … ; (2) whether the AAT has applied the correct test … ; (3) whether there is any evidence to support a finding of a particular fact … ; and (4) whether facts found fall within a statute properly construed … (Citations omitted.) I have assumed that the Applicant contends that Ground 6(a) falls into the third category. 80 The Applicant contended that, properly considered, the Adelaide Bank account was a single account, or in substance a single account, with a balance of $166,288. The Applicant referred to his evidence before the AAT that: 1. his partner had a loan facility with the Adelaide Bank secured against the principal residence; 2. the facility was a single facility which comprised a Loan Account that was temporarily overpaid by $166,288 which put the account in credit; 3. there was therefore $1,252,112 in funds available to be drawn down, because the facility was itself for $1,085,825; and 4. he had included the balance in the Offset Account (referable to the overpayment of $166,288) as an asset in the MNAV test. 81 The Applicant also referred to his evidence in cross-examination that he "considered" the Adelaide Bank account to be a single account with a cash balance reflecting the extent to which the loan was overpaid, rather than a separate asset. The Applicant submitted that his evidence was not inconsistent with the bank documents and, at worst, the documentary evidence was ambivalent. The Applicant, in effect, submitted that the AAT reached the wrong conclusion based on available evidence. 82 The Applicant's contentions are rejected. 83 The task of fact-finding is for the AAT, not the Court. The Court can only intervene if the AAT's decision was infected with an error of law: Secretary, Department of Family & Community Services v Edwards (2000) 105 FCR 220 at [24] and s 44(1) of the AAT Act. As Brennan J said in Waterford v The Commonwealth of Australia (1987) 163 CLR 54 at 77: The error of law which an appellant must rely on to succeed must arise on the facts as the AAT has found them to be or it must vitiate the findings made or it must have led the AAT to omit to make a finding it was legally required to make. There is no error of law simply in making a wrong finding of fact. The consideration of, and weight to be accorded to, the evidence adduced by the Applicant is a matter for the AAT. 84 In relation to the "no-evidence" ground, a decision will be set aside where a decision maker has made a finding of fact without probative evidence to support it or drawn an inference which was not open on the primary facts: Australian Broadcasting Tribunal v Bond (1990) 170 CLR 321 at 356; Bruce v Cole (1998) 45 NSWLR 163 at 188. Further, only jurisdictional facts are relevant: VWBF v Minister for Immigration and Multicultural and Indigenous Affairs (2006) 154 FCR 302 at [19]. The finding complained of must be identified accurately: VWBF at [18]. 85 The Applicant has not, as he is required to do in order to establish a "no evidence" ground, established that the AAT made findings of fact not supported by probative evidence or drawn inferences not reasonably open. 86 In any event, the Applicant's summary of the evidence was selective. As the Commissioner submitted: 1. the Adelaide Bank records disclosed two separate account numbers with two separate account balances – one was the Loan Account with a debit balance and the other was the Offset Account with a credit balance; 2. those records also disclosed: 2.1 transfers between those accounts; 2.2 amounts of interest that would have accrued but were saved on the Loan Account by reason of the Offset Account being in credit; and 3. the Applicant did not adduce (before the AAT) any evidence of the terms and conditions governing these accounts. 87 The complaint is dismissed. The findings of fact made, and inferences drawn (if any) by the AAT are not open to challenge on the basis of "no evidence". (e) Ground 6(b) - relevant and irrelevant considerations 88 The Applicant relies on two "relevant" considerations said to have been ignored by the AAT: 1. the Adelaide bank account was a single facility with an overall balance that "nets off the credit and debit balances"; and 2. the debit balance of $1,085,825 "related to" the credit balance of $1,252,112. The first has been dealt with. It is contrary to the facts found. It does not arise. The second remains to be addressed. 89 The AAT will only have fallen into error in failing to consider what has been identified as a relevant consideration, if it can be shown that the AAT was bound to consider the consideration and that the consideration was not so insignificant that a failure to consider it could not have materially affected the decision: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39- 40. To establish an error of law based on taking into account an irrelevant consideration, the consideration must be one which the decision-maker was prohibited from considering. The considerations to be taken into account, and not to be taken into account, by a decision-maker are determined by reference to any consideration expressly referred to in the statute or, if none are stated, by implication from the subject-matter, scope and purpose of the statute: Peko-Wallsend at 39-42; Abebe v Commonwealth (1999) 197 CLR 510 at [195] and Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323 at [74] 90 The second so-called "relevant" consideration is misconceived. It is not a "consideration". It is the application of the relevant statutory provisions to findings of fact. Taken at its highest, the Applicant merely seeks to challenge a finding which the Applicant contends that the AAT ought to have made. In that sense, of course, the AAT took it into account. By making findings contrary to the position contended for by the Applicant, the AAT has taken that finding into account. Indeed, the weight to be attached to evidence and whether incorrect conclusions were drawn from the evaluation of evidence are matters of fact, not law. The Applicant's grounds of appeal are framed in terms of relevant and irrelevant considerations, but the substance of his position amounts to a disagreement with the factual and legal basis of the AAT's decision: Commissioner of Taxation v Luxottica Retail Australia Pty Ltd (2011) 191 FCR 561 at [42]; Zizza v Commissioner of Taxation (1999) 41 ATR 96 at [51] and [90] and Abebe at [194]-[195]. To the extent that it is a factual disagreement, that is not a matter reviewable by the Court. Simply framing the grounds in terms of relevant and irrelevant considerations cannot transform them into questions of law enlivening the Court's jurisdiction. The complaint is dismissed. To the extent that it is a legal complaint, that will be addressed at [91]-[100] below. 91 Next, the Applicant contends that the AAT took into account an irrelevant consideration. The "irrelevant consideration" was said to be the characterisation of the account. Again, the Applicant has misconceived the nature of the enquiry. The so-called irrelevant consideration is a finding of fact made by the AAT after a consideration of the available evidence (see [70] to [72] above). The Applicant cannot challenge a finding made properly on the available evidence by seeking to characterise it as an irrelevant consideration. This complaint is also dismissed. (f) Ground 5 - relationship between the balance of the Offset Account and the Loan Account 92 Next, the challenge to the AAT's application of the relevant statutory provisions to the accounts. The Applicant submitted that, properly considered, the AAT ought to have found that the balance of the Loan Account related to the balance of the Offset Account (being an asset to be taken into account in the MNAV test) rather than the Applicant's (and his partner's) principal place of residence (being an asset excluded from the MNAV test). 93 The AAT made the following findings at [33]: The account with the debit balance reflects borrowings used to purchase the Applicant's residence (owned by his spouse). This asset is not included in the [MNAV] calculation. Accordingly, the debt of $1,085,824 is not included either. The fact of multiple accounts with the one institution, with or without an interest offset link or arrangement, does not of itself make an account with a debit balance a liability related to another account with a credit balance. If funds in the credit balance account are the product of drawings from the debit balance account, then the liability would relate to the asset. In the present circumstances, the liability has its origins in moneys borrowed to purchase a residence. It is that asset to which it is related. The Applicant did not explain how, on the facts as found by the AAT, the conclusion reached by the AAT was wrong. 94 It is important, again, to start at s 125-15. The correct entity or affiliate was the Trust: see [11] above. The question to be asked next was whether Ms Cotterill's assets and liabilities were relevant to the MNAV calculation of the assets held by the Trust and if so, on what basis. Was Ms Cotterill a "small business CGT affiliate" of the Trust (s 152-25) or was she a connected entity of the Trust (s 152-30)? 95 Ms Cotterill was not a small business affiliate of the Trust under s 152-25. The Trust was not an individual: s 152-25(a). Next, there was no suggestion before the AAT or on appeal that Ms Cotterill acted or could reasonably be expected to act in accordance with the Trustee's wishes or directions or in concert with the Trustee: s 152-25(b). 96 Indeed, as the Table records, the hearing before the AAT was conducted on the basis that Ms Cotterill was a connected entity of the Trust. The basis of that connection was not explained in the AAT Decision. At the conclusion of the hearing, the Commissioner submitted that Ms Cotterill was so connected because she had indirect control of the Trust by reason of her connection with a third entity that received distributions from the Trust: s 152-30(1) and (7). It is unnecessary to resolve that issue. The parties are entitled to conduct the proceedings on an agreed basis and, on appeal, are ordinarily bound by that conduct: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 at [38]. 97 As noted above, the calculation of the net value of the CGT assets of Ms Cotterill is a separate exercise under s 152-15. For the purposes of s 152-20(1), it is necessary to identify the relevant CGT assets of Ms Cotterill. Here, the only asset listed in the table as a CGT Asset of Ms Cotterill's was the Offset Account: see [22] and [24] above. Next, it is important to remember that s 152-20(1) must be read subject to s 152-20(2A) because although Ms Cotterill is an entity, she is also an individual. 98 The only identified liability of Ms Cotterill was the Loan Account. The questions which arose under s 152-20(1) were, what were the CGT assets of Ms Cotterill, what were the liabilities of Ms Cotterill and, finally, were those liabilities "related to the CGT assets". In the present case the CGT asset was the Offset Account, the liability was the Loan Account and the remaining question was whether the Loan Account was related to a CGT Asset of Ms Cotterill or, in this particular case, the Offset Account. The answer is no. 99 The CGT asset, the Offset Account, was an account which contained deposited funds. The Offset Account existed independently of the Loan Account. The Loan Account was a liability incurred for and reflecting borrowings used to purchase the principal residence. It existed independently of the Offset Account. Put another way, there was nothing to suggest that the Loan Account could not exist without there being an Offset Account. Indeed, there was nothing to suggest if the CGT asset, the Offset Account, had a nil balance then the Loan Account would cease to separately exist. 100 Indeed, the balance of the Loan Account was used to fund the acquisition of the principal residence, an asset excluded from the MNAV calculation: see [54] above. The balance of the Loan Account did not fund the Offset Account. It did not relate to the Offset Account. It related to an asset excluded from the MNAV calculation. While the balance of the Loan Account might be said to relate to the balance of the Offset Account in a most general sense by reason of the offset arrangement, that connection or association is not sufficient to give rise to a relationship in the sense required by s 152-20. 101 The complaint is dismissed. (g) Ground 7 - manifestly unreasonable or irrational 102 The Applicant's complaint is that the AAT's findings that: 1. the Adelaide Bank account comprised two separate accounts; and 2. the Loan Account balance of $1,085,824 related to the purchase of the residence and was not to be included in the MNAV calculation, were irrational and manifestly unreasonable. The Applicant's submission falls into the error identified by Gleeson CJ in Re Minister for Immigration and Multicultural Affairs; Ex parte Application S20/2002 (2003) 198 ALR 59 at [5]: As was pointed out in Minister for Immigration v Eshetu [(1999) 197 CLR 611 at 626], to describe reasoning as illogical, or unreasonable, or irrational, may merely be an emphatic way of expressing disagreement with it. If it is suggested that there is a legal consequence, it may be necessary to be more precise as to the nature and quality of the error attributed to the decision-maker, and to identify the legal principle or statutory provision that attracts the suggested consequence. The Applicant has not particularised, in any detail, how the AAT Decision evidences irrationality or unreasonableness. 103 In any event, given the conclusions reached in relations to grounds 5 and 6, it is unnecessary to consider Ground 7. It is dismissed. (3) Imposition of administrative penalty (Ground 8) 104 Before the AAT, the Commissioner sought to support its decision to impose an administrative penalty on the higher "recklessness" basis by reference to five indicia listed at [39]: (a) use of incorrect values of certain assets and liabilities; (b) incorrect inclusion of particular assets and liabilities including those which constitute the valuation dispute; (c) changing the net asset value calculations submitted to the Commissioner on three occasions; (d) adopting the position taken in the income tax returns filed after the Applicant and his tax agent were advised that the Commissioner had a different view as to how the net asset value test would apply in the Applicant's circumstances and that the Applicant would be unlikely to pass the test if the Commissioner's view was correct; (e) failing to provide when requested certain information to substantiate assets and liabilities as sought by the Commissioner. 105 The AAT rejected a conclusion that (a), (b) and/or (c) amounted to recklessness at [43] because: 1. regardless of which calculation of values of assets and liabilities the Applicant adopted, if the contested assets and liabilities at the heart of the disputed MNAV calculation had all been resolved in the Applicant's favour, the MNAV calculation would have been comfortably under the $5 million threshold. Accordingly, the AAT was of the view at [41] that: In these circumstances, it can be accepted that the degree of precision in assertions as to the value of assets and liabilities which did not make a material impact on the calculation might be variable. Less attention might be directed to matters that do not make a material impact on the end result. Accordingly, the variations in calculation contended for do not show recklessness in making the relevant statements in tax returns. 2. although the Applicant failed to include the balance of the Offset account, there was a "net of liability balance" of $166,288 and there was evidence to support the Applicant's factual contention which was not been accepted after balancing other available evidence. 106 The AAT discounted (e) on the basis that conduct after the filing of the tax return could not amount to the making of a false or misleading statement in the tax return filed. As to (d), the AAT considered the Applicant's (and his advisers') conduct in relation to each of the $2,018,000 debt, the Adelaide Bank account balance and the Guarantee, the AAT found at [50] that the Applicant's position was a matter of judgment, not recklessness: First, he consulted a tax agent, who was not sure of the position. He then consulted a solicitor who holds a Master of Taxation degree and who he perceived to have expertise in the area. The solicitor gave advice. Moreover, the solicitor was sufficiently diligent to contact the Applicant after he had given advice to indicate that the Commissioner had issued a determination that contradicted the advice given and that, if that view prevailed, the Applicant would not pass the maximum net asset value test. The solicitor reviewed his advice and confirmed his view, and indicated that in his view the Commissioner was wrong. 107 In contrast, however, the AAT considered that the position the Applicant adopted in relation to the Adelaide Bank account balance was not reasonably arguable. The AAT took the view at [55] that: Whether the Adelaide Bank account balance was $1,252,112 or $166,288 was a question that turned on the detail of the arrangements with the Adelaide Bank. Failure to appreciate the difference between a single facility, as contended for, and two separate accounts, as the records show, was a matter of detail and was a matter of the Applicant taking insufficient care. The position was not reasonably arguable. 108 Finally, as to the question of remission, the AAT considered at [62] that there was insufficient evidence before it to support a conclusion that the application of an administrative penalty at the 25% rate was inappropriate and/or harsh. 109 The Applicant appeals the penalty on the basis that: 1. the AAT erred in finding that there was a failure to take reasonable care; 2. the AAT's findings were irrational and manifestly unreasonable. Theses complaints are also dismissed. 110 Reasonable care suggests an objective test, but the particular (and subjective) circumstances relevant to the taxpayer are to be considered in applying the test. So, the taxpayer must exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer: Commissioner of Taxation v Traviati [2012] FCA 546 at [36]-[39] and [70]-[71]. 111 The Applicant's submissions simply assert that given the factual findings, the Applicant must be regarded as having taken reasonable care. That contention fails at the outset. No findings of fact or facts were identified by the Applicant to support such a contention. 112 Indeed, on the facts found by the AAT, it was open for the AAT to conclude that the Applicant, or his agent, did not exercise reasonable care: 1. the Applicant failed to appreciate that there were 2 separate Adelaide Bank accounts as demonstrated by the records and that the inclusion of the Offset Account balance of $1,252,112 (as an asset in the MNAV test) combined with the exclusion of the Loan Account was sufficient to cause the $5,000,000 threshold to be breached; 2. the Loan Account related to the purchase of a residence which was excluded as an asset from the MNAV test and the Loan Account was therefore also excluded from the test. 113 The AAT's decision was not irrational and manifestly unreasonable and the conclusion it reached was reasonably open to it. F conclusion 114 The parties should bring in orders to give effect to these reasons for decision by 4.00pm on 2 October 2012. I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 19 September 2012