FEDERAL COURT OF AUSTRALIA Hart v Commissioner of Taxation (No 4) [2017] FCA 572 File number: QUD 29 of 2010 Judge: BROMWICH J Date of judgment: 26 May 2017 Catchwords: INCOME TAX – appeal by taxpayer from objection decision disallowing objections to notice of assessment and notice of amended assessment – where Commissioner determined two amounts should have been included in applicant's taxable income for the 1997 income year – applicant taxpayer was a principal of a law firm with a tax advice practice – applicant taxpayer had filed a tax return for total taxable income of $100 for the relevant year – whether first amount should have been included in taxpayer's assessable income per ss 95A(1), 97 and 101 and/or Part IVA of the Income Tax Assessment Act 1936 (Cth) – whether the second amount should have been included in taxpayer's assessable income per Part IVA – whether penalties imposed by Commissioner ought be remitted or reduced – where appeal limited to one income year as a test case – held: taxpayer failed to demonstrate that assessments were excessive, ss 95A(1), 97 and 101 applied to first amount, Part IVA applied to both amounts, penalties ought not be remitted or reduced Legislation: Income Tax Assessment Act 1936 (Cth), ss 95, 95A, 97, 100A, 101, 177A, 177C, 177D, 177F, 226, 227 Taxation Administration Act 1953 (Cth), ss 14ZZ, 14ZZK Queensland Law Society Act 1952 (Qld) Queensland Law Society Rules, r 78 Cases cited: Allen v Federal Commissioner of Taxation [2011] FCAFC 118; (2011) 195 FCR 416 Azzopardi v The Queen [2001] HCA 25; (2001) 205 CLR 50 Barnes v Addy (1874) LR 9 Ch App 244 Briginshaw v Briginshaw (1938) 60 CLR 336 Cameron Brae Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 135; (2007) 161 FCR 468 Colonial First State Investments Ltd v Federal Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298 Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 Commissioner of Taxation of the Commonwealth of Australia v Bamford [2010] HCA 10; (2010) 240 CLR 481 D Marks Partnership (by its General Partner Quintaste Pty Ltd) v Commissioner of Taxation [2016] FCAFC 86; (2016) 338 ALR 25 East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 90 ALR 457 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 Federal Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49; (2011) 192 FCR 325 Federal Commissioner of Taxation v Consolidated Press Holdings Ltd [2001] HCA 32; (2001) 207 CLR 235 Federal Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359 Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 Federal Commissioner of Taxation v Trail Bros Steel and Plastics Pty Ltd [2010] FCAFC 94; (2010) 186 FCR 410 Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264 Hart v Commissioner of Taxation (No 2) [2016] FCA 897 Hart v Commissioner of Taxation (No 3) [2017] FCA 571 Jones v Dunkel (1959) 101 CLR 298 McCutcheon v Federal Commissioner of Taxation [2008] FCA 318; (2008) 168 FCR 149 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Pridecraft Pty Ltd v Federal Commissioner of Taxation [2004] FCAFC 339; (2004) 213 ALR 450 R v Baden-Clay [2016] HCA 35; (2016) 334 ALR 234 RCI Pty Ltd v Federal Commissioner of Taxation [2011] FCAFC 104; (2011) 84 ATR 785 Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620 Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449 Toksoz v Westpac Banking Corporation [2012] NSWCA 199; (2012) 289 ALR 577 Trustees of the Estate Mortgage Fighting Fund Trust v Commissioner of Taxation (2000) 102 FCR 15 Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415 Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1 Weissensteiner v The Queen (1993) 178 CLR 217 Date of hearing: 5, 8, and 11 August 2016 Registry: Queensland Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 312 Counsel for the Applicant: Mr K N Wilson QC with Mr A J Anderson Solicitor for the Applicant: Cleary Hoare Solicitors Counsel for the Respondent: Mr N Williams SC with Ms M Brennan QC and Mr R Jedrzejczyk Solicitor for the Respondent: Australian Government Solicitor ORDERS QUD 29 of 2010 BETWEEN: MICHAEL JAMES PATRICK HART Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: BROMWICH J DATE OF ORDER: 26 MAY 2017 THE COURT ORDERS THAT: 1. The application be dismissed with costs. 2. The penalties imposed by the respondent be confirmed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BROMWICH J: Introduction [1] Setting the scene – an overview of the competing cases [4] The Commissioner's first approach – trust distributions – Practice Amount only [12] The Commissioner's second approach – Part IVA, ITAA 1936 – Practice Amount and IET Amount [16] Facts and evidence [18] List of entities [18] Notice of assessment and notice of amended assessment [19] Overview of the evidence [22] Interlocutory disputes as to evidence [32] Summary of the facts leading to the assessments [34] The Practice Trust NVI Scheme flowchart and transactions narrative [62] The Income Earning Trusts NVI Scheme flowchart and transactions narrative [66] The Practice Trust NVI Scheme and the Income Earning Trusts NVI Scheme [69] The issues as articulated by the parties at trial [72] Trust distributions issue (Practice Trust amount only) [77] Sections 95A(1), 97(1) and 101 of the ITAA 1936 [78] Alleged new case by the Commissioner of reliance on s 95A of the ITAA 1936 [90] Alleged new case by the Commissioner in the alternative that payments were made from the Practice Trust directly to Mr Hart during the 1997 income year [96] Was the money sourced from the Practice Trust received by Mr Hart by way of loan? [100] Balance of consideration on the trust distributions issue (Practice Trust Amount) [138] A portion of the net income of the Practice Trust for the 1997 income year was properly included in Mr Hart's assessable income under s 97 of the ITAA 1936 [140] A portion of the net income of the Outlook Trust for the 1997 income year was properly included in Mr Hart's assessable income under s 97 of the ITAA 1936 [148] Part IVA issue [155] Overview of Part IVA [156] Scheme [162] Tax benefit by the predictive exercise [164] Dominant purpose [171] The establishment of the Outlook Trust [177] Consideration of the application of Part IVA [195] The Practice Trust NVI Scheme [198] Whether Mr Hart obtained a tax benefit in connection with the Practice Trust NVI Scheme [198] The dominant purpose of the Practice Trust NVI Scheme [218] Whether Part IVA, ITAA 1936 applies to include the amount of $220,398 (or some lesser amount) in Mr Hart's assessable income for the 1997 income year [238] The Income Earning Trusts NVI Scheme [239] Mr Van Homrigh's evidence [239] Whether Mr Hart obtained a tax benefit in connection with the Income Earning Trusts NVI Scheme [262] The dominant purpose of the Income Earning Trusts NVI Scheme [279] Whether Part IVA, ITAA 1936 applies to include the amount of $275,481 (or some lesser amount) in Mr Hart's assessable income for the 1997 income year [290] Penalties [291] Whether the assessment dated 3 December 2004 and/or the amended assessment dated 26 April 2006 are excessive for the purposes of s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA) [291] Whether penalties at 50% were correctly imposed under the former s 226(2) of the ITAA 1936 [292] Conclusions [309] Introduction 1 This is an appeal by the applicant, Michael James Patrick Hart, a solicitor, brought by an application under s 14ZZ of the Taxation Administration Act 1953 (Cth) against an objection decision dated 10 December 2009. The objection decision was made on behalf of the Commissioner of Taxation. It is convenient to refer to all decisions simply as decisions of the Commissioner. 2 In 2002, Mr Hart was advised that his tax affairs for the 1997 to 2002 financial years would be audited. The Commissioner subsequently issued a notice of assessment and a notice of amended assessment to Mr Hart in respect of the 1997 income year ended 30 June 1997. These assessments addressed two sources of what the Commissioner assessed to be undeclared income. Mr Hart lodged an objection to each assessment, which gave rise to the objection decision. Only Mr Hart's objections in respect of penalty were allowed in the objection decision for the 1997 income year, whereby the penalties imposed were reduced from 75% to 50%. By this appeal, Mr Hart sought to have his objections allowed in full, or in the alternative for the revised 50% penalties imposed to be reduced to zero, or otherwise to be reduced from the level imposed. The onus was on Mr Hart to show that the assessments were excessive, or that the penalties either should not have been imposed at all or should have been imposed for a lesser amount. 3 The Commissioner had also raised assessments against Mr Hart for the 1998 to 2002 income years. Mr Hart's objections and the Commissioner's 10 December 2009 objection decision also related to those years. Mr Hart's objections were allowed in full in respect of the 2002 income year. The assessments raised by the Commissioner in respect of the remaining 1998 to 2001 income years are the subject of review proceedings commenced by Mr Hart in the Administrative Appeals Tribunal. Those Tribunal proceedings are in abeyance pending the outcome of this appeal. setting the scene – an Overview of the competing cases 4 The competing cases as finally arrived at in this Court can be stated in an overview sense with beguiling simplicity. The Commissioner contended that two amounts were correctly included in Mr Hart's 1997 assessable income by way of the assessment and amended assessment. The two amounts were: (1) a portion of the net income of a law firm practice unit trust (Practice Trust) with which Mr Hart was involved, or alternatively a portion of the net income of a beneficiary of the Practice Trust (Outlook Trust), being $220,398 (or alternatively some lesser amount) – referred to below as the Practice Amount; and (2) a portion of the income earned by a group of trusts (Income Earning Trusts) from tax planning and tax scheme services with which Mr Hart was involved, being $275,481 (or alternatively some lesser amount) – referred to below as the IET Amount. 5 As noted above, the Commissioner also imposed 50% penalties upon Mr Hart under the former s 226 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) for failing to declare the Practice Amount and the IET Amount (and the equivalent amounts in subsequent years) as assessable income in his tax returns. The Commissioner contended that the penalties imposed were justified. 6 In respect of the Practice Amount of $220,398, the Commissioner relied on: (1) s 97 (when read with ss 95A(1) and 101) – an argument that the Practice Amount was a trust distribution which was properly taxable under the ITAA 1936; and/or (2) Part IVA of the ITAA 1936 – an argument that the series of transactions in question was a scheme entered into for the dominant purpose of obtaining a tax benefit which offended the tax anti-avoidance provisions in Part IVA. 7 In respect of the IET Amount, the Commissioner relied solely on Part IVA. 8 Thus the Commissioner made and defended the assessment on the basis of trust distributions and Part IVA, and the amended assessment on the basis of Part IVA, and in so doing, defended the penalties imposed. The Commissioner did not need to prevail on both approaches for the assessment in relation to the Practice Amount of up to $220,398 (although the final amount arrived at may differ according to the finding made), but he did need to prevail on his Part IVA case for the amended assessment in relation to the IET Amount of up to $275,481. 9 Mr Hart contended that because of his effective use of an arrangement involving a series of trusts and related transactions, including a loan in the case of the Practice Amount, known as the "New Venture Income Scheme" (NVI Scheme), neither s 97 nor Part IVA applied to permit the amounts referred to above to be included in his assessable income for the 1997 income year, necessarily removing the basis for any penalties for the Practice Amount. It was not clear whether it was asserted that there was a single loan agreement with multiple payments, or more than one loan agreement. For convenience, these reasons will refer to the asserted loan in the singular form, irrespective of whether it was asserted to be one loan or multiple loans. 10 In the alternative, Mr Hart contended that even if s 97 or Part IVA applied, the basis for excluding the additional amounts from his original 1997 tax return was sufficiently arguable such that in all the circumstances either no penalties should have been imposed or lesser penalties were warranted for either the Practice Amount or the IET Amount. 11 Part IVA has changed since the relevant periods in this appeal. In particular, substantial amendments that applied retroactively to post-15 November 2012 schemes have no application to this appeal. The Commissioner's first approach – trust distributions – Practice Amount only 12 The Commissioner's first approach, pertaining only to the Practice Amount of up to $220,398, was to treat payments that were in fact made to Mr Hart or to his benefit as trust distributions, relying on the trust beneficiary provisions in s 97(1) of the ITAA 1936, together with the provisions in ss 95A(1) and 101 supporting the operation of s 97(1). This aspect of the Commissioner's case, advanced in two alternative ways by reference to two different trusts, effectively sought to bypass altogether the NVI Scheme that Mr Hart relied upon because of what amounted to asserted defects in the implementation of that scheme. Essentially the Commissioner's case was that whatever the intent and effectiveness of the NVI Scheme in the abstract, the scheme had not been made to apply in practice for the Practice Amount, or at least part of it. The shorthand description of "defects" in the way in which the scheme was implemented is one that I have attributed to this aspect of the case, rather than being the language used by the Commissioner, but it does capture in a pithy way the essence of what the first approach entails. 13 The Commissioner's first approach was primarily referrable to the Practice Trust itself, but alternatively referable to one of its unitholders associated with Mr Hart, the Outlook Practice Trust, referred to in these reasons as the Outlook Trust. An important aspect of the Commissioner's case on this argument was to look at business records by which payments were made or recorded as being made and collateral business records such as bank loan applications with bank officer notations referring to Mr Hart's income. It is essentially an argument that, in all the circumstances, the actual receipt of money derived from legal practice earnings by Mr Hart or to his benefit was enough for that money to be taxable income at law as trust distributions. That was especially so having regard to the terms of the trust deeds for the Practice Trust and for the Outlook Trust, which the Commissioner contended had the effect of making actual payments to a beneficiary a trust distribution. 14 Mr Hart's evidence was that he received payments from the Outlook Trust in the 1997 income year totalling $185,698, but denied receiving that money as assessable income, asserting that the money was advanced to him as a loan. He therefore denied that these payments constituted trust distributions either from the Practice Trust or from the Outlook Trust. As part of this argument, he asserted that the Commissioner's reliance on the deeming provision in s 95A of the ITAA 1936 in aid of the application of the trust distribution provisions of that Act was not any part of the Commissioner's pleadings or any part of his submissions prior to the closing submissions, amounting to a change of case that should not be permitted to be relied upon. 15 The Commissioner's response was that the pleadings did sufficiently engage the deeming provision in s 95A (if needed). Senior counsel for the Commissioner further submitted that this Court could not be satisfied that the money flows to Mr Hart or to his benefit was the product of a loan arrangement because of the lack of direct documentation beyond abstract trust resolutions, the contrary indications in the payment records, the bank officer comments on the loan documentation and no interest and no repayments since the money was received by Mr Hart or to his benefit 19 years prior to the time of trial. The Commissioner's second approach – Part IVA, ITAA 1936 – Practice Amount and IET Amount 16 The Commissioner's second approach relied upon the tax anti-avoidance provisions in Part IVA. This approach applied either alternatively or additionally to the first approach in relation to the Practice Amount of up to $220,398. Part IVA was the Commissioner's sole case in respect of the Income Earning Trusts and the IET Amount involving up to $275,481. 17 Part IVA in certain circumstances operates to deny the effectiveness of schemes brought into existence for the dominant purpose of obtaining tax benefits. By the application of Part IVA, the Commissioner sought to deny Mr Hart the benefit of the NVI Scheme and thereby bring both the Practice Amount and the IET Amount to account as taxable income in his hands. An important aspect of the application of Part IVA is the need to predict, objectively, what would have been done had the scheme not existed. Mr Hart maintained that the NVI Scheme had been effectively implemented in respect of both the Practice Amount and the IET Amount and both amounts were therefore immune to the operation of Part IVA. facts and evidence List of entities 18 Because there are a number of individuals, companies and trusts involved in this case, it is convenient to have early in these reasons an alphabetical list summarising who the various entities are, together with some non-contentious facts such as the date of establishment of various trusts: Terms Definition Annesley No 3 Trust (Annesley No 3) Established on 30 May 1997. Haven Sea Pty Ltd was trustee for the relevant income year. Annesley Trust An Income Earning Trust for the relevant income year. Annesley Trust was established under Annesley Investments Pty Ltd by deed dated 1 May 1994. Haven Sea Pty Ltd was appointed trustee of Annesley Trust in 1995 and was trustee for the relevant income year. CHC Discretionary Trust (CHCDT) An Income Earning Trust established in September 1996. The trustee in the relevant income year was Cleary Hoare Corporate Pty Ltd. Mr Hart was a beneficiary of the Trust in the relevant income year. Cleary & Hoare Practice Trust (Practice Trust) A discretionary unit trust which was established in 1993 to carry on under the name "Cleary Hoare" the legal practice previously carried on by the law firm Cleary Hoare. Cleary Hoare The law firm Cleary Hoare Solicitors of which Mr Hart is a Principal together with Ian Collie, John Hoare and Steven Grant. The name of the firm was previously 'Cleary & Hoare', however these reasons use the current name of the firm. Cleary Hoare Corporate Pty Ltd (CHC) The entity that promoted the NVI Scheme. Trustee for the CHC Discretionary Trust in the relevant income year. Mr Hart was a director of the company in the relevant income year. Cleary Hoare Trust Account The trust account of the legal practice held at the National Australia Bank in accordance with the requirements of the Queensland Law Society. Comlaw Consultants Pty Ltd Original trustee of Comlaw Trust. Comlaw Trust A unit trust established in 1993 of which Comlaw Consultants Pty Ltd was the original trustee. Haven Sea Pty Ltd was appointed trustee of Comlaw Trust in 1995 and was trustee in the relevant income year. Comlaw Trust's intended role was to seek out income earning opportunities from property related ventures which were thought likely to emerge after the recession of the early 1990s. Before June 1993, the unit holdings in the Comlaw Trust were restructured with the result that one half was owned by interests associated with Mr Hart, John Hoare and Steven Grant, and the other half by the Canowindra Trust controlled by Ian Collie. Haven Sea Pty Ltd Appointed as trustee of Annesley No 3 and Annesley Trust and was trustee of both trusts for the relevant income year. Haven Sea Pty Ltd was deregistered on 9 April 1999. Mr Hart was a director of Haven Sea Pty Ltd for the relevant income year. Ian Collie Principal of Cleary Hoare and associate of Mr Hart. Income Earning Trusts A generic name for the following trusts: LM Income Discretionary Trust, CHC Discretionary Trust and Annesley Trust, being the various trusts which resolved to distribute amounts through the NVI Scheme. John Hoare Principal of Cleary Hoare and associate of Mr Hart. Lake Mylor Pty Ltd Trustee for LM Income Discretionary Trust. LM Income Discretionary Trust (LM Income Trust) An Income Earning Trust for the relevant income year. LM Income Trust was established on 9 May 1997 with Lake Mylor Pty Ltd as trustee. Michael Hart (Mr Hart) The applicant (taxpayer) and the Principal of Cleary Hoare. One of the trustees of the Practice Trust. Oak Arrow Pty Ltd Trustee for Oak Arrow Trust and registered on 19 September 1989. An entity which owned the residential property in which Mr Hart resided until 1998. Mr Hart is a shareholder and at various times has been a director of Oak Arrow Pty Ltd. Outlook Crescent Pty Ltd (OCPL) Trustee of the Outlook Trust and one of the unitholders in the Practice Trust. Outlook Practice Trust (Outlook Trust) Mr Hart's discretionary trust, and a unitholder of the Practice Trust. The original trustee of the Trust was Radgolf Pty Ltd but for the relevant income year was OCPL. Together with Mr Hart, the Trust was a beneficiary of the Income Earning Trusts. Patricia Hart (Mrs Hart) Wife of Mr Hart. Steven Grant Principal of Cleary Hoare and associate of Mr Hart. Notice of assessment and notice of amended assessment 19 On 23 November 2004, acting on the stance taken on both the trust distributions issue and on the Part IVA issue, the Commissioner made a determination under s 177F(1)(a) of the ITAA 1936 to include the Practice Amount of $220,398 in Mr Hart's assessable income for the 1997 income year. On 3 December 2004, effect was given to that determination by the Commissioner issuing a notice of assessment which included the Practice Amount in Mr Hart's assessable income for the 1997 income year and imposed additional tax for the late return and an understatement penalty and interest. On 7 February 2005, Mr Hart lodged a notice of objection to the assessment. 20 On 8 March 2006, acting on the stance taken on just the Part IVA issue, the Commissioner made a determination under s 177F(1)(a) of the ITAA 1936 to include the IET Amount of $275,481 in Mr Hart's assessable income for the 1997 income year. On 26 April 2006, effect was given to that determination by the Commissioner issuing a notice of amended assessment which included the IET Amount in Mr Hart's assessable income for the 1997 income year and imposed additional tax for the late return and an understatement penalty and interest. On 1 June 2006, Mr Hart lodged a notice of objection to the amended assessment. 21 As noted above, objections to these assessments were disallowed, giving rise to this appeal. Overview of the evidence 22 While the case for Mr Hart in bringing the appeal and the case for the Commissioner in meeting it involved a large volume of documentary material, both pleadings and evidence, presented in the form of some 18 court books, the underlying relevant facts, although complicated, were largely not in dispute and the contested evidence was quite limited. Indeed, such factual disputes as did exist were in a limited compass and mainly concerned questions of characterisation. Two interlocutory disputes about evidence are detailed below. 23 The Commissioner mostly relied on documents obtained from Mr Hart, associated entities and financial institutions, exercising statutory powers to obtain that material. The great bulk of the evidence was by way of affidavits for the Commissioner producing those documents, and statements or affidavits for Mr Hart commenting in some way upon that material (some of those comments being inadmissible and rejected). In light of the way that the case unfolded, including by way of pleadings, it is not necessary to detail even in précis form much of that evidence, although it has been examined in differing degrees of detail, guided by the submissions of the parties as to the live issues in the case. The key remaining evidence was expert evidence relied upon by the Commissioner. 24 Only two witnesses were cross-examined in a limited way, being: (1) Mr Hart; and (2) Mr David Van Homrigh, a forensic accountant expert witness called by the Commissioner for the purposes of cross-examination in relation to his report, as amended and supplemented, containing financial analysis of money flows between various bank accounts, related calculations and opinions. 25 The cross-examination of Mr Van Homrigh made a limited difference to the outcome of this case. The real dispute was what his evidence was capable (and not capable) of establishing. The cross-examination appeared largely to be directed to this aspect, but did not noticeably advance Mr Hart's case on the asserted shortcomings in Mr Van Homrigh's evidence. 26 Mr Hart relied upon some limitations arising from the approach that Mr Van Homrigh took, which was to "trace", in the sense of tracking rather than in the equitable sense, flows of money from the Income Earning Trusts to the Outlook Trust and thence to accounts controlled by Mr Hart. Mr Van Homrigh did not attempt to give any opinion as to the derivation of income by the Income Earning Trusts nor show any link between specific deposits and withdrawals. 27 The cross-examination of Mr Hart was ultimately very important in a number of critical respects, discussed in some detail in these reasons. Of particular importance was cross-examination of Mr Hart on his assertion that money he received which was ultimately sourced from legal practice income was the product of a loan and on issues of compliance with the terms of the authorisation allowing a unit trust to operate Cleary Hoare, the law firm of which Mr Hart was a Principal. 28 The Commissioner, in the course of the cross-examination of Mr Hart, tendered Mr Hart's 1991 and 1992 income tax returns, which were admitted as exhibits without objection. Those income tax returns showed Mr Hart had declared an income for taxation purposes from salary paid by Cleary Hoare, apparently meeting any suggestion that Mr Hart had never received income from that firm in taxable form. 29 The evidence also included a notice to admit facts served by the Commissioner on Mr Hart, some limited portions of which were disputed by him. Specific reliance was placed by the Commissioner on the facts that were not disputed as to payments made. 30 Most of the factual disputes between the parties turned on what should be made of the evidence and in particular the characterisation that should be given to various transactions or other events. Importantly, it was common ground between the parties that relevant income was derived by the Outlook Trust as a beneficiary of the Practice Trust and the Income Earning Trusts. 31 Necessarily many other facts derived from the pleadings and evidence not warranting specific reference have helped to inform the determination of this dispute. Interlocutory disputes as to evidence 32 Two pre-trial interlocutory applications were heard in relation to evidence giving rise to separate judgments as follows. The first interlocutory application concerned the admissibility of Mr Van Homrigh's expert evidence sought to be relied upon by the Commissioner. This evidence went to showing the receipt of money by Mr Hart or to his benefit in relation to the IET Amount (such receipt mostly not being disputed by Mr Hart in relation to the Practice Amount). The parties agreed that the conclusion reached should be reflected in orders made in Chambers, with reasons to follow later. The evidence was held admissible by orders made in Chambers, with reasons published on the eve of the trial: Hart v Commissioner of Taxation (No 2) [2016] FCA 897. Mr Van Homrigh's expert report, as amended by two supplementary letters, was admitted into evidence at the trial as a single exhibit. 33 Immediately prior to the trial there was an interlocutory hearing on the question of whether or not legal professional privilege asserted by Mr Hart had been waived over advice given to him by way of two opinions provided to him by Mr David Russell QC in 1996, an issue as to whether privilege attached in the first place ultimately being conceded by the Commissioner. Privilege was found to have been waived. The parties were content for reasons to be provided at the time of final judgment, which took place immediately prior to delivery of this judgment: Hart v Commissioner of Taxation (No 3) [2017] FCA 571. At the trial Mr Hart tendered the two documents by Mr Russell QC without objection (the Commissioner would have tendered them if Mr Hart had not) and each was admitted into evidence. Summary of the facts leading to the assessments 34 The following narrative is drawn from the pleadings, agreed facts and documents not apparently in dispute, aided by submissions for the parties in narrowing the scope of the material requiring more detailed consideration. More detailed consideration of key aspects of the evidence takes place below in the context of the legal analysis pertaining to the issues raised. 35 In 1969, Mr Hart became a solicitor. He initially practised in Rockhampton as a sole practitioner and later in partnership with others between 1971 and about 1980. In about 1980, the three-partner legal practice he was involved in was transferred to a unit trust in which the units were held by discretionary trusts for the three previous partners, with Queensland Law Society approval. The need for, and strict compliance with the terms of, such an approval, is of considerable importance to the Part IVA aspect of this appeal. 36 At various stages between the 1980 establishment of the Rockhampton law firm unit trust and 1989, Mr Hart alternated between practising as a solicitor, working in other unspecified business activities conducted directly or indirectly through discretionary trusts, and working for a company which went into receivership in late 1989. 37 In January 1990, Mr Hart joined a Brisbane firm of solicitors, Cleary Hoare, as a salaried partner. His main interest and expertise was in tax and revenue-related work. 38 Between December 1990 and February 1992, Mr Hart was a bankrupt by reason of guarantees he had given before he moved to Brisbane in January 1990. He relies in part upon that bankruptcy to assert an asset preservation motive for steps taken to isolate him from asset ownership and from the receipt of money as income, and thereby to inform the predictive exercise required in applying the terms of Part IVA. 39 After his discharge from bankruptcy, Mr Hart began discussions about becoming a partner of Cleary Hoare. However, by early 1992, Cleary Hoare was facing financial difficulties. The National Australia Bank (NAB) was owed more than $1.7 million. Mr Hart was not prepared to assume any personal liability to NAB in respect of that debt because it had been incurred prior to his arrival at the firm. By a partnership agreement contained in a partnership deed dated 1 July 1992, his company, later and at all relevant times known as Outlook Crescent Pty Ltd (also referred to as OCPL), through him as its nominee formally became a partner in Cleary Hoare. 40 Mr Hart then became involved in internal discussions at Cleary Hoare as part of negotiations with NAB to prevent the firm from failing. In November 1992, the partners of Cleary Hoare asked Mr Hart to assume management of the firm. 41 From November 1992 onwards, as manager of the business of Cleary Hoare, Mr Hart set about refocusing the firm's client base away from property and mortgage work and towards providing services to the small business clients of accountants. Those services were in the areas of restructuring, taxation (including capital gains tax), stamp duty, superannuation and the sale and purchase of businesses. Mr Hart described these services as having an "emphasis upon asset protection". This interest and focus upon asset protection was advanced as being the dominant explanation for the transactions which he relied upon to justify his declared assessable income of $100 in his original 1997 tax return. 42 Mr Hart was only prepared to remain with Cleary Hoare if the partners agreed to restructure the firm with the establishment of a unit trust to operate the practice. As part of the circumstances giving rise to imposing this requirement, Mr Hart referred to the fact that at least two of the partners of Cleary Hoare were subject to a claim for many tens of millions of dollars, later settled by a consent judgment of more than $80 million, but not enforced against those partners. Mr Hart considered the risk of bankruptcy of those partners was significant and hence did not want them to own individually any interest in the firm. 43 As requested by Mr Hart, the partners of the firm agreed to restructure Cleary Hoare. As a result, on 29 January 1993, the Cleary Hoare Practice Trust (Practice Trust) was established with the original trustees being Donald Cleary, John Hoare and Steven Grant. The Practice Trust was a unit trust designed and intended to continue the legal practice lawfully under the name "Cleary & Hoare", in conformity with the Queensland Law Society Rules made under the Queensland Law Society Act 1952 (Qld). 44 On the establishment of the Practice Trust, its units were held by discretionary trusts for the families of Messrs Hart, Cleary, Hoare and Grant. The question of whether the Law Society Rules were strictly complied with in arriving at that position is of some importance to the question of whether the scheme that Mr Hart sought to rely upon could be undone by the operation of Part IVA. 45 The units in the Practice Trust associated with Mr Hart were held by the Outlook Practice Trust, referred to in these reasons as the Outlook Trust, the trustee of which was Outlook Crescent Pty Ltd (as noted, also referred to as OCPL). Mr Hart relied upon a number of documents by which the restructuring of the ownership of the legal practice to the Practice Trust, trading as Cleary Hoare, was carried out. From 29 January 1993, the business of the Practice Trust known as Cleary Hoare was conducted by Messrs Cleary, Hoare and Grant as trustees instead of as partners. 46 Mr Hart initially did not take a position as a trustee of the Practice Trust (trading as Cleary Hoare) because that would have required him to sign documentation with NAB exposing himself to the then liabilities of the prior partnership and may have led to assertions that he was liable for the rental obligations for leases of office space at the Colonial Mutual Building in Queen Street, Brisbane. The position of Mr Hart's trust in holding an equal number of units in the Practice Trust afforded him the benefits of an equal equity holder but, by not being a trustee, avoided the risk of detriment by not being personally exposed to the indebtedness to the bank nor to the indebtedness to any other creditors of the Practice Trust. 47 The direct effect of the financial restructure of Cleary Hoare is detailed in Mr Hart's statement. The details do not need to be referred to. What matters is that Mr Hart was apparently immunised from the previous debts of Cleary Hoare incurred during its time as a partnership prior to it being acquired and run by the Practice Trust. As noted above, that history and the fact of immunisation from trading debts incurred by the former legal partnership form part of the matrix of evidence by which Mr Hart sought to provide a dominant reason for the structure and transactions which were the subject of dispute in this appeal. 48 It should be noted that there is an important distinction to be drawn between asset protection able to be achieved by the legal and equitable ownership of tangible assets from the point of acquisition by someone other than Mr Hart, and the protection of more transient year-by-year cash or chose in action assets (such as money held on deposit in bank accounts pursuant to a creditor relationship with a bank), received by way of income, a loan or otherwise. For the latter category, taxation considerations may loom large and even dominate. 49 By way of explanation as to why the arrangements were entered into, Mr Hart's statement described how, from at least 1993, he spoke at seminars attended by accountants about the asset protection advantages of conducting trading businesses through a discretionary trust with a corporate beneficiary which was owned by a discretionary trust rather than individuals. He said that working in the area of providing specialist tax advice carried a significant risk of later being judged to have been wrong and hence a significant risk of being sued for negligence. He said that his experience of bankruptcy in the early 1990s reinforced his desire to protect assets. He produced copies of some of the papers he had presented on these topics. As discussed below, a significant focus of those papers was on taxation advantages associated with these arrangements. Moreover, there was no suggestion Mr Hart's prior bankruptcy had anything to do with any negligence suit or anything to do with Mr Hart's professional activities, nor that any such issue had arisen other than as a theoretical risk. There was evidence that exposure to debts incurred by others was a risk to Mr Hart in the early 1990s, as noted above in relation to the debts owed to NAB. However that risk was addressed by asset ownership strategies, including as to the legal structure adopted by Cleary Hoare, rather than by income or cash flow strategies. 50 Mr Hart said that the income for the 1997 income year which was the subject of these proceedings was derived by the trustees of a number of trusts. The Practice Trust and the Outlook Trust had been long established by 1997. Mr Hart also detailed income earning activities in the 1994, 1995 and 1996 income years of entities with which he was associated. 51 During the 1997 income year, the Outlook Trust included the Practice Amount sum of $220,398 in its assessable income as a unitholder in the Practice Trust pursuant to s 97 of the ITAA 1936. Also during the 1997 income year, Haven Sea Pty Ltd, as trustee of the Annesley No. 3 Trust, became presently entitled to all the income of the Outlook Trust for that year as part of an NVI arrangement. It is that particular aspect of the arrangements for the 1997 income year, post the Practice Trust distribution to the Outlook Trust, that represents the operative part of the assessment raised by the Commissioner against Mr Hart so as to bring that sum of $220,398 to account as assessable income in his hands. 52 Also during the 1997 income year, the Annesley No. 3 Trust became presently entitled to part of the income of each of three trusts known as the Annesley Trust, the CHC Discretionary Trust and the LM Income Trust, each of which was controlled by Cleary Hoare Corporate Pty Ltd. Each of those three trusts promoted and implemented a separate NVI arrangement. Those arrangements were an operative part of the amended assessment raised by the Commissioner against Mr Hart so as to bring a portion of that money, namely the IET Amount of $275,481, to account as assessable income in his hands. The Commissioner sought to justify that amount by showing via Mr Van Homrigh's evidence that an amount in excess of that sum could be shown to have been received by, or to the benefit of, Mr Hart. 53 The terms of the NVI Scheme were set out in the first schedule to Mr Hart's statement. That schedule is relatively short and is convenient to reproduce because it helps in understanding, in a summary way, what was sought to be achieved by the scheme and how (per original): NVI SCHEME 1. NVI had been developed in the 1996 income year following consideration by [Mr Hart] of the judgment in Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359. The opinion of senior counsel was obtained in February 1996 which both analysed and supported the efficacy of the NVI concept. 2. Whilst NVI came within the definition of a "scheme" (s177A(1)), it was considered that it was not adversely affected by the anti-avoidance provisions contained within Part IVA because it would not be a scheme to which Part IVA applied as set out in s177D since it would not be possible to identify a taxpayer who was intended to obtain a tax benefit. This was primarily because it was to be used by taxpayers who utilised trusts, without a pattern of previous income distributions, to commence new income earning ventures. 3. The principal features of the NVI scheme were set out in a written précis provided to the Commissioner by Ian Collie on 24 September 2001. The document stated: 1. Principal features: 1.1 Relevant to discretionary trusts and discretionary unit trusts ("the distributing trust") which are either: 1.1.1 newly established without any trading history; or 1.1.2 established in a previous year but without a pattern of distributions. 1.2 At least two recipient trusts between the distributing trust and the ultimate beneficiary. 1.3 Gift by ultimate beneficiary to non-associated trust in order for first recipient trust to qualify as potential beneficiary. 1.4 Gift of capital to capital trust. 2. Principal Issues: 2.1 S. 100A. 2.2 Part IVA. 2.3 Deductibility of qualifying gift. 2.4 Gift on capital account. 4. In addition to its use being restricted to trusts, the implementation of NVI in the 1997 income year also relied on the involvement of an entity (Retail Technology Holdings Pty Ltd) with substantial tax losses. That company and its directors/shareholders/advisors were independent of any person associated with Cleary Hoare. 5. NVI was seen by Retail Technology Holdings Pty Ltd and its directors/shareholders as providing an opportunity to recover some of its tax losses without any adverse impact of the continuity of ownership or business tests that might have applied otherwise. 54 As the above text of Schedule 1 to Mr Hart's statement indicates, aided by the context of other evidence and in particular the written opinions of Mr Russell QC in 1996 (legal privilege having been found to be waived), the NVI Scheme was developed in the 1996 income year, following consideration by Mr Hart of the decision and reasons of the High Court in Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359. With the benefit of the generic internal opinion of Mr Russell QC, obtained in February 1996 and later substantially revised in the second external opinion, the NVI Scheme concept was thought by Mr Hart not to be adversely affected by Part IVA, primarily due to the scheme's use of trusts with no pattern of previous income distributions. This meant that it was difficult to identify a single taxpayer who received or was intended to receive a tax benefit in the absence of the scheme, with the evident intention of thereby thwarting the application of Part IVA, including in particular the predictive element of what would have happened in the absence of the scheme. The Commissioner relied upon a number of passages from Mr Russell QC's two opinions in support of his arguments as to the dominant purpose of the application of the NVI Scheme to the Practice Amount and the IET Amount. 55 As previously indicated, the particular events and transactions involved in the application of the NVI Scheme to the Practice Amount and to the IET Amount during the 1997 income year were mostly not in dispute. It was not disputed that there had been a series of distributions through a network of interposed trust entities associated with Cleary Hoare or its associates to a company carrying tax losses, and the making of gifts by way of promissory notes to and through entities that were associated with Cleary Hoare or its associates, including Mr Hart. The characterisation of the last stage whereby money was paid to Mr Hart or to his benefit was in dispute as to whether that reflected a loan as contended by Mr Hart, or whether that was at law a further distribution of the Practice Amount as contended by the Commissioner. Similarly, there was a dispute as to the Commissioner's alternative case to the effect that, even if the payments were not at law trust distributions, the application of Part IVA meant that, in the absence of the scheme, the money would still have been paid to Mr Hart and instead been taxable, whereas Mr Hart contended that such payments would not have taken place in the absence of the scheme. 56 The area of common ground was not quite as clear in relation to the IET Amount and money flows. It seemed to be accepted by Mr Hart that there had been a series of distributions of income derived by the Income Earning Trusts through a network of interposed trust entities associated with Cleary Hoare or its associates to a company carrying tax losses, and the making of gifts by way of promissory notes to and through entities that were associated with Cleary Hoare or its associates, including Mr Hart. The lack of clarity emerges by reason of the dispute as to what the evidence establishes took place at the last stage. The Commissioner contended that Mr Van Homrigh's evidence went at least some way in showing that again money flowed to Mr Hart or to his benefit, whereas Mr Hart disputed that this evidence was capable of establishing such a flow of funds. This disagreement necessitates discussing Mr Van Homrigh's evidence in greater detail below. 57 Mr Hart said that at all times material to these proceedings he had been: (1) a trustee of the Practice Trust; (2) a special unitholder of the Practice Trust; (3) a director of Outlook Crescent Pty Ltd, the trustee for the Outlook Trust and an ordinary unitholder in the Practice Trust; and (4) a beneficiary of the Outlook Trust. 58 Before turning to the largely undisputed narrative of the transactions in question for each application of the NVI Scheme, it is convenient to reproduce below, for illustrative purposes and to make the narrative easier to follow, flowcharts furnished in support of the Commissioner's arguments. These flowcharts were not an essential part of the Commissioner's argument, but provided a convenient means of understanding essentially undisputed transactions, in the nature of a visual aide memoir to assist in reading a rather dense narrative. Apart from some inadvertently confusing duplication between the two flowcharts which was intended to be a helpful cross-reference, but which has been removed for clarity so as to refer to the two arrangements separately, the substantial dispute is neatly reflected in the last (disputed) step in each of those flowcharts concerning the stage at which, on the Commissioner's case, money was ultimately received by or to the benefit of Mr Hart. 59 The narrative detailing those two series of transactions, and reflected in the flowcharts below, is contained in the Commissioner's third further amended appeal statement: (1) at [52] and [53] in respect of the Practice Amount and the scheme relied upon by Mr Hart referred to as the "Practice Trust NVI Scheme"; and (2) at [102] in respect of the IET Amount and the scheme relied upon by Mr Hart referred to as the "Income Earning Trusts NVI Scheme". 60 It was confirmed at the trial that Mr Hart's earlier further amended appeal statement remained responsive to the Commissioner's third further amended appeal statement. In particular, Mr Hart's further amended appeal statement at [2] accepted that most of the transactions did occur as referred to, albeit that the sequence of several of the transactions was not accepted. Nothing ultimately turned on anything to do with the precise sequence of events as pleaded by the Commissioner. Those issues which remained either not accepted or actively disputed are identified below. Mr Hart at [3] of his further amended appeal statement also relied upon additional facts largely summarised above concerning his professional arrangements and those of Cleary Hoare, his bankruptcy, his concerns as to asset protection and the trust arrangements entered into. 61 As alluded to above, the last step in each flowchart below, based on those two series of transactions, reflects a live and important dispute between the parties: (1) as to the characterisation of the largely undisputed fact of payments going to Mr Hart or for his benefit in the case of the Practice Amount – the question of whether or not Mr Hart established that such moneys were received by him or to his benefit as a loan is a fact in issue to be adjudicated upon and resolved; and (2) as to the source and destination of the payments said by the Commissioner to have gone to Mr Hart or his benefit in the case of the IET Amount, and said by the Commissioner to have been sourced, directly or indirectly, from the Income Earning Trusts – the source and destination of that money requires adjudication and resolution, especially as to the effect of Mr Van Homrigh's evidence. The Practice Trust NVI Scheme flowchart and transactions narrative 62 The Commissioner's flowchart in relation to the Practice Trust NVI Scheme, remembering the dispute noted above as to the last stage marked "Loans to Associated Entities", depicted the following: 63 The narrative which the above flowchart depicts from [52] of the Commissioner's third further amended appeal statement is as follows (per original): (ii) The Practice Trust NVI Scheme 52. Based on the documents and information supplied by the Applicant and his advisers the respondent understands that the Practice Trust NVI scheme for the 1997 income year comprised the following steps, matters, transactions and events: (a) On 9 May 1997, the LM Income Trust, the Zebra Fixed Trust and the Zebra Unit Trust were settled. (b) On 30 May 1997, the Annesley No. 3 Trust and the Annesley Corporate Trust were settled. (c) On 27 June 1997, the following events occurred: i. The directors of OCPL as trustee of the Outlook Trust resolved to appoint Haven Sea Pty Ltd as trustee of the Annesley No. 3 Trust as a tertiary beneficiary of the Outlook Practice Trust. ii. The directors of OCPL as trustee of the Outlook Trust resolved to distribute all the income for the year ended 30 June 1997 to the Annesley No. 3 Trust. (d) On 30 June 1997, the following events occurred: i. The directors of Haven Sea Pty Ltd as trustee of the Annesley No. 3 Trust resolved to distribute $700,000 to Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note drawn by 'the Company' for $700,000 with the balance by cheque payable as directed by Lake Mylor Pty Ltd. ii. The directors of Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust resolved to distribute $700,000 to the Zebra Fixed Trust. The resolution stated that the amount was to be paid forthwith by delivery of a bearer promissory note received by Annesley Corporate Trust from Annesley No. 3 Trust for $700,000 to the Trustee of the Zebra Fixed Trust or as otherwise directed by it. iii. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust resolved to distribute $700,000 to the fixed beneficiary (being Retail Technology Holdings Pty Ltd). The resolution stated that the distribution was to be paid forthwith by delivery of a bearer promissory note received by Annesley Corporate Trust to the fixed beneficiary or as otherwise directed by it. iv. A bearer promissory note was issued by Haven Sea Pty Ltd as trustee of the Annesley No. 3 Trust for $700,000. Receipt of the bearer promissory note is acknowledged by Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust and Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. v. By letter from Retail Technology Holdings Pty Ltd to Lake Mylor Pty Ltd it advised that it has decided to make a gift of $700,000 to Lake Mylor Pty Ltd in its capacity as trustee of the LM Income Trust. vi. A bearer promissory note was issued by Retail Technology Pty Ltd for $700,000. Receipt of the bearer promissory note is acknowledged by Lake Mylor Pty Ltd as trustee of the LM Income Trust and Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. vii. The directors of Lake Mylor Pty Ltd as trustee of the LM Income Trust resolved to accept the gift of $700,000 from Retail Technology Holdings Pty Ltd by way of delivery of a bearer promissory note drawn by Retail Technology Holdings Pty Ltd. It was further resolved to subscribe for 7000 'B' units at $100 each in the Zebra Unit Trust with the promissory note to be delivered in satisfaction of the application monies. viii. Lake Mylor Pty Ltd as trustee of the LM Income Trust made application for 7,000 units in the Zebra Unit Trust with payment of the application monies by means of delivery of the bearer promissory note drawn by Retail Technology Holdings Pty Ltd. ix. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust noted that an application for units had been received from Lake Mylor Pty Ltd as trustee of the LM Income Trust for 7,000 units at $100 each together with the bearer promissory note referred to in the application in satisfaction of the application monies. It was resolved to accept the promissory note of $700,000 issued by Retail Technology Holdings Pty Ltd as payment in satisfaction of the application monies and to issue units. x. Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust issued a unit certificate for 7,000 'B' units to Lake Mylor Pty Ltd as trustee of the LM Income Trust. xi. The directors of Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust noted that it had as the trustee of the LM Income Trust received a gift of $700,000 from Retail Technology Holdings Pty Ltd. It was further noted that Retail Technology Holdings Pty Ltd was the fixed beneficiary of the Zebra Fixed Trust with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust. It was also noted that the Annesley Corporate Trust had received a final income distribution from the Annesley No. 3 of $700,000 by way of delivery of a bearer promissory note. It was further resolved to make a final income distribution of $700,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee of the Zebra Fixed Trust or as otherwise directed by it. xii. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust noted that the trust had received a final income distribution from the Annesley Corporate Trust of $700,000 by way of delivery of a bearer promissory note. It resolved to:- make a final distribution of income in the amount of the above total to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it. xiii. An undated document, titled 'AUTHORITY FOR DELIVERY OF PROMISSORY NOTE' addressed to Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust and Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust from Retail Technology Holdings Pty Ltd and Lake Mylor Pty Ltd as trustee of the LM Income Trust in regard to the distributions of income from the Annesley Corporate Trust:- • authorised the promissory notes issued by Haven Sea Pty Ltd as trustee of the Annesley No. 3 to be delivered to Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust; • in satisfaction of the obligations arising under the bearer promissory note for the same amount drawn by Retail Technology Holdings Pty Ltd and delivered by Lake Mylor Pty Ltd as trustee of the LM Income Trust to Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust in respect of the application for 'B' units in the Zebra Unit Trust; • to be delivered by the [sic] Lake Mylor Pty Ltd as trustee for the Zebra Unit Trust in respect of any gift it resolves to make to Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust. 64 The sequence of events reproduced above from [52(d)] of the Commissioner's third further amended appeal statement is not accepted by Mr Hart. However, the asserted correct sequence was not pleaded and no argument was advanced as to how or why the unstated correct sequence made any difference given that all the events described at [52(d)] took place on 30 June 1997. Moreover, the Commissioner did not ultimately rely upon any particular sequence of events on that day, and Mr Hart did not ultimately dispute any particular sequence of events on that day. 65 There was no specific pleading to [53] of the Commissioner's third further amended appeal statement as follows, but it is apparent that [53(3)(ii)] in particular reflects the dispute between the parties as to the characterisation of the money received by Mr Hart or to his benefit, his case being that the money was received as a loan (per original): 53. Further steps in the NVI scheme included: (1) On 1 July 1997, the Zebra Capital Trust was settled. (2) On 2 July 1997, the following events occurred: i. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust resolved to make a gift of $700,000 out of capital of the trust to Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust. It was further resolved that the gift be satisfied by way of delivery of a bearer promissory note for $700,000 issued by Haven Sea Pty Ltd as trustee of the Annesley No. 3. ii. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust resolved to accept the gift of capital for $700,000 from Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. It was further resolved to accept delivery of the bearer promissory note in satisfaction of the gift. (3) On a date or dates unknown i. Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust lends $700,000 to Cleary Hoare Principals and associated entities including entities associated with the applicant ii. who in turn lends a corresponding amount to the applicant. The Income Earning Trusts NVI Scheme flowchart and transactions narrative 66 The Commissioner's flowchart in relation to the Income Earning Trusts NVI Scheme, remembering the dispute noted above as to the last stage marked "Loans to Associated Entities" whereby Mr Hart denied that the evidence demonstrated that he received this money at all, depicted the following: 67 The narrative which the above flowchart depicts from [102] of the Commissioner's third further amended appeal statement is as follows: (ii) The Income Earning Trusts NVI Scheme 102. Based on the documents and information supplied by the Applicant and his advisers the respondent understands that the Income Earning Trusts NVI scheme comprises the following steps, matters, transactions and events: (a) On 9 May 1997, the LM Income Trust, the Zebra Fixed Trust and the Zebra Unit Trust were settled. (b) On 30 May 1997, Annesley No. 3 and the Annesley Corporate Trust were settled. (c) On 6 June 1997, the following events occurred: i. The directors of Haven Sea Pty Ltd as trustee of the Annesley Trust resolved to distribute $305,000 to Haven Sea Pty Ltd as trustee of Annesley No. 3. ii. The directors of Cleary Hoare Corporate Pty Ltd as trustee of the CHC Discretionary Trust resolved to distribute $170,000 to Haven Sea Pty Ltd as trustee of Annesley No. 3. iii. The directors of Lake Mylor Pty Ltd as trustee of the LM Income Trust resolved to distribute $145,000 to Haven Sea Pty Ltd as trustee of Annesley No. 3. iv. The directors of Haven Sea Pty Ltd as trustee of Annesley No. 3 resolved to distribute $1,200,000 to Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note drawn by 'the Company' for $1,191,000 with the balance by cheque payable as directed by Lake Mylor Pty Ltd. v. The directors of Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust resolved to distribute $1,200,000 to the Zebra Fixed Trust. The resolution stated that the distribution was to be paid forthwith and as to the amount of $1,191,000 by delivery of a bearer promissory note received by Annesley Corporate Trust from Annesley No. 3 to the Trustee of the Zebra Fixed Trust or as otherwise directed by it. vi. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust resolved to distribute $1,200,000 to the fixed beneficiary (being Retail Technology Holdings Pty Ltd). The resolution stated that the distribution was to be paid forthwith and as to the amount of $1,191,000 by delivery of a bearer promissory note received by Annesley Corporate Trust to the fixed beneficiary or as otherwise directed by it. vii. A bearer promissory note was issued by Haven Sea Pty Ltd as trustee of the Annesley No. 3 Trust for $1,191,000. Receipt of the bearer promissory note is acknowledged by Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust and Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. viii. An 'AUTHORITY TO PAY' was issued by Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust authorising and directing Haven Sea Pty Ltd as trustee of the Annesley No. 3 Trust to pay $9,000 to the Cleary Hoare Trust Account. ix. By letter from Retail Technology Holdings Pty Ltd to Lake Mylor Pty Ltd it advised that it has decided to make a gift of $1,191,000 to Lake Mylor Pty Ltd in its capacity as trustee of the LM Income Trust. x. A bearer promissory note was issued by Retail Technology Holdings Pty Ltd for $1,191,000. Receipt of the bearer promissory note is acknowledged by Lake Mylor Pty Ltd as trustee of the LM Income Trust and Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. xi. The directors of Lake Mylor Pty Ltd as trustee of the LM Income Trust resolved to accept the gift of $1,191,000 from Retail Technology Holdings Pty Ltd by way of delivery of a bearer promissory note drawn by Retail Technology Holdings Pty Ltd. It was further resolved to subscribe for 11,991 'B' units at $100 each in the Zebra Unit Trust with the promissory note to be delivered in satisfaction of the application monies. xii. Lake Mylor Pty Ltd as trustee of the LM Income Trust made application for 11,991 units in the Zebra Unit Trust with payment of the application monies by means of delivery of the bearer promissory note drawn by Retail Technology Holdings Pty Ltd. xiii. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust noted that an application for units had been received from Lake Mylor Pty Ltd as trustee of the LM Income Trust for 11,991 units at $100 each together with the bearer promissory note referred to in the application in satisfaction of the application monies. It was resolved to accept the promissory note of $1,991,000, issued by Retail Technology Holdings Pty Ltd as payment in satisfaction of the application monies and to issue units. xiv. Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust issued a unit certificate for 11,991 'B' units to Lake Mylor Pty Ltd as trustee of the LM Income Trust. xv. The directors of Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust noted that it had as the trustee of the LM Income Trust received a gift of $1,991,000 from Retail Technology Holdings Pty Ltd. It was further noted that Retail Technology Holdings Pty Ltd was the fixed beneficiary of the Zebra Fixed Trust with the result that the Zebra Fixed Trust qualified as a beneficiary of the Annesley Corporate Trust. It was also noted that the Annesley Corporate Trust had received a[n] interim income distribution from Annesley No. 3 of $1,200,000 of which $9,000 was by way of cheque payable as directed and the balance by delivery of a bearer promissory note. It was further resolved to make an interim income distribution of $1,200,000 to the Zebra Fixed Trust by delivery of the promissory note to the trustee of the Zebra Fixed Trust or as otherwise directed by it. xvi. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust noted that the trust had received an interim income distribution from the Annesley Corporate Trust of $1,200,000 of which $1,191,000 had been paid by delivery of a bearer promissory note. It resolved to:- make a[n] interim distribution of income in the amount of the above total to the fixed beneficiary to be paid forthwith as to the amount of the promissory note by delivery of the promissory note to the fixed beneficiary or as otherwise directed by it. xvii. An undated document, titled 'AUTHORITY FOR DELIVERY OF PROMISSORY NOTE' addressed to Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust and Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust from Retail Technology Holdings Pty Ltd and Lake Mylor Pty Ltd as trustee of the LM Income Trust in regard to the distributions of income from the Annesley Corporate Trust:- • authorised the promissory notes issued by Haven Sea Pty Ltd as trustee of the Annesley No. 3 to be delivered to Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust; • in satisfaction of the obligations arising under the bearer promissory note for the same amount drawn by Retail Technology Holdings Pty Ltd and delivered by Lake Mylor Pty Ltd as trustee of the LM Income Trust to Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust in respect of the application for 'B' units in the Zebra Unit Trust; • to be delivered by the [sic] Lake Mylor Pty Ltd as trustee for the Zebra Unit Trust in respect of any gift it resolves to make to Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust. xviii. The sum of $9,000 was paid to the BDO Nelson Parkhill Trust Account. (d) On 30 June 1997 the following events occurred: i. The directors of Cleary Hoare Corporate Pty Ltd as trustee of the CHC Discretionary Trust resolved to distribute $550,375 to Haven Sea Pty Ltd as trustee of Annesley No 3. ii. The directors of Lake Mylor Pty Ltd as trustee of the LM Income Trust resolved to distribute $89,625 to Haven Sea Pty Ltd as trustee of Annesley No 3. iii. The directors of Haven Sea Pty Ltd as trustee of Annesley No. 3 resolved to distribute $700,000 to Lake Mylor Pty Ltd as trustee of the Annesley Corporate Trust. The resolution stated that the distribution was to be by bearer promissory note drawn by 'the Company' for $700,000 with the balance by cheque payable as directed by Lake Mylor Pty Ltd. (e) The Zebra Capital Trust was settled on 1 July 1997. (f) On 2 July 1997, the following events occurred: i. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust resolved to make a gift of $1,191,000 out of capital of the trust to Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust. It was further resolved that the gift be satisfied by way of delivery of a bearer promissory note for $1,191,000 issued by Haven Sea Pty Ltd as trustee of Annesley No. 3. ii. The directors of Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust resolved to accept the gift of capital for $1,191,000 from Lake Mylor Pty Ltd as trustee of the Zebra Unit Trust. It was further resolved to accept delivery of the bearer promissory note in satisfaction of the gift. iii. Lake Mylor Pty Ltd, as trustee of the Zebra Unit Trust, resolved to make a gift of $700,000 to Lake Mylor Pty Ltd, as trustee of the Zebra Capital Trust. It was further resolved that this gift be satisfied by delivery of a promissory note issued by Haven Sea Pty Ltd, as trustee of Annesley No. 3. iv. Lake Mylor Pty Ltd, as trustee of the Zebra Capital Trust, resolved to accept the gift of capital of $700,000. It was further resolved to accept delivery of promissory note in satisfaction of the gift. (g) On a date or dates unknown: i. Lake Mylor Pty Ltd as trustee of the Zebra Capital Trust lends $1,191,000 to Cleary Hoare Principals and associated entities including entities associated with the applicant ii. who in turn makes corresponding payments to or on behalf of the applicant. 68 The sequences of events reproduced above from [102(c)], [102(d)] and [102(f)] of the Commissioner's third further amended appeal statement, and the terms of [102(g)] of that statement (the last stage of the flowchart) were not accepted by Mr Hart. However, the asserted correct sequences were not pleaded and no argument was advanced as to how or why the unstated correct sequences made any difference given that all the events described at [102(c)] took place on 6 June 1997, all the events described at [102(d)] took place on 30 June 1997 and all the events described at [102(f)] took place on 2 July 1997. Moreover, the Commissioner did not in terms ultimately rely upon any particular sequence of events on those days, and Mr Hart did not ultimately dispute any particular sequence of events on those days. The Practice Trust NVI Scheme and the Income Earning Trusts NVI Scheme 69 The Commissioner characterised both sets of NVI arrangements utilised by Mr Hart as being contrived, artificial and devoid of any commercial rationale. For the purposes of the Part IVA argument, the Commissioner's case was that on all the evidence, the obtaining of a tax benefit for Mr Hart by way of the avoidance of the payment of income tax on his share of the income earned by the Practice Trust and the Income Earning Trusts was the only objective purpose by which his participation in those two applications of the NVI Scheme could be explained. 70 In large measure, Mr Hart did not join issue on, or even question, the transactions that the Commissioner relied upon or the description of what had taken place, or even its pejorative characterisation, which he apparently regarded as legally irrelevant. As noted above, the non-acceptance of the sequence of events was not relied upon in any discernible way and most likely did not matter, at least as the case and issues unfolded. Apart from an explanation of asset protection, no rationale was advanced to explain the transactions by Mr Hart. Nor did Mr Hart provide objective evidence as to the alternative arrangements available to him in lieu of the NVI Scheme, or any other like scheme to which Part IVA clearly would not apply, as opposed to subjective assertions in general terms as to what he would not have done, which were properly objected to and rejected. It was not in doubt that Mr Hart did not want to pay income tax on any of this money, or at all. His declared income was for a minuscule and nominal sum. The main part of his case was that the NVI Scheme, as applied to both the Practice Amount and the IET Amount, was legally effective and beyond the reach of Part IVA. As considered in some detail below, Mr Hart's answer to the trust distribution means of treating the Practice Amount as assessable income was that the money was never received as income at all, but rather as a loan, and accordingly could never be assessable income. 71 Consideration of both the trust distributions issue and the Part IVA issue requires some closer consideration of key facts and evidence going beyond the general summary above. However that is best done in each after a consideration of the relevant statutory provisions and case law in order to appreciate better the legal significance of the facts in issue. The issues as articulated by the parties at trial 72 Opening written submissions for the Commissioner suggested that the specific issues that arose for determination from the facts and law in this case could be addressed by reference to a series of specific questions as follows (per original): [1] In relation to the Practice Trust only: (a) whether the amount of $220,398 (or some lesser amount) should be included in the Applicant's assessable income for the 1997 income year under ss 97 and/or 101 of the ITAA 1936 by reason of: (i) the Applicant being a Special Unitholder in the Practice Trust; or (ii) alternatively, by reason of the Outlook Trust being a unitholder in the Practice Trust and the Applicant being a beneficiary of the Outlook Trust; (b) in the alternative: (i) whether a person or persons who entered into or carried out the Practice Trust NVI Scheme did so with the sole or dominant purpose of enabling the Applicant to obtain a tax benefit; (ii) whether the Applicant obtained a tax benefit in connection with the Practice Trust NVI Scheme; and (iii) whether Pt IVA of the ITAA 1936 accordingly applies to include the amount of $220,398 (or some lesser amount) in the Applicant's assessable income for the 1997 income year. [2] In relation to the Income Earning Trusts only: (a) whether a person or persons who entered into or carried out the Income Earning Trusts NVI Scheme did so with the sole or dominant purpose of enabling the Applicant to obtain a tax benefit; (b) whether the Applicant obtained a tax benefit in connection with the Income Earning Trusts NVI Scheme; and (c) whether Pt IVA of the ITAA 1936 accordingly applies to include the amount of $275,481 (or some lesser amount) in the Applicant's assessable income for the 1997 income year. [3] In relation to both the Practice Trust and the Income Earning Trusts: (a) whether the assessment dated 3 December 2004 and the amended assessment dated 26 April 2006 are excessive for the purposes of s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA); (b) whether penalties were correctly imposed under the former s 226 of the ITAA 1936 at the rate of 50%; and (c) whether the penalties imposed on the Applicant should be remitted in whole or part. 73 Thus the questions at (1)(a) above address the trust distributions issue, while the questions at (1)(b) and (2) above address the Part IVA issue. The resolution of question (1) on either basis and question (2), and the reasons for reaching those conclusions, necessarily had a substantial and potentially determinative effect on the penalty issues addressed by the questions at (3) above. There was some degree of nuance in relation to these questions in the Commissioner's closing submissions, which framed the issues and questions somewhat differently, but in substance they were the key points of contention and constitute the way in which the conclusions to these reasons are framed. 74 I did not understand Mr Hart to take issue with the formulation of the above questions as being appropriate to address the issues in dispute, although as noted below his senior counsel suggested that answering slightly different and simpler questions addressing the nub of the same issues would lead to the resolution of the dispute. Senior counsel for Mr Hart characterised the case as coming down to two questions which would resolve both of the issues in the appeal as follows. 75 The first question for resolution posed on behalf of Mr Hart, addressing the trust distributions issue and therefore only the Practice Amount, was whether Mr Hart had persuaded the Court that he did not receive $220,398, or indeed any amount, having the legal character of income from either the Practice Trust or the Outlook Trust in the 1997 income year. On Mr Hart's case, the payments made and moneys received had the legal character of a loan, not trust distributions, and therefore not income at all and therefore not taxable income. In support of that question being resolved in Mr Hart's favour, the Court was invited to consider the references provided on his behalf to the evidence in the form of financial statements and tax returns that were said to demonstrate that moneys were advanced by way of loan in the 1997 income year, and also Mr Hart's evidence to that effect. Mr Hart's case was that all of the submissions put on behalf of the Commissioner, including as to the entries in the bank statements suggestive of income payments and other indicia of distribution as income, could not overcome the legal character of the payments to be ascribed by the resolutions of the trustees and the terms of the trust deeds. It was accepted that Mr Hart had to discharge the onus of satisfying the Court that the Practice Trust amount was in fact received as a loan. 76 The second question posed by senior counsel for Mr Hart, addressing the Part IVA issue, and therefore both the Practice Amount (in the alternative) and the IET Amount, was whether Mr Hart had persuaded the Court that, absent any scheme, neither the Outlook Trust, nor any of the Income Earning Trusts, nor the Practice Trust, would have distributed their income to him personally or through the Outlook Trust in the 1997 income year. The substance of Mr Hart's case is that absent the NVI Scheme, Mr Hart would not instead have caused taxable trust distributions to be made to him personally, but rather that a different, but unspecified non-scheme, tax effective process would instead have been deployed. trust distributions issue (Practice Trust amount only) 77 In this section, I consider whether the Practice Amount constituted a trust distribution under the ITAA 1936. Sections 95A(1), 97(1) and 101 of the ITAA 1936 78 An important part of this issue turns on the meaning, operation and interaction between ss 95A(1), 97(1) and 101 of the ITAA 1936. Those provisions are as follows: 95A Special provisions relating to present entitlement (1) For the purposes of this Act, where a beneficiary of a trust estate is presently entitled to any income of the trust estate, the beneficiary shall be taken to continue to be presently entitled to that income notwithstanding that the income is paid to, or applied for the benefit of, the beneficiary. … … 97 Beneficiary not under any legal disability (1) Where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate: (a) the assessable income of the beneficiary shall include: (i) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and (ii) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia; … … 101 Discretionary trusts For the purposes of this Act, where a trustee has a discretion to pay or apply income of a trust estate to or for the benefit of specified beneficiaries, a beneficiary in whose favour the trustee exercises his discretion shall be deemed to be presently entitled to the amount paid to him or applied for his benefit by the trustee in the exercise of that discretion. 79 It may be seen that s 95A(1) of the ITAA 1936 contains a deeming provision in relation to when a beneficiary of a trust estate, for the purposes of s 97(1), is presently entitled to income of that trust estate. I address below a complaint made by senior counsel for Mr Hart concerning the Commissioner's reliance on s 95A(1) in closing submissions. 80 There was no issue of Mr Hart being other than a resident of Australia for taxation purposes during the 1997 income year, nor of moneys the subject of the assessment being sourced from anywhere outside Australia, nor of him being under any legal disability. With those considerations removed, the plain words of s 97(1) mean that the assessable income of a presently entitled beneficiary of a trust comprises the beneficiary's share of the net income of the trust estate. The dispute between the parties concerns whether or not Mr Hart was "presently entitled" to any part of the Practice Amount. Specifically, given the onus, the issue was whether Mr Hart had established that the Commissioner was in error in raising an assessment for the Practice Amount in the sum of $220,398. 81 There is no universal definition in the ITAA 1936 for the phrase "presently entitled", although the phrase is used repeatedly in that Act. Its ordinary meaning therefore must be derived from the general law. 82 In Harmer v Federal Commissioner of Taxation (1991) 173 CLR 264, consideration was given to the meaning of "presently entitled" in 97(1)(a) of the ITAA 1936 as follows (at 271; citations omitted, emphasis added): The parties are agreed that the cases establish that a beneficiary is "presently entitled" to a share of the income of a trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment. 83 That passage was quoted without any qualification specifically in respect of s 97(1) in Commissioner of Taxation of the Commonwealth of Australia v Bamford [2010] HCA 10; (2010) 240 CLR 481 at 505 [37] and was followed as a definitive statement on the meaning of "presently entitled" in Colonial First State Investments Ltd v Federal Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298 at 306 [22] and 307 [24]. Mr Hart did not suggest that there was any reason not to apply that definition. 84 In Walsh Bay Developments Pty Ltd v Federal Commissioner of Taxation (1995) 130 ALR 415, the above passage from Harmer was quoted by Beaumont and Sackville JJ (with whom Jenkinson J agreed) before turning to consideration as to what was meant by the terms "vested in interest" and "vested in possession" as follows at 427: A vested interest is one where the holder has an "immediate fixed right of present or future enjoyment": Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 at 496, per Griffith CJ. In relation to land, an estate is vested in possession where there is a right of present enjoyment, as where A has a life estate or fee simple estate in the land. An estate is vested in interest where there is a present right of future enjoyment. Thus where T holds in trust for A for life and then in trust for B in fee simple, B's equitable fee simple estate is vested in interest during A's lifetime. The estate will vest in possession on A's death: Glenn v Commissioner, at 496; Dwight v FCT [(1992) 37 FCR 178], at FCR 192. 85 Earlier, in East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 90 ALR 457, Hill J considered entitlements under discretionary trusts and the operation of ss 95A(1) and 97(1) at 477: A discretionary trust deed may provide a discretion in the trustee to determine, in respect of the income of a particular year, who among a class of beneficiaries is to be entitled. If that determination were made prior to 30 June in a year of income and was irrevocable the consequence would be under s 98 that there would be as at the end of the year of income (that being the relevant time to determine the issue) present entitlement under s 97. There would be no need to have any deemed present entitlement in such a class of case assuming, for present purposes, that there had been no payment of any amount to the beneficiary. In the class of case where there had been a payment, then s 95A(1) would deem the beneficiary to continue to be presently entitled to the income and thus keep s 97 of the Act applicable: cf per Barwick CJ in Union-Fidelity Trustee Co of Australia Ltd v FCT (1969) 119 CLR 177 at 182. Where on the other hand a discretionary trust deed provides that the trustee has a discretion to pay or apply income of the trust estate to or for the benefit of beneficiaries at his discretion and where there has been a payment there would not (at least in the absence of s 95A(1) which was introduced in 1979) be present entitlement at the end of the year of income, nor in the event that income had been applied in favour of a beneficiary would there have been such present entitlement because, looking at the matter as at the end of the year of income, there would have been no right in the beneficiary to sue the trustee for his share of income, that right having been satisfied by the payment or application already made under s 101. Thus it is doubtful that s 101 was intended to cover the entire field. For almost all purposes (and perhaps indeed for all purposes) it will be irrelevant whether a beneficiary is presently entitled under s 97 or 98 or merely deemed to be presently entitled by force of s 101. … 86 The burden of the above passages is that if the trustee of a discretionary trust exercises a discretion to pay or apply the income of the trust estate to or for the benefit of a beneficiary prior to the end of a given income year, the beneficiary will be presently entitled to that share of the income under s 97. If instead only a mere payment is made to the beneficiary prior to the end of the income year, s 95A(1) operates to deem the beneficiary to continue to be presently entitled to the income, so that s 97 continues to apply. In this way, in certain circumstances s 95A(1) overcomes the problem posed by the concepts of vested in interest and vested in possession operating to deny the necessary present entitlement. It helps to ensure, at least in some situations, that there is no advantage for tax purposes in merely making payments or advances rather than formal distributions. 87 In Trustees of the Estate Mortgage Fighting Fund Trust v Commissioner of Taxation (2000) 102 FCR 15, Hill J stated at 31 [33]: No doubt where there is a trust to accumulate income during the year of income it will ordinarily be true that there could be no present entitlement, and thus an assessment for tax of the trustee under s 95A(4) is required. One exception which was relied upon by the trustee would be where, notwithstanding a trust to accumulate income, the trustees are empowered to apply income to or for the benefit of the beneficiaries and do so. In such a case the beneficiaries would be presently entitled to that income, whether because of the operation of s 101 or s 95A(1) of the Act … 88 In Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 it was observed by Gummow J at 552: Section 101 of the [ITAA 1936] has the result, with regard to discretionary trusts, that where the power in question is vested in the trustee and the trustee exercises the discretion in favour of an object of the power, then that person is deemed to be presently entitled to the amount paid to him or applied for his benefit. 89 Thus the operation of s 101 is that, when a trustee of a discretionary trust has exercised a discretion to pay or apply the income of the trust estate to or for the benefit of a beneficiary, that beneficiary is deemed to be presently entitled to the amount so paid, including for the purposes of s 97(1). Alleged new case by the Commissioner of reliance on s 95A of the ITAA 1936 90 In closing oral submissions, senior counsel for Mr Hart submitted that the Commissioner in his final written submissions had raised a number of matters for the first time, constituting a change of case. The first related to reliance on s 95A of the ITAA 1936. It was contended on behalf of Mr Hart that no express reference was made to that section in the Commissioner's objection decision, in any of the appeal statements, or in the pre-trial submissions. It was submitted that the Commissioner ought not be allowed, at the late stage at which it had been raised for the first time, to advance any argument in reliance on s 95A. 91 The principles from the cases discussed above mean that the fact of payment from a trust by or on behalf of a trustee, even if not the subject of a formal distribution or resolution to that effect, may render such a payment a trust distribution and thus income for tax purposes. Those provisions have been a part of the tax landscape for many years and must be taken to be well-known by tax practitioners, including Mr Hart and his legal advisors in relation to his tax affairs in general, and this litigation in particular. Unsurprisingly, there was no evidence or submissions to suggest otherwise. That background has an important bearing on the allegation made on behalf of Mr Hart of a new and unexpected case advanced by the Commissioner and the implicit allegation of a denial of procedural fairness in allowing such a case to be run on the heel of the hunt, so to speak. 92 Senior counsel for the Commissioner said that s 95A was not mentioned in the pleadings because it is a deeming provision that is essentially definitional and in this case operated through s 97 and/or s 101, which were pleaded. It was further submitted that to the extent to which it was necessary to plead law, the operative provisions had been pleaded and when provisions like ss 97 and 101 came to be relied upon, they are applied by reference to their context, including their definitions and provisions such as deeming provisions that operate upon them. In answer to the proposition from the bench that it would have been better to have referred to s 95A, it was submitted on behalf of the Commissioner that pleadings would become very cluttered if definitions had to be pleaded. Accordingly even that intermediate proposition was not accepted. However, I pause to note that this may have been at least a more tenable shortcoming for a less expert opponent and less expert legal representatives to complain about. 93 The terms of s 95A(1) support the Commissioner's contention. The heading to s 95A is "Special provisions relating to present entitlement". The issue of present entitlement was at all material times a live issue in this appeal. In the version of the ITAA 1936 applicable to this case (reprint No. 10, which was consolidated to 16 April 1997), s 95A appears directly after s 95, which deals with interpretation. Section 95A was enacted as a separate section to s 95 because it was intended to have application to the entire Act, whereas s 95 applies merely to Division 6 relating to trust income. Section 95A is in the nature of a deeming provision, which gives an extended definitional operation to the phrase "presently entitled" as it appears in, inter alia, ss 97 and 101. I accept the submission for the Commissioner, at least in relation to this deeming provision, that it is impracticable to require such a definitional or deeming provision be expressly pleaded in all cases and in this case in particular before reliance can be placed on such a provision. This conclusion is not of universal application and may not be appropriate in other circumstances. 94 This case is all about trust income. Section 95A is a long-standing provision which affects the everyday operation of Division 6, specifically in relation to trust income and distributions. Both Mr Hart and his legal representatives in these proceedings were tax practitioners. The authorities on this topic are long-standing, as discussed earlier in these reasons. The concept of whether or not an actual payment could give rise to meeting the test of being "presently entitled" for the purposes of ss 97 and 101 was at all times a live issue, even if this particular aspect of its resolution was not overtly telegraphed. The submissions made to the contrary on behalf of Mr Hart, with respect, pay insufficient heed to these practical realities. I therefore conclude that there was no obligation, in the circumstance of this particular case, on the Commissioner either to plead s 95A or to refer to it in pre-trial submissions, or, for that matter, to have raised it or otherwise put Mr Hart on express notice of its application, any more than what would ordinarily be required for any other definitional or equivalent provision unless perhaps obscure or where its relevance and application was not readily apparent. 95 In case I am wrong in this conclusion, and the better view is that there should have been prior express or clearer notice of reliance on s 95A, be it by way of pleadings, pre-hearing submissions or otherwise prior to closing written submissions, I grant the Commissioner any leave required to rely on s 95A(1). My reason for doing so is that no submission was made as to prejudice in the relevant sense. It was not suggested that any part of the trial prior to closing submissions would have been conducted differently, be it as to evidence or pleadings or otherwise. Beyond needing to address the argument raised in reliance on s 95A(1), it was not suggested that the hearing was prolonged. It certainly did not cause any measurable additional sitting time, and certainly no additional sitting day. To the contrary, the hearing finished early. In the absence of any identified prejudice, I can see no reason why even reliance on something more substantial would have been unreasonable, let alone for a provision that did no more than give a very well-known extended meaning to the provisions that were so clearly being relied upon at all stages. Alleged new case by the Commissioner in the alternative that payments were made from the Practice Trust directly to Mr Hart during the 1997 income year 96 It was also submitted on behalf of Mr Hart that reference had been made for the first time in the Commissioner's written closing submissions, delivered the evening before oral closing submissions, to payments said to have been made from the Practice Trust directly to Mr Hart during the 1997 income year, rather than only payments from the Outlook Trust. Reference was made to the allegation in the Commissioner's written closing submissions that Mr Hart was assessable for $97,754 as a special unitholder of the Practice Trust, being something that had not been raised before. It was submitted on behalf of Mr Hart that the Commissioner's third further amended appeal statement at [39] to [41] made the case that the relevant share of the Practice Trust income, namely $220,398, was paid out to Mr Hart during the year. Complaint was made that nowhere was it suggested in any of the appeal statements that the various payments referred to in the most recent submissions were made to Mr Hart. 97 In answer to this argument, senior counsel for the Commissioner referred to the express terms of [39] of the Commissioner's third further amended appeal statement. In order to understand this point it is necessary to reproduce [39] to [41] of the Commissioner's third further amended appeal statement, along with [45] and [48] also relied upon as follows (bold defined term in original; italics emphasis added): 39. During the 1997 income year, the Practice Trust made payments to or for the benefit of [Mr Hart], including payments made at the direction of [Mr Hart] to OCPL [Outlook Crescent Pty Ltd] as trustee of the Outlook Trust, to the joint account of [Mr Hart] and his wife, and to Oak Arrow Pty Ltd as trustee of the Oak Arrow Trust. 40. On or about 30 June 1997, the trustees of the Practice Trust resolved to distribute the income of the Practice Trust to the Special Unit Holders in amounts paid or advanced to them during the year. 41. The amounts paid or advanced to [Mr Hart] by the trustees of the Practice Trust in the 1997 year was $220,398 or some lesser amount. … 45. For the 1997 income year, the OCPL [Outlook Crescent Pty Ltd] balance sheet records loans to [Mr Hart] and to the Practice Trust and a corresponding increase in a liability to [Mr Hart] as trustee of the Outlook Finance No 2 Trust ("Outlook Finance"). … 48. The payments and advances made by the Practice Trust to [Mr Hart] are included in the assessable income of [Mr Hart] pursuant to sections 97 and/or 101 of the ITAA36 as a beneficiary of the Practice Trust. 98 Senior counsel for the Commissioner pointed out that the words in [39] had been present since the time of the Commissioner's further amended appeal statement, which was the document to which Mr Hart's further amended appeal statement, being the still current pleading, had directly referred. 99 The pleading at [39] reproduced above, in the context of the alternative pleading as to income being sourced from only the Outlook Trust, was a sufficiently clear and express reference to payments that had been made during the course of the 1997 income year from the Practice Trust to or for the benefit of Mr Hart, including payments made at Mr Hart's direction to the joint account of Mr and Mrs Hart and to the Oak Arrow Trust, as well as to the Outlook Trust. The pleading at [40] makes express reference to a resolution to distribute the income of the Practice Trust to the "Special Unit Holders", of whom Mr Hart was one. While those pleaded material facts were not accompanied by particulars or identification of the particular transactions being relied upon, that was not required. Indeed, on one view, it would have been a pleading of evidence rather than material facts, although some greater degree of detail might have been provided. However, there was no room for a legitimate misunderstanding as to what was being referred to. It needs to be remembered in this regard that virtually all of the documents upon which the Commissioner relies are documents that were provided to him by Mr Hart, albeit in response to a requirement to do so. I therefore reject the contention that Mr Hart legitimately was caught by surprise by the reliance in the Commissioner's closing written submissions to a direct distribution by the Practice Trust to Mr Hart as a special unitholder. Was the money sourced from the Practice Trust received by Mr Hart by way of loan? 100 The characterisation of the money that Mr Hart received as a loan was critical to the success of his appeal on the trust distributions issue. So much was acknowledged by the first determinative question posed by his senior counsel in closing oral submissions and noted at [75] above. It was submitted on behalf of Mr Hart that he had given the Court references in the evidence to financial statements and tax returns that demonstrate that monies were advanced to him by way of loan in the 1997 income year. Further, Mr Hart gave evidence in his statement to that effect and maintained that position in cross-examination. It was submitted that it was not suggested to Mr Hart when he was cross-examined either that no loan was made or any such purported loan was not genuine. It was submitted that the financial documents and the evidence of Mr Hart were consistent and that there is no issue in the appeal statements as to the genuineness of any loan, leaving no room to do other than accept the existence of a loan to explain the payments in issue. 101 The Commissioner's closing written submissions invited the Court to disbelieve Mr Hart and find that the loan was not genuine in the sense of not really existing, rather than being falsely documented. That approach can extend simply to not accepting his evidence on this topic. Reference was made by the Commissioner to cases such as Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243 and other cases to the same effect. 102 It was submitted on behalf of Mr Hart that, having regard to the way in which the case had been conducted, there was no basis upon which to make an adverse credibility finding against him. Further, it was submitted that, contrary to the Commissioner's closing written submissions which criticised Mr Hart not going into further detail about the loan and submitted that an inference should be drawn that he did not do so because such evidence would not have assisted him, there was no need to go into further evidence about the loan because no issue was joined about it until the closing written submissions provided by the Commissioner on the day before the final hearing day of the trial at which closing oral submissions were to be made. 103 Senior counsel for Mr Hart further referred to the Commissioner's closing written submissions relying upon the fact that there was no evidence of any repayments of the loan and no evidence of any capacity to repay the loan or any repayments having been made. It was said that this was entirely consistent with the evidence of Mr Hart that it was his position and intention to remain a debtor of the Outlook Trust while he remained in practice. Reliance was placed on Mr Hart's evidence in response to two questions from the bench during cross-examination as follows: HIS HONOUR: Do I understand you to mean from that that the loans were never to be repaid?---That's not correct, your Honour. It was 1997. They have not been repaid and it's now 2016?---And I'm still in practice, your Honour. It was submitted on behalf of Mr Hart that the onus of establishing the existence of the loan was met by Mr Hart's oral evidence and each of the documents which reflect the existence of the loan. 104 Senior counsel for the Commissioner said that it was incorrect to say that a challenge to the existence of the loan had not been made in either the pleadings or in the evidence. Turning first to the oral evidence, reference was made to cross-examination which was said to have put to Mr Hart that he had received payments made to his benefit rather than a loan. In reply, senior counsel for Mr Hart further submitted the reference to "benefit" did not rule out a loan. In those circumstances, it is important to examine the additional cross-examination on this topic relied upon by the Commissioner, the entirety of which is extracted below (emphasis added). MR WILLIAMS: … Yes. I am sorry, Mr Hart. Paragraph 70?---7 [of Mr Hart's statement]? 7-0?---Yes. Continuing: During the '97 income year and subsequent years the Outlook Trust made payments to me reflecting loans totalling $185,698, reflecting the differences in balances. ?---Yes. Were there any agreements prepared in relation to what you describe there as loans?---No. Were there any documents that identify the terms of the loans prepared?---No. Were the loans repaid?---Not at this stage, no. Not at this stage. So - - -?---Well, because it was deliberate not to repay them and to keep myself as a debtor to the trust. HIS HONOUR: Do I understand you to mean from that that the loans were never to be repaid?---That's not correct, your Honour. It was 1997. They have not been repaid and it's now 2016?---And I'm still in practice, your Honour. MR WILLIAMS: Are the loans interest bearing?---No. You see, I want to suggest to you that these payments totalling 185,000 that you refer to there were just payments made to your benefit?---No. Without [obligation] to repay, no. [The transcript recorded the word "objection" but it was common ground that the word uttered by Mr Hart was "obligation"] 105 In context, it is reasonably clear that the cross-examination question reproduced above about "just payments made to your benefit" did not include a loan being part of the asserted benefit, but rather was follow-on cross-examination arising from the evidence that no interest was payable. It was a question putting squarely to Mr Hart, by way of contrast, that he had received the money otherwise than as a loan, being just payments made to his benefit. If Mr Hart had understood the question about payments made to his benefit as incorporating a loan, it is difficult to understand his answer. Mr Hart denied that the $185,698 reflected "just payments" in the sense of payments "without obligation to repay". The answer that he gave was to the effect that they were not just payments to his benefit without an obligation to repay, but rather was a loan with an obligation to repay. That is the way in which I understood the evidence at the time it was given, a view that was confirmed by reviewing the transcript as part of the preparation for hearing final oral submissions. Indeed, I struggled then, at the time of closing submissions three days after the evidence was given, and now, to attribute any other logical meaning to that evidence. In my view, that conclusion is sufficient to deal with the question of whether doubt was cast on the existence of a loan, at least at the oral evidentiary stage. Moreover, read in that way, this was a revealing answer because an "essential feature" of a loan is an obligation to repay: see [131] below. 106 Senior counsel for the Commissioner also relied upon the pleadings. Reliance was again placed on [39] of the Commissioner's third further amended appeal statement, which, as noted above at [98], had been pleaded since amendments were made in the Commissioner's further amended appeal statement to which Mr Hart's further amended appeal statement remained a response. Reliance was also placed on [43], [45] and [48] of the Commissioner's third further amended appeal statement. Those paragraphs are again reproduced for clarity (bold defined term in original; italics emphasis added): 39. During the 1997 income year, the Practice Trust made payments to or for the benefit of [Mr Hart], including payments made at the direction of [Mr Hart] to OCPL [Outlook Crescent Pty Ltd] as trustee of the Outlook Trust, to the joint account of [Mr Hart] and his wife, and to Oak Arrow Pty Ltd as trustee of the Oak Arrow Trust. … 43. During the 1997 income year and subsequent years, OCPL [Outlook Crescent Pty Ltd] as trustee of Outlook Trust made payments to, or for, the benefit of [Mr Hart]. The amounts so paid to, or applied for, [Mr Hart] in the 1997 year were $220,398 or some lesser amount. … 45. For the 1997 income year, the OCPL [Outlook Crescent Pty Ltd] balance sheet records loans to [Mr Hart] and to the Practice Trust and a corresponding increase in a liability to [Mr Hart] as trustee of the Outlook Finance No 2 Trust ("Outlook Finance"). … 48. The payments and advances made by the Practice Trust to [Mr Hart] are included in the assessable income of [Mr Hart] pursuant to sections 97 and/or 101 of the ITAA36 as a beneficiary of the Practice Trust. 107 It was submitted for the Commissioner that the phrasing used in each of [39], [43], [45] and [48] made it clear that Mr Hart's representation of the moneys as being a loan was not accepted. That is, issue was clearly joined about whether it was indeed a loan or just payments made to Mr Hart's benefit. I accept that submission, especially as the reference to "payments and advances" being included as assessable income in [48] could not possibly have been a reference to money that was accepted as being the product of a loan. It was language deliberately in contradistinction to any acceptance of the moneys in fact being due to a loan. Senior counsel for the Commissioner further submitted that Mr Hart's response in his further amended appeal statement demonstrated that Mr Hart understood that issue was taken as to whether the payments were loan funds. The relevant response relied upon by the Commissioner, under the heading "Clarification to portions of the respondent's further amended appeal statement", was as follows: 18. As to paragraph 43 [Mr Hart] says the amounts paid to [Mr Hart] by the Outlook Trust were loan funds. Senior counsel for the Commissioner submitted that this response was Mr Hart's express pleading to the issue as to whether the payments were pursuant to a loan agreement. 108 I am therefore satisfied that the Commissioner's case, both as to pleading and as to the challenge to Mr Hart in cross-examination, properly and adequately joined issue as to whether the payments ultimately sourced to the legal practice was a loan as asserted by Mr Hart. The inquiry then turns to the question of whether or not Mr Hart has discharged the onus in relation to proving the existence of a loan agreement to account for the receipt of moneys by him in the 1997 income year, which he quantified as coming from the Outlook Trust in the total amount of $185,698, albeit characterised as a loan. 109 The factors in favour of finding that the payments were in fact by way of loan are the assertions in Mr Hart's statements, adhered to in his evidence (although challenged in cross-examination), and supported by entries in the balance sheets and acknowledged in trust resolutions. However the documents relied upon by Mr Hart, properly considered, acknowledged or assumed the existence of a loan, and perhaps the separate intention for a loan to exist, rather than directly proving its existence. There is more compelling documentary evidence that strongly suggests that the payments made to Mr Hart or to his benefit, ultimately sourced from legal practice funds, were not treated by him as a loan in the way he represented that money being received at times proximate to when that occurred, or at least in the period not long afterwards. Contextually, the contrary representations are in the nature of admissions against interest and accordingly are able to be given considerable weight. 110 Before turning to that evidence, it should be noted that the other evidence against finding that the onus had been discharged on this issue is that there was nothing in writing to record or otherwise evidence a loan, no interest paid or being payable and no repayments being required or made, despite more than 19 years having elapsed since the moneys were provided and the purported loan therefore made. Moreover, as noted in the Commissioner's written closing submissions, contemporaneous bank statements record many of the payments as "pay" or "sol[icitor] pay" which were made on a fortnightly basis to a bank account owned by Mr and Mrs Hart between at least 5 July 1996 and 23 April 1997. Those factors alone would be compelling evidence at least casting doubt on the existence of a genuine loan arrangement. However, that evidence becomes context for even more telling evidence that cannot be met by arguments such as the mere effluxion of time (as to interest and repayments), or perhaps administrative error (as to how payments were recorded). 111 On about 29 July 1999, Mr Hart made a credit approval request to Suncorp Bank for two loans totalling $550,000 on behalf of a trust of which he was a beneficiary, for the purpose of the trust purchasing two properties. The bank records in evidence comprise the following: (1) an undated "Credit Approval Request" form (CAR form) of eight pages, with handwriting having the appearance of two writers – the application is made in the name of "Rio Villa P/L as Trustee for Rio Villa Trust", with the solicitor being named as Cleary Hoare and the contact person being Mr Hart; (2) a form of six pages which is printed with the title "Application for a Loan/Limit", above which is handwritten "* PERSONAL DETAILS", undated, in the name of Mr Hart and his wife and apparently signed by them (personal details form) – that form contains certain identical financial information to the CAR form, namely of a net monthly income of $8,333 and appears to have been completed by the same person as one of the authors of the CAR form; and (3) a typewritten "CREDIT DEPARTMENT, BANKING SERVICES FATE ADVICE", in respect of a CAR received on 29 July 1999, dated 13 August 1999, and approved by a handwritten note by a named bank officer dated 13 August 1999 (approval form). 112 The specifics of the loans being sought are of no relevance to this appeal. What is relevant is the information recorded on the CAR form, the personal details form and the approval form as business records, which are capable of being accepted as evidence of the truth of any prior representations recorded. Financial information about Mr Hart and the Outlook Trust, I readily infer, was provided to establish the creditworthiness of the applicant trustee company and recorded by the bank for that purpose. No other purpose is apparent. 113 The information recorded on the CAR form includes the text set out below. Senior counsel for the Commissioner urged the Court to draw an inference that the information itself, as opposed to collateral calculations, was recorded by the writer on the basis of what he or she was being told by Mr Hart, it being his evidence that he made the application on behalf of the trustee company. There was no evidence to the contrary such that it is a reasonable inference to draw that this information did indeed come from Mr Hart. That conclusion is supported by the contents of the other two documents. If Mr Hart was not the source of the financial information (as opposed to the calculations), he had ample opportunity to give that evidence and did not do so. I therefore safely draw the inference that he was the source of this specific information, especially as his evidence in cross-examination was that he made the application. 114 The following image depicts page 7 of the CAR form as it appears (noting that the numbers '2317' and '845' at the bottom of the image refer to Court Book pagination and that highlighting has been added): 115 A partial transcription of the preceding two pages of the CAR form is below. The underlined portions are printed on the CAR form and the balance is handwritten: [from page 5] Ownership Proprietor / Shareholder name Age Percentage ownership Michael James Patrick HART 53 100% Business overview … - Michael is the Managing Principal of Cleary + Hoare Solicitors. - This Company was Registered in July 1998 and this is the first acquisition for the Company Management overview … Owner is a well-respected solicitor, in a major law firm. This proposal … To purchase 2 Inv. properties. … [from page 6] Financial Position Outlook Practice Trust. Cleary & Hoare Period ending 30:06:1997 30:06:1998 … Comment of [sic] Trading Performance … - Michael James Hart owns 1/3 of the Practice of Cleary Hoare, Solicitors. - It's paying him around $220,000 pa. 116 Page 7 of the CAR form is reproduced as an image above. The following details are relevant to this exercise: Income details – Self Employed Applicants Outlook Cleary & Hoare Period ending 30:06:1997 30:06:1998 Net Profit before Tax $220398- $744318- [diagonal writing] Ability to repay (to be completed for all applications) $3,846 F'N Total Income Business/Self Employed $ 8,333- [various calculations follow] 117 As a matter of arithmetic, it may be observed that $3,846 per fortnight is the same as $8,333 per month. 118 It is reasonably obvious from the face of the CAR form that there were two authors – the handwriting on a 45° angle on page 7 is quite different from that of the person who filled out the rest of that form. Senior counsel for the Commissioner also noted the different forms of handwriting on the pages during oral submissions. After examining the three forms, it is reasonably apparent that the second writer bank officer giving the handwritten approval on the approval form is the author of the diagonal writing on the CAR form. That officer has assumed, I infer based on what was already elsewhere recorded as partially reproduced above, that the income amounts recorded constituted Mr Hart's gross income, rounded down to $220,000. I likewise infer that the writer has, not unreasonably, assumed that income tax would need to be deducted, estimated as $98,000, in order to ascertain Mr Hart's after tax income, being the income that would be expected to be available to him of $122,000 – being just over $10,000 per month after tax – and thus quantify his creditworthiness as the person standing behind the corporate trustee applicant on the CAR form. The writer has apparently made his or her own assessment as to what the tax payable would likely be. The Commissioner does not suggest that this additional information came from Mr Hart. 119 The ability to repay the amount of $8,333 is a subset of the $10,166. It is recorded in both the unsigned CAR form and in the personal details form signed by Mr Hart and his wife. That ability to repay amount of $8,333 has therefore been adopted by Mr Hart. That is further evidence that Mr Hart was representing to the bank that he had an income to support the giving of a loan to the trustee applicant. 120 There is nothing to suggest that either writer on the CAR form was told or given information that the money Mr Hart had received in the 1997 income year was not income, or not to be regarded as income, but rather was only a loan and that the request was to be considered upon that basis (although other documents referred to below do suggest that other bank officers at other times may have been told that a loan was the source of money from legal practice income). This view of the CAR form partially reproduced above is reinforced by a further set of calculations below the calculations reproduced above under the heading "Ability to Repay Summary" and the reference to $8,333. There is no evidence that Mr Hart was party to those further calculations, and indeed it is unlikely that he would have been involved in the bank's evident internal process of credit assessment taking place by way of recommendation and approval two weeks later on 13 August 1999. It should, however, be noted that the approval form records the following on the top of the second page, indicating Mr Hart's primary role in seeking bank finance and its approval: For the purposes of expediency in securing the purchase, Mr Hart has requested that the Bank consider financing the purchase as original [sic] proposed. … 121 The only evident purpose in ascertaining and recording Mr Hart's income, in support of the financing proposal that he was clearly advancing and seeking to have approved, was to assess the application for bank finance, including presumably the credit risk exposure for the bank. Again, no other purpose was suggested on behalf of Mr Hart and none is apparent. The approval form indicates that securing repayment of the loans was a concern of the bank, which also required a personal guarantee from Mr Hart, again reflecting reliance on him having income to meet the obligations of such a guarantee. 122 It is reasonable to conclude that Mr Hart was prepared to have the money that was in fact paid to him in the 1997 income year represented as his income by the bank for loan approval purposes. It is most unlikely that any contrary representation was made to the effect that the money was nothing more than a loan in the absence of any entry to that effect. Mr Hart did not suggest in evidence that anything of that kind had been said. 123 It should, however, be noted that, in another bank document dated 4 August 1998 containing general information referable in some way to a credit approval request made a year earlier, apparently made in Mrs Hart's name only, reference was made to Mr and Mrs Hart not earning income "in their own names", using the language of form rather than substance. Mr Hart was again put forward as the guarantor. That additional credit approval form, under the heading "Cash Flow/Repayment Capacity", stated "The Hart's only income is by drawings by Loans from the Outlook Practice Trust Account". The form also recorded the following (emphasis added): Income generated by Cleary Hoare and distributed to the Trust is then distributed to the Hart family. In 1996 funds were distributed to Cleary & Hoare Office Unit Trust because the Trust had accumulated losses and these were used up by the three partners. Distributions now to Hart family. 124 That earlier 1998 document also referred to the net profit for the Practice Trust for the following 1998 income year of $750,000 being "distributed between three partners" and also made references to "Trust income generated by Cleary Hoare" and "net profits of Solicitor firm". The language use suggests that the suggestion of loans to account for money received was taken to be a matter of form rather than substance by the bank, rather than constituting any proof of a loan in fact existing. The language used is consistent with the bank treating that money as being, in substance and reality, income available to be taken into account for credit assessment purposes, rather than as constituting competing financial obligations detracting from creditworthiness. 125 The CAR form with Suncorp Bank partially reproduced above reflects a similar looseness of language, with Mr Hart representing to the bank that his income from the legal practice in 1997 was $220,398, without conveying any nuance as to its legal character, let alone clearly conveying that it did not have the character of income at all and could not properly be taken into account in assessing creditworthiness. Importantly, from the bank's perspective, there is nothing to indicate that the bank was told that this was not income, but merely a loan which according to ordinary concepts would have to be repaid, when it came to the detail of assessing creditworthiness. Indicating to the bank in support of a loan being given, albeit not to him but to an entity associated with him which did not itself present as having any income, nothing more than antecedent indebtedness was hardly going to assist in securing a further loan. Yet that information was plainly being advanced in aid of, not to detract from, the approval being sought. I therefore infer that no such qualification was conveyed as to a different reality, and that accordingly this is part of the evidence that aids the Commissioner's case on this issue. 126 The contents of the CAR form significantly undermine Mr Hart's case that, contrary to what he must have represented to the bank as to the reality of his situation, the money he received from the Outlook Trust in the 1997 income year was really the product of a loan arrangement as opposed to ordinary income at his disposal. The nature and content of his representations to the bank must be given due weight, especially in circumstances when he had the opportunity in this Court to disown what was recorded by the unknown bank officer writing on the unsigned CAR form in a manner that is consistent with the bulk of the financial information (as opposed to calculations) being provided by him. While Mr Hart went some way towards this, he did not confront the real burden and substance of the bank record evidence. 127 If the money really was advanced to Mr Hart as a loan, there is no apparent good reason why he would not have said to the bank officer evidently charged with obtaining information obviously required for carrying out the credit assessment that he was not in fact in receipt of any income at all. The alternative is that Mr Hart was prepared to provide false or misleading information to a bank as to the substance of his financial arrangements when it came to the formal assessment and approval of a loan application. I am not prepared to accept that Mr Hart was giving false or misleading information to the bank. I am also not prepared to accept the explanation proffered by senior counsel for Mr Hart that the figure of $220,398 recorded on the CAR form was not in fact provided by Mr Hart and could have been a mere mistake by the bank officer. It is not only a precise amount, but exactly the same amount as the distribution from the Practice Trust to the Outlook Trust. 128 The better view is that what was represented to the bank was the underlying truth, even if a different characterisation was being advanced in a taxation context. That disparity is not unheard of. Mr Hart's onus was not to satisfy the Court that the money he received was either income or a loan. He bore the onus of establishing that the money he received was in fact a loan contrary to what the bank records in relation to the 1997 income year indicated. He has failed to discharge that onus. 129 It is not strictly necessary to go further than this factual conclusion on the loan issue. However, for completeness, the balance of the Commissioner's argument should be considered, which supports the conclusion I have independently reached by reference to authority. 130 The Commissioner relied on authority which had considered contests over the existence or otherwise of a loan in a taxation context. I do not need go further than the Full Court decision in Richard Walter (decided by majority, special leave to appeal refused). In that case, Lockhart J, after noting that it remained at all times the burden on the taxpayer to show that the Commissioner's assessment was excessive, found no error in a trial judge concluding that a financial transaction, supported as being a loan by ledgers, trial balances and audited accounts at trial, nonetheless was not shown to have that character because the evidence of the witness deposing to it being a loan was not accepted: 67 FCR 243 at 246C, 247. Lockhart J concluded that even this degree of documentation was insufficient without acceptance of the oral evidence to establish a case that the payments could be characterised other than as revenue. As his Honour observed: Having rejected Mr Holden's evidence that the payments were loans, in my view, there was insufficient remaining evidence in the case from which the primary judge could have concluded that it was more likely than not that the relevant payments were not income. 131 Hill J, the other majority judge in Richard Walter, had a similar view of the case at first instance, earlier noting the trial judge's reliance on the proposition that the essential feature of a loan is that the parties to it intend the moneys advanced to be repaid: 67 FCR 243 at 253G, 259-260. 132 Applying Richard Walter to this case, the Commissioner pointed out not only that no repayment had taken place in 19 years, but that the purported lender, the Outlook Trust, had ceased to operate 15 years earlier in 2001. Moreover, Mr Hart had deliberately put himself in a position where no such loan could ever be repaid. A final point made by the Commissioner is that no counterparty to any loan gave evidence, and Mr Hart did not give any evidence himself, of any details about the purported loan beyond assertion as to its existence, a circumstance which the Commissioner relies upon for an inference to be drawn that there was not available any such evidence that would have assisted him. 133 I should add for completeness that I reject the submission on behalf of Mr Hart that the Commissioner had an obligation to plead and prove a sham. As senior counsel for the Commissioner pointed out, a sham requires there to be a purported transaction which is falsely presented as being genuine. The Commissioner's case is not that there was a sham loan, but that no loan was shown to exist. The point of a purported transaction being a sham was never reached. That approach to what constitutes a sham is supported by long-standing binding authority. As was pointed out by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at 486 [46] the term "sham" was an expression with a "well-understood legal meaning" that referred to "steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences", citing Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449: see Lockhart J at 453-4; Beaumont J at 467-9; and in particular the observation by Foster J at 473-4 that the transactions in question, although complicated and artificial, were not shams. 134 To prove the existence of a loan, what is clearly needed is that there be established the existence of a transaction, secondly that it take a legally effective form of some kind and thirdly that the intention of the parties is to give effect to its form. In this case, the Commissioner has successfully contended that there is insufficient evidence to establish the existence of a loan, let alone one in any legally effective form. The question of intention contrary to form is not reached, that being the element which makes the transaction a sham. 135 I therefore agree with the submissions for the Commissioner that there was no requirement on his part to establish a sham, or for this Court make an adverse credibility finding against Mr Hart. It was enough to deal with this question at the level of onus and satisfaction on the part of the Court as the tribunal of fact. 136 A loan is not a label, let alone a label of convenience. It is a legal contractual relationship between the parties to the putative loan, intended and able to be enforceable. A transaction sought to be characterised as a loan is required to be shown to have the necessary legal characteristics referred to above. This case is relevantly on all fours with Richard Walter, and I reach the same conclusion for much the same reasons. Weighing up the competing evidence, I am unable to be satisfied that the moneys paid into Mr Hart's bank account, on his own account from the Outlook Trust in the sum of $185,698, were advanced to him by way of a loan. 137 In all the circumstances, Mr Hart has failed to discharge the onus of proving that the money received by him of about $220,000, or more precisely, $220,398, was by way of a loan. Balance of consideration on the trust distributions issue (Practice Trust Amount) 138 The adverse finding on the loan question was quite properly described by senior counsel for Mr Hart as being determinative on the Commissioner's first approach. On that view, without more, this was a sufficient basis for Mr Hart to fail on the trust distributions issue. However, I consider that the balance of the Commissioner's arguments do need to be considered, not least because they have a potential bearing on the quantum to be arrived at in respect of the notice of assessment which included the Practice Amount, as well as properly addressing the question of whether Mr Hart has shown that the assessment was excessive. That is, a question arises as to whether Mr Hart is entitled to a finding that the assessment should have been for a lesser amount than $220,498 (being the original declared income of $100 plus the Practice Amount of $220,398), and was to that extent excessive. However given that this is going further than senior counsel for Mr Hart contended was necessary, the points made and conclusions reached do not have to be detailed or laboured. 139 The Commissioner's primary argument on the trust distributions issue was that a portion of the net income of the Practice Trust for the 1997 income year was properly included in Mr Hart's assessable income under s 97 of the ITAA 1936. The Commissioner's alternative argument was that the same conclusion should be reached, but by reference to the net income of the Outlook Trust. On each argument the sum of money involved was the Practice Amount, being $220,398 or some lesser amount. A portion of the net income of the Practice Trust for the 1997 income year was properly included in Mr Hart's assessable income under s 97 of the ITAA 1936 140 On the argument as to the net income of the Practice Trust being included in Mr Hart's assessable income, the Commissioner relied upon: (1) the fact that Mr Hart received regular payments from the Practice Trust during the 1997 income year totalling $97,754; (2) the terms of the trust deed for the Practice Trust; (3) the operation of ss 95A and 101 of the ITAA 1936; and (4) further, or in the alternative, a resolution dated 30 June 1997 by the trustees of the Practice Trust. Payments from the Practice Trust during the 1997 income year totalling $97,754 141 The Commissioner relied upon the undisputed fact that Mr Hart received regular payments during the 1997 income year totalling $97,754. The Commissioner asserted, and Mr Hart disputed, that these payments ultimately came from the Practice Trust. The sum of $97,754 was arrived at by adding up the following amounts, and the ultimate source was asserted by reference to the following surrounding circumstances: (1) $49,415.52 by way of 22 fortnightly deposits of $2,246.16 by Cleary Hoare into a joint account held by Mr Hart and his wife with Suncorp Bank, with accompanying narrations "Cleary Hoare Pay Pay", "Cleary Hoare Pay" or "Cleary Hoare Sol Pay" between at least 5 July 1996 and 23 April 1997; (2) $6,738.48 by way of three fortnightly payments of $2,246.16 made by the Outlook Trust bank account to the same joint bank account, which given the identical amount for each deposit should be inferred as having been ultimately sourced from the net income of the Practice Trust and paid to the Outlook Trust bank account for on payment to the joint account at the direction of Mr Hart and for his benefit; (3) $35,200 by way of 22 deposits of $1,600 with accompanying narrations "Cleary Hoare Pay" or "Cleary Hoare Sol Pay" by Cleary Hoare into an account in the name of Oak Arrow Pty Ltd, the directors of whom were Mr Hart and his wife and which was the trustee of the Oak Arrow Trust, supporting the inference that this money was paid by, or at the direction of, the Trustees of the Practice Trust at Mr Hart's direction and for his benefit into the Oak Arrow account; and (4) $6,400 by way of four fortnightly payments of $1,600 made from the Outlook Trust bank account into the Oak Arrow bank account, supporting the inference that these payments, like the earlier and matching payments from Cleary Hoare, were ultimately sourced from the net income of the Practice Trust and were paid to the Outlook Trust bank account at the direction of Mr Hart and for his benefit. The terms of the trust deed for the Practice Trust 142 The above amounts totalling $97,754 were payments which the Commissioner asserted that Mr Hart had an immediate and indefeasible vested interest and thereby to which he was presently entitled, pursuant to the terms of the trust deed for the Practice Trust. In support of that submission, senior counsel for the Commissioner placed particular reliance on phrases within the Practice Trust deed to the effect that: (1) the trustee had a discretion to "pay, apply or set aside to or for the holders of Special Units to the exclusion of other Unitholders" all or part of the net income variously described as the trustee shall think fit (cl 10.3.5), in circumstances in which Mr Hart was a special unitholder; (2) a determination could be made by payments in cash to or for the benefit of a unitholder (cl 14.5.3); and (3) it was declared that for each of the unit holders in whose favour the trustee did pay, apply or set aside income variously described, such a beneficiary was presently entitled to the share of that income (cl 14.7). The operation of ss 95A and 101 of the ITAA 1936 143 The Commissioner contended that, as discussed above, in addition to the terms of the trust deed, and to like effect, the operation of ss 95A and 101 of the ITAA 1936 can be triggered by the fact of payment taking place, such that the payments above were sums that Mr Hart was presently entitled to once the loan characterisation was not accepted. In the alternative, a resolution dated 30 June 1997 by the trustees of the Practice Trust 144 The Commissioner's case in the alternative was that a resolution dated 30 June 1997 by the trustees of the Practice Trust provided that income for the year ended 30 June 1997 be applied to special unitholders, including any interim distributions, in the amounts paid or advanced during that income year. As noted earlier, Mr Hart was a special unitholder. It was submitted that therefore he was presently entitled to the amounts paid to him or on his direction for his benefit (being a portion of the income of the Practice Trust) by reason of the resolution. Consideration 145 Mr Hart's main line of defence (in the sense of attack upon the Practice Amount assessment in so far as it relied upon s 97) was the unsuccessful attempt at characterisation of the payments as a loan, as reflected in the question to be answered on this topic by his senior counsel. Absent a successful loan characterisation, the terms of the trust deed largely operated in the same way as ss 95A(1) and 101 of the ITAA 1936 insofar as they treated payments actually made as giving rise to a present entitlement and therefore directly triggered the operation of s 97. 146 No substantial argument was put on behalf of Mr Hart to the contrary of the above propositions, apart from disputing the source of the payments as being the Practice Trust rather than the Outlook Trust. That was a more tenable argument for the payments made via the Outlook Trust referred to at [141] (2) and (4) above for the totals of $6,738.48 and $6,400 respectively, than for the payments carrying the pay notations referred to at [141] (1) and (3) for the totals of $49,415.52 and $35,200 respectively. The difference largely turned on whether regard was had to the immediate source of the money in question, or whether regard could also be had to where that money in turn had come from. Mr Hart essentially relied upon the last step as being the source, rather than where that money in turn had come from. In my opinion, while it was open to the Commissioner to have regard to the original source of the money in the context of the trust deed for the Practice Trust as set out above, it still had to be shown to be a payment to Mr Hart via the Outlook Trust, rather than a payment to the Outlook Trust for separate distribution by that trust. Once the money flows were not proven to be a loan by Mr Hart, s 95A(1) or alternatively s 101 is triggered, creating the necessary present entitlement, but only in respect of payments to Mr Hart able to be sourced to the Practice Trust. 147 Based on this reasoning, I am satisfied that the Commissioner's notice of assessment was properly made at least to the extent of the demonstrated payments of $49,415.52 and $35,200, a total of $84,615.52, properly able to be attributed on all the evidence as being sourced as payments from the Practice Trust triggering a distribution either by the operation of the trust deed provisions referred to above or by the operation of s 101 of the ITAA 1936. I am not able to be so satisfied in respect of the payments of $6,738.48 and $6,400, totalling $13,138.48. However, that partial success by Mr Hart does not translate into overall success on this point by him. That proven lesser sum of $84,615.52 is not of itself sufficient to conclude that the assessment for the Practice Amount of $220,398 was excessive. The particular payments were advanced by the Commissioner as indicative of the money flows that had taken place, leaving Mr Hart an undischarged onus to show that the Practice Amount assessment figure was excessive given that he ran a case of denial rather than positive evidence on this point. The onus in that regard remained on Mr Hart and was not in substance advanced in argument or evidence. In those circumstances the assessment is not shown to be wrong, even if there is some residual doubt as to the correctness of the quantum upon this basis. Such a doubt does not of itself make an assessment excessive, let alone discharge the onus of demonstrating that is so. On balance, I find that Mr Hart has not discharged his onus and the full amount has therefore not been shown to be excessive. A portion of the net income of the Outlook Trust for the 1997 income year was properly included in Mr Hart's assessable income under s 97 of the ITAA 1936 148 On the Commissioner's alternative argument, addressed in the alternative to the preceding conclusion, as to a portion of the net income of the Outlook Trust (rather than the Practice Trust) being included in Mr Hart's assessable income, the Commissioner relied on: (1) the fact that Mr Hart received regular payments from the Outlook Trust during the 1997 income year; (2) the terms of the trust deed for the Outlook Trust; and (3) the operation of ss 95A and 101 of the ITAA 1936. Mr Hart received regular payments from the Outlook Trust during the 1997 income year 149 There was no dispute that a portion of the income of the Outlook Trust was paid to Mr Hart. The dispute was one of characterisation as being loan funds, a point upon which Mr Hart has failed. Mr Hart's evidence was that: (1) on 6 June 1997 the trustees of the Practice Trust orally resolved to make an interim income distribution to the Outlook Trust in the sum of $200,000; (2) in the 1997 income year and subject to any entitlement of the special unitholders, the Outlook Trust became presently entitled to a share of the net income of the Practice Trust in the sum of $220,398; (3) all payments due to the trustee of the Outlook Trust were to be paid to Mr Hart as nominee and agent of the trustee; and (4) the trustee of the Outlook Trust paid Mr Hart $185,698, albeit that he said this reflected a loan made to him. 150 Given those admissions and in particular the failure of Mr Hart's case on the moneys being the product of a loan, this was arguably a stronger case on the evidence for the Commissioner than that relying on the payments on the preceding basis for a trust distributions assessment from the Practice Trust. The terms of the trust deed for the Outlook Trust 151 The Outlook Trust deed contains detailed provisions addressing discretions as to income of the trust fund. The Commissioner places particular reliance on parts of clauses 3.2 and 3.5 and also clause 3.8, which provide as follows: 3. DISCRETIONS AS TO INCOME OF THE TRUST FUND … 3.2 The Trustee may at any time prior to the expiration of any year which ends before or upon the Perpetuity date determine with respect to all or any parts of the net income of the Trust Fund of such year: 3.2.1 to pay apply or set aside the same or any part thereof for all or one or more of the Primary and Secondary Beneficiaries living or in existence at the time of the determination; … 3.2.3 to accumulate the same or any part thereof. … 3.5 The following rules shall apply to any determination made pursuant to Sub-clauses 3.2 and 3.3 of this Clause and in relation to Sub-clause 3.4 of this Clause namely:- … 3.5.3 Any determination may be made in writing signed by the Trustee or by resolution duly passed at a meeting of the Trustee or in the case of a determination to pay apply or set aside any amount for any Beneficiary may be made by placing such amount to the credit of such Beneficiary in the books of the Trust Fund or by drawing any cheque in respect of such amount made payable to or for the credit or benefit of such Beneficiary or by paying the same in cash to or for the benefit of such Beneficiary. … 3.8 It is declared that each of the Beneficiaries in whose favour the Trustee shall pay, apply or set aside the whole or a part of the net income or the whole or a part of the additional tax income of the Trust Fund for that year or failing an effective accumulation who shall be entitled to share in the amount of such accumulation for that year as is herein provided shall have an immediate and indefeasible vested interest in that part of the net income or additional tax income or the amount of such accumulation for that year to which that Beneficiary is entitled hereunder, it being the express intention of the Settlor (as the Trustee acknowledges) that such of the Beneficiaries in whose favour the Trustee shall pay, apply or set aside the said net income or the said additional tax income or failing an effective accumulation who shall be entitled to share in the amount of such accumulation as herein provided shall be presently entitled to his or her share of such net income, additional tax income or the amount of such accumulation. [emphasis as per submissions for the Commissioner] 152 The Commissioner's closing written submissions asserted, and I accept, that in accordance with the portions of clause 3 of the Outlook Trust deed reproduced above, Mr Hart acquired a vested and indefeasible interest in the amounts that were actually paid to him or to his benefit by Outlook Crescent Pty Ltd as trustee for the Outlook Trust during the 1997 income year, and was presently entitled to those amounts for the purposes of s 97 of the ITAA 1936. The operation of ss 95A and 101 of the ITAA 1936 153 The Commissioner's case as to the application of ss 95A(1) or 101 of the ITAA 1936 leads to the same outcome as the trust deed, namely that Mr Hart was presently entitled to the net income of the Outlook Trust in the amounts that were in fact paid to him or to his benefit during the 1997 income year. Consideration of the alternative argument 154 The only means available to Mr Hart to defeat the conclusion that a trust distribution had in fact taken place is acceptance that such money was received by way of loan, a point upon which Mr Hart has already failed to discharge the necessary onus. It follows that this alternative argument advanced by the Commissioner should also succeed and for that additional reason at least the sum Mr Hart deposed to receiving of $185,698 should be included in his assessable income for the 1997 income year pursuant to s 97(1) of the ITAA 1936. As this conclusion constitutes a finding that Mr Hart has not shown that the assessment upon this basis was excessive, there is no logical reason to reduce the assessed amount from $220,398 to $185,698. It was for Mr Hart to explain the difference between the two amounts. He chose not to do so. The assessment as to the Practice Amount must therefore stand upon this basis. Part IVA issue 155 In this section, I consider whether Part IVA of the ITAA 1936 applies to the Practice Trust NVI Scheme and the Income Earning Trusts NVI Scheme. Overview of Part IVA 156 Part IVA was inserted into the ITAA 1936 to counter tax avoidance arrangements, replacing the regime under the former s 260 which had proved to be ineffective in that regard: Peabody at 375. It is designed to deprive a class of otherwise legally effective tax arrangements created for the sole or dominant purpose of avoiding tax of their efficacy and thereby render as assessable income that which would not otherwise have that legal character. 157 Part IVA applies to schemes entered into after 27 May 1981: (1) that were entered into for at least the dominant purpose of obtaining a tax benefit, by reference to particular statutory criteria (in s 177D detailed below); and (2) for which a taxpayer obtained a tax benefit in connection with the scheme (or would have obtained such a benefit but for the Commissioner exercising the power in s 177F to cancel the tax benefit). 158 The meaning and requirements of the key provisions of Part IVA have been made reasonably clear by both long-standing and more recent authority. If all the elements of Part IVA are satisfied, the Commissioner has a power and discretion under s 177F to cancel the tax benefit by determining that an amount shall be included in the taxpayer's assessable income for the relevant income year. 159 A question required to be answered in every Part IVA case is whether a tax benefit which the Commissioner has purported to cancel is in fact a tax benefit obtained in connection with a scheme caught by that Part and so susceptible to cancellation at the discretion of the Commissioner. The validity of the exercise of the power in s 177F(1) does not depend on the Commissioner's opinion or satisfaction as to the tax benefit, nor is it necessarily adversely affected by identifying error in some mere detail of a scheme relied upon by the Commissioner: Peabody at 382.3. 160 As was observed in Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 413.3 (citations omitted): Part IVA operates where (i) there is a "scheme" as defined in s 177A; (ii) there is a "tax benefit" which, in relation to income amounts, is identified in par (a) of s 177C(1) as an amount not included in the assessable income of the taxpayer where that amount would have been included or might reasonably be expected to have been included in that assessable income for the relevant year of income if the scheme had not been entered into or carried out; (iii) having regard to the eight matters identified in par (b) of s 177D, it would be concluded that there was the necessary dominant purpose of enabling the taxpayer to obtain the tax benefit; and (iv) the Commissioner makes a determination that the whole or part of the amount of the tax benefit is to be included in the assessable income of the taxpayer (s 177F(1)(a)). The Commissioner then "shall take such action as he considers necessary to give effect to that determination" (s 177F(1)). 161 Therefore, in order for the Commissioner to have the power and discretion in s 177F, the necessary matters to be determined may be summarised as follows: (1) whether there was there a scheme to which Part IVA applied (per s 177A); (2) whether there was a tax benefit being an amount that would have been included in assessable income but for the scheme, calling for a predictive exercise by way of counterfactual analysis as to what would have happened but for the scheme; and (3) whether the dominant purpose of the scheme was the obtaining of the tax benefit, having regard to the matters listed in s 177D(b)(i) to (viii). Scheme 162 Central to the operation of Part IVA is the wide and exhaustive definition of "scheme" in s 177A: (1) In this Part, unless the contrary intention appears: scheme means: (a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct; taxpayer includes a taxpayer in the capacity of a trustee. 163 There is no question that in this case there was a scheme falling within the above definition. The NVI Scheme was deliberately applied so as to affect the tax status of the Practice Amount and the IET Amount. So much was not in doubt. The live question was whether that scheme was caught by Part IVA in each of its manifestations, contrary to its expressly intended design. Tax benefit by the predictive exercise 164 Section 177C(1) provides that a "tax benefit", for the purpose of determining whether a taxpayer obtained such a benefit in connection with a scheme, relevantly includes: (a) an amount not being included in the assessable income of the taxpayer of a year of income where that amount would have been included, or might reasonably be expected to have been included, in the assessable income of the taxpayer of that year of income if the scheme had not been entered into or carried out; 165 The consideration of s 177C requires that regard be had to the entirety of Part IVA in an interrelated and objective way, rather than any parts or provisions in isolation, although the pivotal provisions are ss 177D and 177F(1): Federal Commissioner of Taxation v Hart [2004] HCA 26; (2004) 217 CLR 216 at 232-3 [37] – noting that the taxpayer in that case was not the present applicant. 166 Section 177C requires a prediction to be made as to events which would have taken place if the relevant scheme had not been entered into or carried out; more is required than ascertaining a mere possibility as to what might have happened: Peabody at 385. 167 The required prediction is one based on objective inquiry and determination: RCI Pty Ltd v Federal Commissioner of Taxation [2011] FCAFC 104; (2011) 84 ATR 785 at 842 [127]. It must be sufficiently reliable to be regarded as reasonable: Peabody at 385. Because the required prediction requires a consideration of what would have happened but for the existence of the scheme, it necessarily entails counterfactual reasoning by comparing the scheme in question with one or more alternative postulates: Hart at 243-4 [66]. It is unavoidably hypothetical, with the onus being on the taxpayer to identify the integers for the alternative postulate: Federal Commissioner of Taxation v Trail Bros Steel and Plastics Pty Ltd [2010] FCAFC 94; (2010) 186 FCR 410 at 418-9 [30]. When an alternative postulate is being considered, the entirety of the scheme must be ignored: Trail Bros at 418 [28], citing Federal Commissioner of Taxation v Lenzo [2008] FCAFC 50; (2008) 167 FCR 255 at 281 [136]. 168 Whether or not the Commissioner's counterfactual is found to be reasonable does not of itself answer the question of whether the taxpayer has established that the assessment is excessive. The Court must still determine objectively what would or might reasonably have been expected to have occurred if the scheme had not been entered into having regard to the evidence, inferences able to be drawn from the evidence and the apparent logic of events: RCI at 843 [130]. 169 The objective inquiry and determination required by s 177D is more likely to be soundly made by reference to the matrix of underlying or foundation facts established on the evidence before the Court than by reference to subjective assertions by the taxpayer as to what would have taken place in the absence of the scheme. However that does not make such evidence irrelevant or worthless unless it is really only speculation without objective support. Indeed failure on the part of the taxpayer to lead subjective evidence may be of little moment on the facts and circumstances of a given case and because of the objective nature of the inquiry. See McCutcheon v Federal Commissioner of Taxation [2008] FCA 318; (2008) 168 FCR 149 at 163-4 [37]-[39], endorsed by the Full Court in RCI at 844 [134], see also RCI at 844 [135]-[136]. 170 A summary of general propositions as to the analysis required to establish the relevant counterfactual is conveniently set out in the reasons of Edmonds J in Federal Commissioner of Taxation v Ashwick (Qld) No 127 Pty Ltd [2011] FCAFC 49; (2011) 192 FCR 325 at 371-3 [153]. Dominant purpose 171 Section 177D relevantly provides that Part IVA will apply to a scheme where "it would be concluded that the person … who entered into or carried out the scheme … did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme …" having regard to the following specific criteria set out in s 177D(b): (i) the manner in which the scheme was entered into or carried out; (ii) the form and substance of the scheme; (iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out; (iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme; (v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme; (vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme; (vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and (viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi); … 172 Section 177A(5) provides that where a taxpayer has more than one purpose in entering into or carrying out the scheme in question, it is sufficient that the purpose of obtaining the tax benefit was dominant. 173 The ordinary meaning of a "dominant" purpose is one which was "the ruling, prevailing, or most influential" purpose: Spotless at 416.7. Applying that measure of dominance to ss 177A(5) and 177D(b), the question is whether "a reasonable person would conclude" that the ruling, prevailing, or most influential purpose of entering into or carrying out the scheme was to enable a taxpayer to obtain a tax benefit in connection with that scheme: Spotless at 423.2. 174 The objective matters set out in s 177D are therefore not concerned with the subjective motives of the relevant taxpayer or anyone else who entered into or carried out the scheme or any part of it, but rather requires a conclusion to be drawn from the listed objective matters to determine the purpose "to be attributed" objectively to those persons: Hart at 242-3 [63]; Federal Commissioner of Taxation v Consolidated Press Holdings Ltd [2001] HCA 32; (2001) 207 CLR 235 at 263 [89], [94], 265 [98]. Moreover, the objective matters in s 177D do not have to be referred to by the Court individually. Provided they have all been considered, it is sufficient to take all the specified matters into account in forming a "global assessment of purpose": Consolidated Press Holdings at 263 [94]. 175 A dominant purpose of enabling the relevant taxpayer to obtain a tax benefit is not defeated by the presence of a rational collateral purpose. In Consolidated Press Holdings, for example, the fact that the overall transaction was aimed at profit-making did not make it artificial or inappropriate to observe that a part of the structure of the transaction was to be explained by reference to a dominant s 177D purpose: Consolidated Press Holdings at 264 [96], citing Spotless at 415.8. 176 It is also important to be aware of the risk of a false dichotomy between different purposes, such as between a rational commercial decision, pursuit of a commercial gain or some other genuine explanation for what was done on the one hand, and the obtaining of a tax benefit on the other: Spotless at 415.6. If, viewed objectively, it was the obtaining of the tax benefit which directed the taxpayers in taking steps they otherwise would not have taken by entering into the scheme, then the coexistence of such a legitimate purpose, in the sense of a non-tax purpose, will not rob the scheme of the requisite dominant tax purpose: Spotless at 423.3. The establishment of the Outlook Trust 177 The circumstances in which the Outlook Trust was established, including its legal framework and the process of approval by the Law Society, have assumed some importance in the resolution of the issues concerning the application of Part IVA in relation to the Practice Amount. 178 The Outlook Trust was established by a deed of trust dated 1 March 1992. It is a discretionary trust. On 29 January 1993, some ten months later, it became a unitholder in the Practice Trust upon the Practice Trust being established. Clause 3 of the trust deed for the Outlook Trust deals with the income of the trust each year, on its face allowing the trustee to pay, apply or set aside such of that income for the benefit of the defined primary, secondary or tertiary beneficiaries or to accumulate that sum. A schedule to the Outlook Trust deed identifies the primary, secondary and tertiary beneficiaries. 179 It is not controversial that the primary beneficiaries include Mr Hart as the principal and also his spouse, children and grandchildren. For the reasons that follow, what is controversial is that: (1) the primary beneficiaries also include Mr Hart's great-grandchildren; and (2) the secondary beneficiaries are the siblings of Mr Hart and his wife and their children, grandchildren and great-grandchildren, in addition to the spouses of any primary beneficiaries and the spouses of any secondary beneficiaries; and (3) the tertiary beneficiaries include a number of listed organisations which are apparently charities, but also, subject to the rule against perpetuities, any trustees of any settlement or any company or corporation wherein any of the beneficiaries has a beneficial entitlement to the trust's assets or shares. 180 The reason for controversy is that the Commissioner asserts that the wider class of individuals or entities, beyond Mr Hart, his wife, children and grandchildren, does not accord with the scope of the necessary approval for the Practice Trust to own and operate a law firm in Queensland given by the Law Society on the day prior to the establishment of the Practice Trust, namely 28 January 1993. That in turn goes to the prediction of the likelihood of a solicitor deliberately engaging in illegal activity, however technical, as an element of a counterfactual required to be considered by this Court when considering the operation of Part IVA. It entails consideration of the process and conditions leading up to that Law Society approval. 181 On 21 December 1992, Cleary Hoare wrote to the Law Society about the restructure referred to above, by which it was proposed that the firm would move to being constituted as a unit trust. At that time, it was proposed that the trustees would be Messrs Cleary, Hoare and Grant, and that the unitholders of the unit trust would be discretionary trusts representing the families of those three individuals and Mr Hart. The letter stated that the trustees of each family trust would either be those individuals or companies controlled by them. It expressly stated that no income or receipts of the practice would be passed to any persons other than Messrs Cleary, Hoare, Grant or Hart or the spouses, parents, children or grandchildren of any of them. Approval was sought for that proposal. It was asserted that the trust deeds would be substantially in accordance with prior trust deeds approved by the Council of the Law Society. The letter asked whether the Law Society needed to see the proposed trust deeds and also some other practical matters such as the style of the letterhead. That section of the letter noted that Mr Hart would have equity interests through the trust structure. 182 The Law Society responded two days later by letter dated 23 December 1992. That letter enclosed pro forma applications for sharing receipts from the law firm which needed to be completed by each individual who sought the benefit of Law Society Council consent in accordance with r 78 of the Law Society Rules made under the Law Society Act. The forms were stated to require disclosure of the names and relationship of the individual beneficiaries in each case. Some other questions were raised which do not require further consideration. 183 On 18 January 1993, Cleary Hoare responded to the Law Society's 23 December 1992 letter, enclosing four applications to share receipts with an unqualified person under r 78(1)(d) of the Law Society Rules, being applications by each of Messrs Cleary, Hoare, Grant and Hart. The covering letter stated that the effect of the new arrangements was that there would be an additional "equity-holder", namely Mr Hart, with the remaining Messrs Cleary, Hoare and Grant being "equity partners". 184 The application signed by Mr Hart and dated 21 January 1993 sought approval (emphasis added for the purposes of Mr Hart's argument below): … to share receipts of the practice with my spouse, parents, children, grandchildren ("family members") and any other person approved by the Society ("an approved person") and any company or trust in which the only persons entitled to receive dividends or benefits are those family members and those approved persons. 185 The application also stated immediately after that: The applicant declares: 1. The agreement as to sharing is in writing bearing date 21st day of January 1993 and is signed by the parties thereto and provides that it is conditional upon this application being approved. … 7. I undertake: (i) to furnish the Council with such information in relation to the practice as the Council deems relevant to the continuation of such approval and as the Council may from time to time require; (ii) not to vary the agreement to share referred to in paragraph 1 without first obtaining the Council's approval to such variation; and (iii) to notify the Council immediately [sic] the sharing of receipts ceases in any respect. … 186 In cross-examination, Mr Hart said that no further approval had been sought. When challenged as to the disparity between the limited pool of persons identified to the Law Society that he would share receipts with and the additional primary beneficiary of "great-grandchildren" and the secondary beneficiaries and tertiary beneficiaries referred to at [184] above going beyond that limited pool, he said that he relied upon the use of the word "entitled" in the portion of the 21 January 1993 application reproduced above at [184] to justify the wider pool upon the basis that only his family members were entitled to receive any part of the practice income, with the wider pool of beneficiaries only receiving any income as a matter of the exercise of discretion rather than by way of any entitlement. 187 Mr Hart was then taken to the letter sent to him by the Law Society dated 28 January 1993 advising of the consent to the proposed receipt sharing pursuant to r 78 of the Law Society Rules. The second sentence of the first paragraph of that letter, the same letter being sent to each of the other three applicants, accorded with paragraph 4 of the letter from Cleary Hoare to the Law Society dated 21 December 1992 in identifying the limited pool of persons to whom income or receipts of the practice would be passed to, when it stated (emphasis added): … It is observed that all of the class specified in your application are within the family nexus contemplated by previous Council rulings and your certificate to the effect that no other sharing is permitted under the terms of the Trust has been noted. 188 By way of explanation for the disparity between the application and the approval as compared with the text of the trust deed, Mr Hart said that he had not picked up that sentence of the letter sent back to him by the Law Society. However, that explanation does not explain the express limitation on the passing of income or receipts contained in the original Cleary Hoare letter sent to the Law Society on 21 December 1992. For the reasons detailed below, this disparity assumes some importance in the resolution of Mr Hart's attempt to overturn the Commissioner's assessment in respect of the Practice Amount. 189 Mr Hart said in cross-examination that the agreement as to sharing in writing signed by the parties referred to in the application form that he signed was not constituted by any separate document but rather was contained in the four applications made by himself and the other three applicants and the covering letter under which the applications were sent on 18 January 1993. In cross-examination Mr Hart confirmed that the trust deed for the Outlook Trust was not amended after the Law Society approval, to align that trust deed with that approval. 190 In cross-examination Mr Hart was taken to [82] of his statement, the first sentence of which was admitted into evidence (and the second sentence not ultimately pressed). That sentence provided: I was not concerned that involvement on the part of the Outlook Trust in the NVI arrangement in the 1997 income year would be in breach of [Law Society] approval because I did not believe that the end result of the NVI transactions could be said to constitute a sharing of practice receipts outside the scope of the approval. 191 That assertion does not survive in light of Mr Hart's cross-examination on the Law Society material referred to above. This Court must proceed upon the basis of the correct legal basis informing the required counterfactual prediction as to Mr Hart's behaviour in the absence of the scheme upon which he relies, not any mistaken legal basis erroneously believed by Mr Hart to apply to the arrangements which he entered into. As will become apparent, this is significant because Mr Hart's counterfactual, such as it was, was not expressed to be constrained by any such limitation. There was no evidence of a history of distributions to any of the approved beneficiaries apart from himself to inform his counterfactual. Indeed, on all of the available evidence, it does not seem that any such distributions ever took place. Mr Hart's counterfactual (to the effect that taxable distributions to him would not have been made in the absence of the scheme) was effectively left dependent on practice income being distributed either unlawfully, contrary to history, or upon some unexplained and speculative basis. That was not a promising basis upon which to displace the Commissioner's counterfactual, or to support his own counterfactual. 192 The unlawful aspect is borne out by the evidence. It illustrates clearly one aspect of Mr Hart's counterfactual which cannot prevail. Mr Hart agreed, subject to a condition referred to next, that the distribution of approximately $700,000 to Retail Technology Holdings Pty Ltd by Lake Mylor Pty Ltd as trustee of the Zebra Fixed Trust (see the flowchart reproduced above at [62]) was a sharing of receipts outside the immediate family circle approved by the Law Society. In answer to further questions in cross-examination, Mr Hart described that condition as being essentially a "round robin" arrangement whereby money given to Retail Technology Holdings would be paid back to Lake Mylor by way of a gift via promissory note. The problem with that approach, which was not confronted or dealt with by Mr Hart in his answers in cross-examination or in re-examination, was that the money distributed by Lake Mylor as trustee to Retail Technology Holdings was a distribution of income, whereas the money coming back to Lake Mylor was a gift (or perhaps more accurately, the gift had to take place first, having regard to the terms of s 100A). That meant, unavoidably, there had been a distribution of income to Retail Technology Holdings which constituted a sharing of practice receipts outside the scope of the approval given by the Law Society. The same problem would be occasioned by distributing income to any other entity with tax losses, because that would also be beyond the scope of Law Society approval. Indeed, that was an unavoidable consequence of that transaction because the whole purpose, apparently, of the arrangement was to deprive the funds of having the character of income at all and therefore of being capable of having the character of taxable income. Yet as will be seen, distribution in a way that reduced or eliminated tax was front and centre to Mr Hart's somewhat ill-defined counterfactual. 193 In cross-examination, Mr Hart was also taken to the Practice Trust deed, and in particular to cl 19.2.4 which reads: 19.2 In the conduct of such practice the trustees and their partners (if any):- … 19.2.4 shall ensure that all requirements of law and all lawful requirements and rulings of the Council [of the Law Society] are observed; … 194 By the 1997 income year, Mr Hart was one of the trustees of the Practice Trust and was therefore bound to comply with the above paragraph of the trust deed. That assumes some importance again on the question of whether, in the absence of the scheme, his share of the practice income would have been distributed to him, as the Commissioner contended. The conclusions reached on this topic are of considerable importance when it comes to considering the competing counterfactuals by way of the necessary predictive exercise. Consideration of the application of Part IVA 195 I now turn to consideration of the issue of the application of Part IVA in relation to both the Practice Amount and the IET Amount. It is convenient to refer to the Part IVA issues concerning the Practice Amount by reference to the Practice Trust NVI Scheme, and those concerning the IET Amount by reference to the Income Earning Trusts NVI Scheme. 196 In supplementary submissions for Mr Hart furnished immediately prior to final oral submissions, it was made clear that he was not contending that there was not a scheme as widely defined in Part IVA. The critical analysis was linking the asserted tax benefit to the scheme and in particular focusing on the tax benefit to Mr Hart in the 1997 income year rather than a tax benefit to the Outlook Trust or to any of the Income Earning Trusts. For each scheme, it is therefore necessary to consider the competing cases as to: (1) whether Mr Hart obtained a tax benefit in connection with the Practice Trust NVI Scheme and/or the Income Earning Trusts NVI Scheme – that is, whether but for each manifestation or application of the NVI Scheme, an amount that was not included in Mr Hart's assessable income would or might reasonably be expected to have been included, an issue that requires consideration of competing counterfactuals, being the heart of the Part IVA dispute between the parties; (2) the dominant purpose of each manifestation of the NVI Scheme having regard to the eight matters listed in s 177D(b) – that is, whether the ruling, prevailing or most influential purpose of entering into each version of the scheme was that of enabling Mr Hart to obtain the tax benefit referred to at (1) above, this being an area formally disputed by Mr Hart, but not being his primary contention; and (3) if both of the above two gateways are satisfied, whether Part IVA applies to permit the Commissioner to include the Practice Amount of $220,398 (or some lesser amount) and/or the IET Amount of $275,481 (or some lesser amount) in Mr Hart's assessable income for the 1997 income year – although important, it did not seem to be actively disputed by Mr Hart that this step would inevitably follow if the preceding two gateways were satisfied, except perhaps as to quantum as to which Mr Hart still had the onus of proving to be excessive. 197 It is only if all three of the above are satisfied that penalties were able to be imposed, in which case the final issue to be determined in respect of Part IVA and with respect to the prior topic of trust distributions, is whether any penalties should have been imposed, and if so whether the level at which they were imposed was appropriate in all the circumstances. The Practice Trust NVI Scheme Whether Mr Hart obtained a tax benefit in connection with the Practice Trust NVI Scheme 198 Applying legal principles summarised above, the issue is whether, but for the scheme, the Practice Amount sum of $220,398, or some part of it, would have been included in Mr Hart's assessable income for the 1997 income year. That requires a consideration of the competing counterfactuals, while keeping steadily in mind that Mr Hart's onus of establishing that the amended assessment was excessive will not necessarily be discharged by merely establishing that the Commissioner's counterfactual is unreasonable, any more than the Commissioner can necessarily succeed by no more than showing a reasonable counterfactual. Rather, this Court is required to determine objectively, by reference to direct evidence, any available inferences and the application of logic and reasoning, what would or might reasonably have been expected to be included in the taxable income of, in this case, Mr Hart, had the scheme not been entered into. 199 Thus even if Mr Hart established that the Commissioner's counterfactual was unreasonable, that alone will not discharge his onus of showing the amended assessment was excessive if the Court determines objectively that he would or might reasonably have been expected to have done something which gave rise to the same tax benefit. See RCI at 843 [129]-[131]. 200 The Commissioner contends that the relevant tax benefit for the purposes of s 177C(1) is the amount of $220,398 (or some lesser amount), which would or might reasonably be expected to have been included in Mr Hart's assessable income for the 1997 income year had the Practice Trust NVI Scheme not been carried out. The Commissioner contended that had the scheme not been carried out, the trustees of the Practice Trust would still have distributed Mr Hart's share of the net income of the Practice Trust for the 1997 income year to the Outlook Trust. The issue was whether Outlook Crescent Pty Ltd (OCPL), as trustee for the Outlook Trust, would have on-distributed the same or some lesser amount to Mr Hart or to his benefit. The Commissioner contended that on all the evidence, it was a reasonable prediction that this would have taken place because of the following facts established by the evidence: (1) Mr Hart, as a principal solicitor at Cleary Hoare, provided legal advice and services to clients and thereby generated income in the form of legal fees. (2) Mr Hart generated fees by doing solicitor's work, and managed others who did the same. (3) Employed solicitors of the firm were mainly remunerated by way of salary. (4) Mr Hart was remunerated in that way when he was a salaried partner, or alternatively a principal, then an employed solicitor in the 1991 and 1992 income years (as demonstrated by his tax returns). (5) Cleary Hoare was structured so that the legal practice was owned and conducted by the trustees of the Practice Trust, which was a unit trust. (6) The net income of the Practice Trust was distributed to the unitholders, which apart from the holders of special units comprised four discretionary trusts representing the interests of the four natural person principals of the firm, with Mr Hart's interest being represented by the Outlook Trust of which Mr Hart was a beneficiary, and at all material times a director of OCPL as trustee of the Outlook Trust. (7) Mr Hart was bound by the terms of the approval given by the Law Society limiting the sharing of receipts to Mr Hart's spouse, parents, children, grandchildren and any other person approved by the Law Society and any company or trust in which the only persons entitled to receive dividends or benefits were such family members or approved persons. (8) A properly available inference from all of the evidence was that Mr Hart had been the sole recipient of funds sourced from the Outlook Trust because: (a) the only recorded so-called "loan account" in the balance sheet for the Outlook Trust records Mr Hart's name, not any other beneficiary – thus even when the loan characterisation for the receipt of moneys was not accepted, that entry still reflects the sole actual beneficiary for the year in question; (b) Mr Hart did not in his evidence (statement or oral evidence) refer to any distributions made by the Outlook Trust to any other beneficiary of that trust; (c) in his letter to the Australian Taxation Office dated 1 July 2002, Mr Hart advised that his wife had never been involved in the conduct of the business of Cleary Hoare and that there was nothing in her records which was relevant to the income derived by him or any of the entities of which she was a director including entities associated with Comlaw Consultants, Cleary Hoare Corporate or Cleary Hoare; and (d) in his letter to the Australian Taxation Office dated 11 October 2004, Mr Hart advised that flows of money took place in accordance with Law Society approval, including from Cleary Hoare to the Outlook Finance Trust and Outlook Finance No. 2 Trust and that the balance sheets of those two trusts show that the money went from there to Mr Hart, the holder of a full practising certificate. (9) Mr Hart was solely responsible for directing payments from the Outlook Trust bank account to joint bank accounts with his wife and to the Oak Arrow bank account, with letters dated 24 December 1996, 2 January 1997, 21 January 1997, 3 February 1997, 13 February 1997, 5 March 1997 and 24 April 1997 from Mr Hart to Metway Bank Ltd and associated deposit slips being relied upon to demonstrate this; (10) A credit approval request, dated 4 August 1998, records (supported by other bank records): (a) significant expenditure on mortgage repayments, living and other expenses, including the lease of a motor vehicle; and (b) in the 1998 and 1999 years, by reference to Mr Hart's sharing in the net profits of the Cleary Hoare legal practice, he undertook to pay for the purchase of an investment property and a holiday house albeit in his wife's name or that of an associated trust entity. (11) Mr Hart signed a statutory declaration dated 22 June 1996 to the effect that all payments made and to be made by him to joint bank accounts with his wife and in the name of Oak Arrow Pty Ltd were intended to be gifts made by him. (12) All of the above supported the only reasonable inference that Mr Hart was presently entitled to the income of the Outlook Trust and distributed the moneys from that trust accordingly. (13) Accordingly, it was reasonable to expect that in the absence of the scheme, or some other scheme to which Part IVA would apply, Mr Hart's participation in the financial benefit of the profits generated by the Cleary Hoare legal practice would still have taken place, but in the form of the receipt of income and that was the only available reasonable prediction on the evidence. 201 The substance of the Commissioner's counterfactual was that, absent the scheme, the same money flows would have taken place, but would have been assessable income. That was because Mr Hart would continue to need the money, even if that entailed the disadvantage of receiving it net of tax rather than tax-free. Assertions from the bar table as to what else might happen, or even as to the illogicality asserted of money being paid in a form that was taxable rather than not taxable, do not constitute evidence upon which an alternative counterfactual can be based. The apparent logic of events form of reasoning referred to in RCI at 843 [130] is something that must be built upon an evidentiary foundation and cannot operate as a substitute for evidence. 202 The greater part of Mr Hart's case was dedicated to attacking the Commissioner's counterfactual, rather than strenuously asserting his own. That attack on behalf of Mr Hart asserted that the Commissioner failed to identify a tax benefit that had been obtained by him in relation to a scheme because: (1) The scheme identified by the Commissioner commenced on 27 June 1997 with the resolution by the trustee of the Outlook Trust to distribute all income to the trustee of the Annesley No. 3 Trust. (2) The trustee of the Outlook Trust properly exercised its powers in writing to exercise its discretion as to the income of the Outlook Trust in the 1997 income year in accordance with cl 3 of the trust deed. (3) Distributions made by the trustee of the Practice Trust to the trustee of the Outlook Trust in the 1997 income year were not a part of the scheme identified by the Commissioner. (4) Therefore any consideration of tax benefit must start with the position that the relevant fund of income was held by the Outlook Trust. (5) It could not reasonably be expected that the trustee of the Outlook Trust would have distributed any of its income to Mr Hart. 203 It was asserted on behalf of Mr Hart that those reasons were supported by the following aspects of the case pertaining to him in person and to the arrangements entered into: (1) His extensive experience as a solicitor specialising in revenue law. (2) His financial background, his prior bankruptcy, and, in particular, his focus on not being in a position where any trustee in bankruptcy in the future could make a claim against the Outlook Trust for any amounts it owed to him (as opposed to amounts he owed to it, maintaining a debtor relationship). (3) His desire not to be exposed to any of the creditors of the prior Cleary Hoare partnership. (4) The persons with whom he was in a business relationship. (5) The continual recording in the financial statements of the Outlook Trust of a loan being made to Mr Hart and of his indebtedness to that trust. (6) There being no challenge to the capacity of Mr Hart to repay the debt owed to the Outlook Trust [which necessarily entails putting to one side the fact that the Outlook Trust ceased to trade 15 years ago and no repayments had been made to it in the 15 or so years between then and when Mr Hart gave evidence in cross-examination at trial]. (7) The fact that there had never been a prior distribution by the Outlook Trust in favour of Mr Hart. (8) The history of distributions from the Outlook Trust, in that in each of the 1994, 1995 and 1996 income years, the whole of the income of the Outlook Trust was distributed to the Cleary Hoare Office Unit Trust (CHOUT), and thus, it was asserted, that there was no basis for contending that, absent the NVI Scheme, the income of the Outlook Trust would not have been distributed to CHOUT in the 1997 income year, such that CHOUT would be in an analogous position to TEP Holdings Pty Ltd in Peabody. (9) That to cause the Outlook Trust to distribute income to Mr Hart personally rather than in a more tax effective manner would lead to the imposition of a higher level of taxation, which was commercially naïve. (10) It was sound commercial practice to keep assets and risk separated even with professional indemnity insurance being available. (11) It was a "fundamental principle" of asset protection that the person at risk does not accumulate wealth, or derive income. 204 It may be seen from the above almost verbatim listing of Mr Hart's arguments that the substance of his counterfactual did not rise much beyond asserting a history disclosing a lack of an intention to distribute the net income of the Outlook Trust to him in taxable form because of a long-standing practice of not receiving income in his own name from either the Outlook Trust or from the Cleary Hoare legal practice except as an employee prior to 29 January 1993. This was said to reflect an overarching concern to ensure that assets would be protected from exposure to potential claims by creditors of Cleary Hoare or any trustee in bankruptcy. Essentially, Mr Hart pointed to the Outlook Trust having a history of distributing its net income through a non-associated trust with tax losses and asserted that the Commissioner had not shown that he would not continue to adopt a similar practice such that the Commissioner's counterfactual was not reasonable. This overlooked the need for compliance with the terms of the Law Society authorisation for such distributions beyond the limited approved recipients, which reduced down to only Mr Hart once regard is had to history. Once unlawful distributions were removed from the equation, the evidence did not indicate any past payment to anybody other than Mr Hart or to his benefit. 205 In any event, the Commissioner characterised Mr Hart's reliance on the Outlook Trust's past history of distributions through the associated trust with tax losses (being CHOUT) as misconceived because its losses had largely been absorbed in previous years and in any event there was no possible commercial purpose to the Outlook Trust's distribution of income to CHOUT. In those circumstances, reliance upon this as a counterfactual, which would be for the sole purpose of rendering the income of the Outlook Trust tax-free in Mr Hart's hands, is no more than reliance upon participation in an alternative Part IVA scheme, which was not a permissible basis upon which to advance a counterfactual. In any event, an arrangement is not uncommercial simply because it results in tax being paid. 206 Unless the asset protection aspect throws a protective umbrella over the rest of Mr Hart's arguments, the substance of the above amounts to little more than Mr Hart not wanting to pay tax and therefore predicting objectively that he would continue doing all that he could to avoid doing so. 207 In relation to the asserted purpose of asset protection, the Commissioner submitted that, assessed objectively, the structure of the Practice Trust, including the manner in which primary unitholders were discretionary trusts with corporate trustees, already gave a very significant degree of protection against potential claims. Also, on the evidence, Mr Hart did not own any assets in his own name but purchased investments either in his wife's name or through trusts that he controlled, using funds that he provided by way of gifts. It followed that none of those asset protection structures would have been undermined by Mr Hart receiving income from the Outlook Trust as a distribution rather than as a loan. In support of this argument, the Commissioner referred to the presentations that Mr Hart gave, and relied upon them as being focused on tax minimisation rather than asset protection. For example, an August 1993 presentation made numerous references to the tax advantages of discretionary trust structures, but made scant reference to asset protection except in the sense of protection from taxation. Those themes are repeated in numerous other papers in evidence written by Mr Hart. 208 The Commissioner also pointed out that no corporate beneficiary was utilised as part of the structure of the Outlook Trust, and that the involvement of a corporate beneficiary, being Retail Technology Holdings, was only taken to minimise tax by utilising accumulated tax losses. 209 The Commissioner relied upon the fact that Mr Hart, having gone into evidence, chose not to put forward any commercial purpose for the steps and transactions that make up the scheme and accordingly it could be inferred that any evidence he could have given on that topic would not have assisted him. To the extent that Mr Hart, in his closing written submissions, relied upon an assertion that it was commercially naïve to contend that the income of the Outlook Trust would have been distributed to Mr Hart personally, that it was sound commercial practice to keep assets and risk separated and that it was a fundamental principle of asset protection that the person at risk does not accumulate wealth or derive income, this was not supported by evidence. The Commissioner therefore asserted that Mr Hart's counterfactual was not a reasonable prediction of what would have happened or what might reasonably be expected to happen had the scheme not been carried out or entered into. 210 Mr Hart's senior counsel rhetorically asked in closing oral submissions why anyone would distribute income to somebody who is going to pay 47 or 48 cents in the dollar [referring to the top marginal tax rate in Australia], when the income could lawfully be distributed to somebody who was going to pay less than that. The ultimate problem with that submission is that Mr Hart had no proven past history of distributing to any member of his family and no other history to rely upon to take that question beyond the rhetorical. The Commissioner's case was, in substance, that Mr Hart had in fact received the money and in the absence of the NVI Scheme and in the absence of any evidence as to any alternative course of conduct in the past or a factual substratum for a different course of conduct in the future, the only reliable prediction was that he would continue to receive that money, albeit in taxable form. A minor point also to be made is that the implicit reference to marginal tax rates was not entirely apposite given that, with a declared income of $100 for the 1997 income year until the assessment and amended assessment, Mr Hart had not exhausted the tax-free threshold, let alone the lower marginal rates. 211 Mr Hart's case in substance depends on carrying out the required predictive exercise by giving effect to his desire to avoid paying tax. He did not provide objective evidence of what he had done in the past in the absence of such a scheme. He therefore had no objective foundation upon which to ground an alternative counterfactual to the one advanced by the Commissioner. In substance, he was saying that if either NVI Scheme was rendered inoperative by the operation of Part IVA, he would replace it with a scheme or arrangement that would not be caught by Part IVA, but without any objective evidentiary support for what such scheme or arrangement was available to him (as a matter separate from subjective assertions as to what he would have done). That evidence would have needed to explain how the constraints of the Law Society approval could be overcome. 212 By contrast, the substance of the Commissioner's counterfactual was to say that in the absence of the NVI Scheme, no other Part IVA-affected scheme being able to be deployed, no Part IVA-immune scheme being evidenced and nothing to show that anything different was available, the only safe and sound prediction was that the same money flows would still have taken place. In that event, Mr Hart would have received that money to his benefit, which would have been taxable income. There was no evidence that Mr Hart would not have needed or received the money but for the operation of either NVI Scheme. Doubtless he would rather not have to pay tax on it. But in the absence of any factual foundation for any alternative course of action, as opposed to mere assertion essentially relying upon the logic of Mr Hart not wanting to pay tax, and reliance upon an asset protection motive already eliminated as a significant, let alone dominant, consideration in relation to income-like money flows, I am satisfied that the Commissioner's counterfactual is a reasonable prediction on all of the available evidence and in all the circumstances. Nothing more certain is required. 213 An important additional factor supporting acceptance of the Commissioner's counterfactual was a presumption that Mr Hart as a solicitor of long-standing would not knowingly break the law. Although he only became aware of the deficiencies in the trust deed for the Practice Trust in the course of being cross-examined, he was fixed with that knowledge at trial. I find that he would behave lawfully for the purposes of assessing any counterfactual prediction. I therefore find for the purposes of any alternate postulate that the Practice Trust would only have been administered in a manner that was lawful. That conclusion necessarily precludes distributions of trust income from the Outlook Trust beyond the pool of entities approved by the Law Society. Mr Hart's sparse counterfactual, being as it was in substance little more than a denial of the Commissioner's counterfactual and speculation, either relied upon administering the Outlook Trust distributions as they had been in the past, that is to say unlawfully, or failed to explain by way of objective evidence what the available structures and arrangements were that would entail his counterfactual taking effect without breaching that approval or departing from past payment practices. In those circumstances, at least in relation to the Practice Amount, there was nothing of substance left for consideration apart from the Commissioner's counterfactual. Without a credible alternative counterfactual being advanced and established, it was not possible for Mr Hart to show that the Commissioner's assessment, at least in respect of the Practice Amount, was excessive. 214 In this case, Mr Hart's lack of a trust distribution history absent a non-Part IVA scheme or other lawful arrangement proven to be available to inform the counterfactual prediction of what would have happened or might reasonably be expected to have happened in the absence of the scheme was a double-edged sword. The absence of such a history made the positive predictive task relied upon by the Commissioner more difficult. It forced the Commissioner to rely on details of how money had actually been used, the absence of any evidence as to how having the benefit of that money could have been dispensed with, and the requirements for the lawful sharing of law firm-generated income. However, it also meant that there was no factual foundation for Mr Hart's alternative counterfactual. Mr Hart was driven to reliance upon little more than a history of not paying tax and a concept of asset protection which was not much advanced by steps taken to render cash flows ostensibly non-taxable. These were shaky foundations for an alternative counterfactual. 215 By contrast, the Commissioner was able to rely upon the money flows that had in fact taken place at the relevant time to predict that those money flows would still have taken place, albeit without the tax-free status aspect. The Commissioner was able to support that prediction by evidence as to important impediments to Mr Hart doing otherwise. Mr Hart could not be predicted to act illegally by distributing, or causing to distribute, income of the Cleary Hoare legal practice contrary to Law Society approval. Nor could he rely upon what amounted to an alternative Part IVA scheme. 216 The fact that the application of the Commissioner's counterfactual may have been unpalatable to Mr Hart and something that he would prefer not to have done because of its tax consequences, does not render it unreasonable, nor a mere possibility. In the absence of any concrete foundation for alternative steps that would have been taken, I consider that the Commissioner's counterfactual represents a reasonable, if unpalatable for Mr Hart, prediction of what would have taken place in the absence of the scheme or any other like scheme. Essentially, it is reasonable to predict, in the absence of any concrete lawful alternative, that the same money flows that in fact took place would still have occurred, but the income thereby derived being taxable. Accordingly, I conclude that the Practice Amount constituted a tax benefit for the purposes of s 177C(1). 217 Mr Hart's approach was not one that accommodated any halfway measures. He did not suggest that some lesser amount would have been received by him than the amount that he told the bank was his income, namely the precise sum of $220,398 which was the subject of the assessment. Accordingly there is no basis for arriving at any lesser amount. The dominant purpose of the Practice Trust NVI Scheme 218 Once the obtaining of a tax benefit in connection with a scheme has been established within the meaning of s 177C(1), the inquiry turns to an assessment of the dominant purpose of the scheme. It does not matter that there was a tax benefit connected to a scheme if this is absent, because the preconditions for the application of Part IVA are incomplete. That entails consideration of the eight matters listed in s 177D(b). While it is not necessary to do so individually for each of subparagraphs (i) to (viii), a global consideration being all that is required, each has been addressed by the Commissioner and this individual assessment is of assistance. Importantly, this did not appear to be the centrepiece of the case for Mr Hart because, as already indicated, his main resistance to the application of Part IVA centred on debunking the Commissioner's counterfactual and asserting his own. That, after all, was the intended operation of the NVI Scheme based on the opinion given by Mr Russell QC. At a global level, before descending to detail, it is difficult to see what point there is in entering into a tax scheme specifically designed to address and prevent the operation of Part IVA if that was not the dominant purpose of doing so. Mr Hart did advance asset protection as an alternative dominant purpose, but it has to be said that this was done somewhat faintly on this issue. It has nonetheless been considered, although very little weight can be given to it. 219 I now turn to s 177D(b)(i) to (viii). (i) The manner in which the scheme was entered into or carried out 220 The Commissioner relied upon the fact that Mr Hart entered into the Practice Trust NVI Scheme after obtaining and apparently considering the 8 February 1996 opinion from Mr Russell QC (the internal opinion), which was solely directed to taxation considerations and in particular how Part IVA might be applied to the arrangements under consideration. In particular, the Commissioner relied upon the fact that the opinion included the following (the Commissioner pointed out that the term "NCT1" below is a generic reference to the client which distributes income to be passed through the scheme): The operation of Part IVA is somewhat more problematical. It requires a conclusion to be drawn in relation to a taxpayer who has obtained a tax benefit in conjunction with a scheme that a participant in the scheme did so with the sole or dominant purpose of securing that that tax benefit will arise. In the present context, the party really seeking tax relief will be a person or persons associated with NCT1. It is difficult to see how any purpose other than the securing of that relief can be attributed to any of the participants in scheme. 221 The Commissioner then turned to the second in time external opinion by Mr Russell QC, being cast in quite different terms, albeit on the same subject matter. It relevantly stated as follows (the Commissioner pointed out that the terms "NPT1" and "NPT4" below are used to refer to new trusts associated with Cleary Hoare; and the term "NCT2" below refers to a new client trust to which a capital loan is said to be made): Question 1A Will the distribution of income by NCT1 to NPT1 and/or the receipt of funds by NCT2 (and, indirectly NCT1) from NPT4 result in any adverse tax implications for NCT1 or NCT2 by virtue of the operation of Part IVA? Answer In my opinion, no. Whilst the proposal will come within the definition of a "scheme" (Section 177A(1) of the ITAA), in my view it ought not be adversely affected by the principal anti-avoidance provisions contained within Part IVA because it will not be a scheme to which Part IVA applies as set out in Section 177D if it is not possible to identify a taxpayer who was intended to obtain a tax benefit. 222 At this point, it is relevant to note that while each document by Mr Russell QC was referred to as an advice, neither was specifically directed to giving specific advice in relation to the two manifestations of the NVI Scheme which were the subject of these proceedings. In that sense it may have been more accurate to describe them as opinions (as they were described on their face), although the terms are often used as though interchangeable. A legal opinion is usually legal analysis by reference to past or present facts, providing guidance as to what has already occurred, but which may inform what future steps might be taken albeit not forming part of the views expressed. Legal advice usually constitutes guidance as to what future actions should be taken, albeit often based on past or present facts and circumstances. The two concepts therefore have considerable room for overlap. Legal work in the taxation area in particular may be seen to blur this distinction, because advice as to what to do in the future will usually be based on what the past or current factual or legal position is, or is expected to be. But unless the future guidance component of what purports to be an advice is referrable to clearly defined facts and circumstances, the guidance may be at best illusory and at worst inapplicable or even wrong, especially when it comes to litigation. The distinction was of some importance in this case, not least because Mr Russell QC's views ended up being an important part of Mr Hart's case, especially on penalties. 223 The Commissioner submitted that the scheme comprised a series of artificial steps devised by Mr Hart to avoid paying tax on his share of the income generated by the legal practice in which the imposition of a series of trusts served no commercial purpose other than to avoid the application of Part IVA (and/or s 100A). Section 100A, which deals with present entitlements arising out of or in connection with reimbursement agreements, was argued by the Commissioner to explain an aspect of how the NVI Scheme was implemented, at least as to timing and the sequence of events in its implementation, such that a gift had to be made before a distribution was made back to the donor. The use of an interposed corporate beneficiary in the form of Retail Technology Holdings (see the flowchart reproduced at [62] above) was asserted to be explicable only because of its allowable deductions, which necessarily entailed a submission that this was for a tax benefit purpose. Similarly, it was submitted, the use of gifts, of subscriptions for units, the appointment of beneficiaries and the (ostensible) making of a loan were designed to ensure that the income would ultimately be returned to Mr Hart for his benefit in a tax-free-form. 224 The scheme was put into effect by the creation and use of trusts that were controlled by Mr Hart and his associates at Cleary Hoare. Payments were made by the use of promissory notes and book entries, as well as cash payments to bank accounts controlled by Mr Hart. He or his associates exercised control over every transaction and every step in the scheme, a fact conceded by Mr Hart in cross-examination. Mr Hart described the scheme as involving "a circuit of promissory notes amongst entities which we controlled". 225 Thus, the Commissioner submitted, the evidence supported an inference that Retail Technology Holdings was similarly under the control or direction of Mr Hart and his associates, especially because a 6 June 1997 document entitled "BEARER PROMISSORY NOTE" indicated that Mr Stephen Grant, one of the principals of Cleary Hoare, was executing a power of attorney on behalf of that company, which Mr Hart in cross-examination did not dispute. It follows that this was a safe inference to draw. 226 The Commissioner submitted that the manner in which the scheme was entered into or carried out involved a "deliberate", in the sense of knowingly illegal, flouting of the terms and spirit of the approval given by the Law Society in respect of the Practice Trust and the manner in which the receipts of the legal practice were to be dealt with. In my view, there was insufficient evidence that the flouting was deliberate because it seemed that Mr Hart had not appreciated that this was what had taken place. Nonetheless it is correct to say that the conditions of approval were not observed and to that extent the transactions were unlawful, and that the taking of the steps themselves was deliberate. In any event, Mr Hart must now be taken to be aware of the illegality of what transpired, especially as he admitted in cross-examination that the terms of the Outlook Trust deed did not comply with the terms of the approval. As already noted, the non-compliance with Law Society approval is of considerable importance to the required predictive exercise. It significantly undermined Mr Hart's counterfactual and at the same time boosted the predictive value of the Commissioner's counterfactual by making the range of viable alternatives narrower to the point of perhaps being, in this case, practically speaking non-existent. 227 The manner in which the scheme was entered into and carried out, without anything more, strongly supports the conclusion that the purpose of securing tax benefits, if not really the sole purpose, was so dominant as to render any other purpose inconsequential. For the reasons already outlined above, I reject the proposition that asset protection was even a significant purpose, let alone a dominant purpose, of the scheme. That objective was already largely achieved by the ownership of assets by Mr Hart's wife and certain trusts. (ii) The form and substance of the scheme 228 The Commissioner submitted that the form of the scheme was to divert income generated by the legal practice and flowing from the Practice Trust into the Outlook Trust to a series of interposed trusts and transactions that would facilitate that income to be treated ultimately as a loan owed by Mr Hart to the Outlook Trust. Mr Hart's evidence in cross-examination, reproduced above, made it clear that there had never been any intention to repay the purported loan to the date of trial (a part of the reason why Mr Hart was unable to prove the existence of the purported loan), although he did make a faint reference to still being in legal practice to suggest that a repayment at some time in the future was not out of the question. After 19 years that carried little sense of reality, especially as the supposed creditor ceased to trade 15 years ago. 229 The Commissioner submitted that the substance of the scheme was that the ultimate use and enjoyment of the income derived by the Practice Trust remained with Mr Hart, a fact in substance conceded by him in cross-examination. That reality seems undeniable. 230 It follows that both the form and substance of the scheme supports the dominant purpose of securing tax benefits. (iii) The time at which the scheme was entered into and the length of the period during which the scheme was carried out 231 As the Commissioner points out, the scheme was of a very short duration apparently commencing on about 27 June 1997 with the appointment of Haven Sea Pty Ltd as a beneficiary of the Outlook Trust and the resolution by the directors of Outlook Crescent Pty Ltd (as trustee of the Outlook Trust) to appoint all of the income of the Outlook Trust for the 1997 income year to Annesley No. 3 Trust. The scheme apparently continued until early in the new income year, at least until 2 July 1997. Such a short-lived scheme, straddling the end of the 1997 income year has an unavoidably strong tax benefit flavour, although a longer period does not necessarily indicate the contrary. It is however a factor that adds weight to the dominant purpose being a tax benefit aspect of the scheme. (iv) The result in relation to the operation of [the ITAA 1936] that, but for [Part IVA], would be achieved by the scheme 232 As the Commissioner pointed out, and could not be denied by Mr Hart, the result achieved by the scheme but for Part IVA, was that Mr Hart paid no tax in respect of the money he in fact received to his benefit during the 1997 income year, being $220,398, or some lesser amount. (v) Any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme 233 The Commissioner submitted that by diverting the net income of the Outlook Trust, the financial position of Mr Hart changed by reason of his avoidance of the payment of income tax on that income. It enabled him to fund lifestyle expenses and to facilitate the purchase of investments and other assets through controlled trusts. The real and ultimate use and enjoyment of that money, being legal practice income, was retained by Mr Hart. Those submissions must be accepted. (vi) Any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme (vii) Any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out (viii) The nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi) 234 The Commissioner submitted that Mr Hart's associates at Cleary Hoare were able to secure similar benefits to Mr Hart in terms of not paying tax. While this is one of the factors requiring consideration, it is not of itself of any particular significance beyond indicating that this was a coordinated scheme for the benefit of the natural persons who were the effective principals of Cleary Hoare, however described by reference to the structures deployed. 235 The Commissioner submitted that Mr Hart was at all relevant times a trustee and one of the controlling minds of the Practice Trust, the controlling mind of the Outlook Trust, a controlling mind of the trustee for the Annesley No. 3 Trust and the Annesley Trust, a controlling mind of the trustee for the CHC Discretionary Trust and a controlling mind of the trustee for the LM Income Trust. This undisputed reality adds to the lack of any commercial purpose, as opposed to tax benefit purpose, of the arrangements entered into. Conclusion on dominant purpose 236 By reason of the foregoing eight considerations, the Commissioner submitted that a reasonable person would conclude that Mr Hart, or one or more of the parties to the transactions, entered into and carried out the scheme for the sole or dominant purpose of enabling him to obtain his share of the income of the Practice Trust in a tax-free form. 237 Senior counsel for the Commissioner characterised the utilisation of these arrangements as contrived and artificial, devoid of any commercial rationale. He submitted that the tax benefit that it achieved for Mr Hart, namely the avoidance of the payment of income tax on the Practice Amount, explained objectively the purpose of his participation in the scheme. I agree with that conclusion, especially as I have rejected the only alternative purpose advanced on behalf of Mr Hart, namely asset protection, as having any significant role to play. Senior counsel for Mr Hart submitted that even if Mr Hart obtained a tax benefit (which was denied), it could not be reasonably concluded that the objective of entering into the scheme was to obtain the tax benefit. I reject that submission. If a tax benefit was not in reality the sole purpose, it was so dominant that any other purpose, such as asset protection, pales into insignificance. Whether Part IVA, ITAA 1936 applies to include the amount of $220,398 (or some lesser amount) in Mr Hart's assessable income for the 1997 income year 238 Senior counsel for the Commissioner therefore submitted that in all the circumstances the Commissioner was entitled to make the determination to cancel the tax benefit under s 177F and therefore Part IVA operated to include the sum of $220,398 in Mr Hart's assessable income for the 1997 income year. I agree. Once the three gateways of there being a scheme, a tax benefit and a dominant purpose were successfully passed through by the Commissioner, there was no remaining impediment to the application of Part IVA. The Income Earning Trusts NVI Scheme Mr Van Homrigh's evidence 239 As noted earlier, in relation to the IET Amount, the Commissioner relied on the expert report of Mr Van Homrigh, a forensic accountant. Because the parties had a very different view of the utility of Mr Van Homrigh's report, it is convenient to summarise that evidence at the outset on this issue. 240 The letter of instruction to Mr Van Homrigh by the Australian Government Solicitor acting on behalf of the Commissioner dated 12 December 2014 provides a pithy description of what he was asked to do. The letter advised that the NVI Scheme was designed for use by taxpayers who commenced a new income earning venture. The scheme was promoted by Cleary Hoare on the basis that the application of Part IVA of the ITAA 1936 is more difficult where there is no trading history or pattern of income distributions. In such circumstances, the promoters considered that the Commissioner could not determine whether a taxpayer has obtained a benefit as a result of the scheme (essentially because there was no factual basis for the necessary predictive counterfactual). The scheme was said to be applicable to discretionary trusts and discretionary trust units which are either newly established without any trading history, or established in a previous year but without a pattern of distributions and where there are at least two recipient trusts between the distributing trust and the ultimate beneficiary and certain other features involving gifts. 241 Mr Van Homrigh was instructed that, for the 1997 income year, the Income Earning Trusts resolved to distribute amounts corresponding to their net income through the NVI Scheme. The Commissioner applied Part IVA on the basis that there was a scheme which was designed to provide a tax benefit to Mr Hart by ensuring that income from the Income Earning Trusts was made assessable in the hands of certain untaxable entities [by reason of accrued losses, in this case, held by Retail Technology Holdings]. In applying Part IVA in this context, Mr Van Homrigh was instructed that the Commissioner considered that a key consideration was whether Mr Hart (or others on his behalf) in fact obtained use and enjoyment of the relevant funds. 242 Mr Van Homrigh was instructed that, pursuant to Part IVA, the Commissioner included the amount of $275,481 in Mr Hart's assessable income for the 1997 income year. This amount represented the share of the net income of the Income Earning Trusts which the Commissioner considered Mr Hart would have become entitled to if the relevant Part IVA scheme had not been entered into. In the section of the letter of instruction entitled 'ADVICE SOUGHT', the Commissioner stated that he was seeking Mr Van Homrigh's opinion on whether funds associated with the Income Earning Trusts could be traced through various bank accounts to, inter alia, Mr Hart or to bank accounts controlled by Mr Hart. Thus it can be seen that the focus of Mr Van Homrigh's expertise was directed to ascertaining whether Mr Hart had in fact obtained the use and enjoyment of a sum not less than the amount of $275,481 (being the IET Amount). That is, Mr Van Homrigh was not concerned with legal characterisation for example by way of income, loan or otherwise. He was concerned with analysing money flows. The legal consequences of establishing the fact, or likelihood, of any such cash flows to Mr Hart or for his benefit were not any part of Mr Van Homrigh's retainer or concern. 243 The cross-examination of Mr Van Homrigh confirms that he only conducted a cash flow analysis of inflows and outflows including by way of cash deposits and cash payments. However that statement should not underestimate the difficulty or the expert skill required to do so. The records upon which Mr Van Homrigh relied were far from self-explanatory. The conclusions he reached were a product of analysis rather than simply stating the obvious. In substance, Mr Hart submitted that Mr Van Homrigh's evidence did not go far enough to achieve the purpose that the Commissioner required, largely because it was said that this was not true tracing so that the conclusions reached were not sound or sufficient. It remained Mr Hart's case that even if the cash flows were established, this was not enough because formal trust distribution determinations were required. To an extent, this overstated the point that the Commissioner was seeking to make. The main purpose of showing where the money ended up was to show the actual or likely receipt and enjoyment of the money, as part of the counterfactual prediction that Mr Hart would still want (or need) to achieve that ultimate outcome. The Commissioner's case was that Mr Hart would still want to get the benefit of the money and its use, albeit that he wanted to do so without the burden of taxation. Implicitly, if the choice was between not having the use and benefit of any money at all, ever, or only having it net of tax, then the net income was the better, and indeed necessary-for-living, outcome than no money at all. Viewed in this way, the Commissioner was effectively asserting that concepts of naivety and commerciality have little or no part to play as it is not a matter of a business transaction, unless there is shown to be a sound commercial basis for an alternative transaction taking place without tax consequences. 244 The question of the sufficiency of the methodology and tasks carried out by Mr Van Homrigh, and the soundness of the conclusions he reached, was sought to be addressed by the Commissioner by reference to the decision of the New South Wales Court of Appeal in Toksoz v Westpac Banking Corporation [2012] NSWCA 199; (2012) 289 ALR 577, and in particular what was said by Allsop ACJ (when the Chief Justice was President of the New South Wales Court of Appeal and Acting Chief Justice of New South Wales), and with whom Hoeben JA and Sackville AJA agreed. That case concerned a challenge to sufficient proof by accounting evidence to attribute civil liability to the wife of a thief who stole over $1 million from a bank by identity theft. In that case it was "impossible to trace with exactitude the movement of money from the defrauded account directly or through a chain of transactions to Mrs Toksoz's accounts" and instead all the surrounding circumstances were said to point "inexorably" to the conclusion that she had received and possessed well over $600,000: Toksoz at 578 [3]. The principles that were applied to the facts and evidence in that case were as follows (at 579-580): [7] Before turning to what the evidence disclosed and the arguments put on behalf of Mrs Toksoz, it is helpful to refer to the legal principles involved. Tracing has been said not to be a right or remedy, but a process of demonstration or proof of what has happened to property: Foskett v McKeown [2001] 1 AC 102 at 128; [2000] 3 All ER 97 at 120–1; Evans v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [133]. This expression of the matter can be accepted. The legal consequences of this approach and any qualification to it, especially by reference to restitutionary principle, need not be explored. [8] Money can be traced notwithstanding an inability of the follower to connect each link in the chain of accounts. Commonsense and reasonable inference play their part, especially if there is fraud involved and if there is a lack of explanation, when the circumstances cry out for honesty to be explained, if it can be. [9] A number of cases reveal a sensible robust approach to the tracing of moneys from theft: R v Powell (1837) 7 Car & P 640; 173 ER 280; Harford v Lloyd (1855) 20 Beav 310; 52 ER 622; Black; Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548; [1992] 4 All ER 512; El Ajou v Dollar Land Holdings Plc [1993] 3 All ER 717; and see the discussion in L D Smith, The Law of Tracing, Clarendon Press, Oxford, 1997, p 263 and the other cases there cited. The expression "tracing by exhaustion" is sometimes used. Where the facts as proved are sufficient to permit the inference that moneys have been received or property bought without there being an honest source available to explain the wealth and the sums or value can be seen as referable to the following party's property wrongfully obtained, such that the inference is open that the wrongfully obtained funds were the source of the wealth, the funds can be so treated. One does not need to be able to show every link in the chain of accounts from and through which the money passed. Inferences will be more easily drawn, as here, in circumstances where the funds were stolen, the person who is said to have provided the funds was one of the thieves who stole money from the follower, when the recipient has an apparent close relationship with the thief, which recipient gave no value for it, has no personal source of income and gives no explanation as to the source or circumstances of the receipt of the money or any honest source of it. [10] None of this is the expression of a principle of law. It is the expression of the available approach to fact finding in the presence of fraud and lack of explanation when plainly called for. 245 It is important to note that the Commissioner specifically disavowed any suggestion of fraud in this case and submitted that the principles stated above from Toksoz were not confined to fraud cases. I consider that submission to be correct. It is clear that while in Toksoz the context was fraud, that is a context which if anything requires a higher level of satisfaction by the application of Briginshaw principles (Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-2), rather than any different standard of proof (Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-50). This is because of the seriousness of the allegations concerned and the consequences of the facts to be proved, even if the party concerned is said to be the beneficiary rather than a participant, albeit fixed with the level of knowledge necessary for her to be accountable as a trustee under the first limb of Barnes v Addy (1874) LR 9 Ch App 244: Toksoz at 578-9 [4(b)]-[5]. It was nonetheless the receipt of fraudulently obtained money that was in issue in Toksoz, which in the application of ordinary principles needed more than "inexact proofs, indefinite testimony, or indirect inferences": Briginshaw at 362.3. When serious allegations such as fraud or participation in fraud are involved, the "process by which reasonable satisfaction is attained" differs from that of a less serious allegation: Briginshaw at 363.2. 246 This case is concerned with important issues to do with ascertaining, as best as possible and to the required standard of proof (which remains at all times a balancing of competing probabilities), where money has come from and where it has gone. However it is more benign than, for example, proving fraud or even receiving the proceeds of a fraud. What is required is that this Court, in its capacity as the tribunal of fact, attain a reasonable state of satisfaction, proportionate to the seriousness of the facts sought to be established and their consequences, that those facts have been established on the balance of probabilities. That calls for an examination of both the evidence, and the trial context in which it was adduced. 247 It is important to note also that the process engaged in by Mr Van Homrigh was nothing so indirect or apparently loosely circumstantial as was the case in Toksoz. While not each step was as clear or direct as an exercise in simple bookkeeping in matching corresponding entries, Mr Van Homrigh was not dealing with a situation in which linking transactions was impossible. While there were gaps in the paper trail, it was not an exercise calling for inherently tenuous inferences to be drawn. In many instances, to deny the connections made and inferences drawn by Mr Van Homrigh would have entailed a strong air of unreality, sometimes disregarding the improbable alternative explanation of remarkable and unexplained coincidence, such as when a withdrawal in a precise amount from one account on one day, was followed by a deposit in that same amount, or a very similar or mathematically explicable amount, in another account a day or two or a short time later. Senior counsel for Mr Hart sought to rely upon issues concerning money coming from one account, mixed in a second account, and then deposited in a third, and the impossibility, implicitly in a strict equitable tracing sense, of saying in those circumstances that the money in the third account had been proven to come from the first. In the abstract, that complaint may have had some cogency, but in context I consider that it did not. This was not, and did not need to be, an exercise in equitable tracing. Moreover, as noted below, regard must be had to the opportunity for rebutting evidence to be adduced, and the consequences of that opportunity not being taken advantage of, when it comes to bridging gaps of that kind by an inferential reasoning process. 248 In Weissensteiner v The Queen (1993) 178 CLR 217 at 227.7, Mason CJ, Deane and Dawson JJ observed: … when a party to litigation fails to accept an opportunity to place before the court evidence of facts within his or her knowledge which, if they exist at all, would explain or contradict the evidence against that party, the court may more readily accept that evidence. It is not just because uncontradicted evidence is easier or safer to accept than contradicted evidence. That is almost a truism. It is because doubts about the reliability of witnesses or about the inferences to be drawn from the evidence may be more readily discounted in the absence of contradictory evidence from a party who might be expected to give or call it. 249 Weissensteiner was subsequently significantly confined in its operation in criminal proceedings by the subsequent High Court cases of RPS v The Queen [2000] HCA 3; (2000) 199 CLR 620 and Azzopardi v The Queen [2001] HCA 25; (2001) 205 CLR 50. Both Azzopardi and RPS were New South Wales cases in which s 20 of the Evidence Act 1995 (NSW) applied, confined to criminal proceedings on indictment. The principle emerging from RPS and Azzopardi is that Jones v Dunkel (1959) 101 CLR 298 does not apply in criminal cases without taking into account the right to silence; however that limitation has no application to civil cases. The underlying principles in Weissensteiner have received renewed currency even in criminal cases, at least in non-Uniform Evidence Act jurisdictions: see R v Baden-Clay [2016] HCA 35; (2016) 334 ALR 234 at 242-3 [50]. 250 In Azzopardi, Gleeson CJ observed (in dissent) at 61 [18], there were reasons why it may be dangerous to treat a criminal accused's silence "in the same way as one would treat the silence of a party to civil litigation". The majority in Azzopardi similarly observed at 64-5 [34] that the accusatorial process for a criminal trial differs radically from a civil proceeding in that the general rule that an accused cannot be expected to give evidence has no application to civil proceedings, and in civil proceedings there will very often be an expectation that a party would give or call evidence (citing RPS). Thus the compelling reasoning process so clearly articulated in Weissensteiner can and should be applied to this case. 251 Mr Hart and his legal advisers were provided with the original report from Mr Van Homrigh a considerable time before the trial. While later changes and adjustments were made, this did not change the thrust of his evidence. If the conclusions that he reached, including inferences drawn or connections made, were simply wrong in any respect, as opposed to Mr Hart choosing to rely upon an evidentiary onus on the Commissioner to prove any facts upon which he relied on the balance of probabilities, it was open for him to give evidence to that effect. He, after all, was intimately involved in the transactions in question even if he did not personally execute them himself. He was the person in these proceedings best placed to provide an evidentiary foundation to rebut the conclusions that Mr Van Homrigh reached. He could simply have denied that money from a given source had ended up in a particular destination, as sought to be proven by Mr Van Homrigh's evidence. He was certainly in a position to arm his counsel with the means to directly challenge any transaction where the conclusion reached was simply wrong. That did not occur, with the challenge instead mostly being made at a high level of generality. Mr Hart was also afforded an opportunity to file his own expert report, an opportunity not taken up. In those circumstances I am entitled more readily to accept the evidence given by Mr Van Homrigh, and in particular to accept the inferences drawn by him if shown to have a reasonable foundation. 252 I have carefully read and considered Mr Van Homrigh's report at some length. I have paid close attention to the cross-examination of him by junior counsel for Mr Hart. Having regard to the application of the principles in Weissensteiner discussed above, in the context of Mr Hart choosing not to call or give any rebuttal evidence as to the money flows, I accept the conclusions that Mr Van Homrigh reached, although this does not take the evidence further than those conclusions. It remains for determination what should be made of establishing, on the balance of probabilities, the source and destination of the moneys referred to by Mr Van Homrigh. 253 I also keep steadily in mind the closing submissions made by senior counsel for Mr Hart to the effect that what needed to be shown by the Commissioner, relying upon Mr Van Homrigh's evidence, was receipt of income, not merely receipt of money, the former requiring distribution resolutions, actual or deemed. The Commissioner's response was that Mr Hart's evidence was directed to showing what had most likely occurred in relation to money flows in the execution of the Income Earning Trusts NVI Scheme in order to predict what would have happened in the absence of that scheme. In that regard, the Commissioner relied upon Toksoz, discussed above. It follows that on the Commissioner's case what must be determined is whether Mr Van Homrigh's evidence goes as far as the Commissioner asserts; and if so whether that is far enough. 254 Section 4 of Mr Van Homrigh's report entailed reporting on the analysis of funds transferred from the Income Earning Trusts by reference to bank statements, deposit slips, cheques, and correspondence. Carrying out this task entailed: (1) compilation of a master transaction list for each bank account detailing the source of each deposit and the destination of each withdrawal (marking as appropriate those that are unknown); (2) a review of the bank accounts controlled by Mr Hart to identify deposits from the Income Earning Trusts' bank accounts; and (3) the preparation of numerous visual charts to depict the flows of money. A great deal of that detail does not need to be repeated for the purposes of these reasons, with the essential point being the identification of what the analysis revealed in terms of final or aggregate money flows directly relevant to the facts in issue in these proceedings. 255 Mr Van Homrigh's report identified funds transferred from Income Earning Trusts' bank accounts to the Outlook Trust bank account totalling $133,500. However out of that sum, $31,000 preceded 1 July 1996 and therefore preceded the 1997 income year and was not pressed by the Commissioner. With that amount of $31,000 subtracted, the flow of funds identified as coming from the Income Earning Trusts bank accounts to the Outlook Trust bank account was $102,500. 256 Section 5 of Mr Van Homrigh's report focused on analysis of funds transferred into the Practice Trust that related to the Income Earning Trusts, and transferred from the Practice Trust that appeared to relate to the Income Earning Trusts and/or were deposited into a bank account controlled by Mr Hart. Carrying out this task entailed: (1) a review of the promoter fees of the Income Earning Trusts to identify any income that had been deposited into the Practice Trust bank account; (2) a review of trust records to identify how the promoter fees had been accounted for in the Practice Trust records and to identify any payments from the Practice Trust to accounts associated with or controlled by Mr Hart; (3) a review of the bank accounts controlled by Mr Hart to identify the deposits from the Income Earning Trusts' bank accounts; and (4) the preparation of numerous visual charts to depict the flows of money. 257 In summary, and focussing on the key aspects, that analysis revealed that $698,000 from the Zebra Capital Trust was split four ways, with $174,500 being deposited into the Outlook No. 2 Finance Trust account and that amount being on-deposited to the Outlook Trust bank account. Based on that analysis, Mr Van Homrigh concluded that it would appear that an account that is associated with or controlled by Mr Hart has received funds from the Practice Trust bank account that are connected to the Income Earning Trusts in the sum of $174,500. 258 The sum of the exercises carried out for the purposes of sections 4 and 5 of Mr Van Homrigh's report totalled $277,000, a sum in excess of the IET Amount of up to $275,481. 259 In section 6 of his report, Mr Van Homrigh analysed funds transferred through the Outlook Trust to identify whether those funds had been disbursed to other entities associated with or controlled by Mr Hart. Carrying out this task entailed: (1) a review of the bank statements to identify the deposits and withdrawals from the Outlook Trust bank account; (2) the identification of the source and destination of each withdrawal and deposit based on the available documentation, including deposit slips, cheques, and correspondence from account holders to the bank; (3) a compilation of a master transaction list for the Outlook Trust bank account detailing the source of each deposit and the destination of each withdrawal (marking as appropriate those that are unknown); (4) a review of the other bank accounts controlled by Mr Hart to identify deposits sourced from the Income Earning Trusts' bank accounts; and (5) the preparation of numerous visual charts to depict the flows of money. 260 This analysis resulted in Mr Van Homrigh concluding that the following withdrawals were made from the Outlook Trust: (1) $220,138 into the joint account that Mr Hart had with his wife; (2) $60,000 into the Oak Arrow Trust bank account held by its trustee Oak Arrow Pty Ltd; (3) $9,293 to general and domestic expenses; and (4) $117,579 to an unknown destination. 261 The known total therefore going to accounts operated by or controlled by Mr Hart, or to his benefit, totalled $289,431. That is a sum comfortably in excess of the IET Amount of $275,481. In any event, the Commissioner only relied upon the lesser amounts that had gone into the Outlook Trust bank account directly from the Income Earning Trusts bank accounts, net of the pre-1997 income year sum of $31,000. This was the total from section 4 of his report of $102,500 and the amount that had gone into the Outlook Trust bank account via the Practice Trust account from the Income Earning Trusts bank account of $174,500, making a total of $277,000. This was also more than the IET Amount of $275,481. It follows that in relation to the IET Amount, Mr Van Homrigh's evidence is sufficient to source money flows in excess of the IET Amount back to the Income Earning Trusts' bank account. It is a separate issue as to whether such identification of money flows is sufficient for the Commissioner's purpose. Whether Mr Hart obtained a tax benefit in connection with the Income Earning Trusts NVI Scheme 262 The issue on the question of a tax benefit is whether, but for the scheme, the IET Amount sum of $275,481, or some part of it, would have been included in Mr Hart's assessable income for the 1997 income year. As with the Practice Trust NVI Scheme, that requires a consideration of the competing counterfactuals. This must be carried out in the context of Mr Hart at all stages having the onus of establishing that the amended assessment was excessive. 263 The Commissioner contends that the relevant tax benefit for the purposes of s 177C(1) of the ITAA 1936 is the amount of $275,481 (or some lesser amount), which would or might reasonably be expected to have been included in Mr Hart's assessable income for the 1997 income year had the Income Earning Trusts NVI Scheme not been carried out. The Commissioner asserted that, in the absence of the scheme, the following events would or might reasonably have been expected to take place: (1) The Annesley Trust would still have derived income of at least $305,000 and would still have distributed part of that income to the Outlook Trust, from where the income would have been distributed to Mr Hart as a beneficiary of the Outlook Trust. (2) The CHC Discretionary Trust would still have derived net income of at least $700,410 and would have distributed part of that income to the Outlook Trust, from where the income would have been distributed to Mr Hart as a beneficiary of the Outlook Trust. (3) In place of the LM Income Trust (which was established as part of the scheme and was precluded by its trust deed from distributing to Mr Hart), the income derived from the work done through that trust, being the provision of tax planning services and the promotion of tax minimisation schemes to accountants and small businesses by Mr Hart and his colleagues at Cleary Hoare (described by the Commissioner as NVI promotional activities) would have been attributed to, and accordingly derived by, a discretionary trust controlled by Mr Hart and/or the other principals of Cleary Hoare (such as the Annesley Trust, CHC Discretionary Trust or a similarly-constituted new trust). That trust would then have distributed part of that income to Mr Hart or alternatively the Outlook Trust or another trust controlled by Mr Hart. From there, the income would have been distributed to Mr Hart as a beneficiary of the Outlook Trust or such other trust that he controlled. 264 The first part of the Commissioner's counterfactual involves the pre-scheme elements still taking place. The contentious part is the last stage. 265 The Commissioner contended that the above counterfactual was reasonable by reason of the following, much of which depends upon the pre-scheme aspects being maintained and replacing the scheme aspects only: (1) Mr Hart and his associates at Cleary Hoare had an established practice of using trust structures to derive income from tax planning and promotional ventures. (2) Mr Hart, as a director of the corporate trustees of the Comlaw Trust, Annesley Trust and CHC Discretionary Trust, was closely involved in the income earning activities of the Income Earning Trusts. (3) As the settlor of the LM Income Trust (which, as noted above, by its trust deed could not distribute to Mr Hart) and as the person who conceived the NVI Scheme and sought legal advice in respect of its efficacy, Mr Hart played an active role in the implementation of that scheme and the generation of income thereby attributed to the LM Income Trust. (4) Mr Hart gave evidence that he actively gave advice to the Income Earning Trusts in respect of tax planning arrangements. (5) Mr Hart had an established practice of giving presentations, speaking at seminars and providing legal and/or tax advice to accountants and business owners regarding a range of tax planning arrangements, including the attractiveness of the NVI Scheme, thereby generating income in the form of promoter or other fees. (6) The Income Earning Trusts NVI Scheme, in keeping with Mr Hart's evidence in cross-examination, was intended to change the character of the payments made to the Cleary Hoare associated entities, including the Outlook Trust, but was not intended to alter the expectation that those entities would continue to receive a one quarter share of the income generated [albeit that via the scheme that share would be provided free of tax]. (7) That one-quarter share is consistent with the conclusions drawn and the opinion given by Mr Van Homrigh (as to actual money flows). (8) Repeating the observations above, Mr Van Homrigh's opinion was not sought in respect of the Income Earning Trusts' derivation of income in the 1997 income year, the Commissioner having accepted Mr Hart's evidence as to the amounts derived by those trusts in that year. Mr Van Homrigh's opinion was also not sought as to the tracing of moneys such that a link could be drawn between specific deposits and withdrawals of money into and out of a bank account. Rather, his opinion was sought as to whether funds associated with the Income Earning Trusts could be traced through various bank accounts used interchangeably by the different trusts to, inter alia, Mr Hart or entities associated with him. Mr Van Homrigh's evidence showed that: (a) the Outlook Trust was the only entity associated with Mr Hart that received funds identified as being associated with the Income Earning Trusts; (b) the Outlook Trust received $277,000 in funds (excluding an earlier amount previously relied upon of $31,000 that was paid to the Outlook Trust prior to the 1997 income year and was therefore not pressed by the Commissioner); and (c) each of the payments included in the $277,000 paid from the Comlaw, Cleary Hoare Corporate Pty Ltd or Practice Trust bank accounts to the Outlook Trust was one of four equivalent payments made at about the same time. This supported the inference that this money was equal to Mr Hart's share of the income of the Income Earning Trusts. (9) As with the tax benefit analysis in relation to Part IVA and the Practice Amount at [200] in relation to the receipt of moneys from the Outlook Trust, Mr Hart was the sole recipient of funds from that trust. (10) Mr Hart had a close association with each of the Income Earning Trusts. (11) Mr Hart's evidence was that during the 1997 income year, the Annesley Trust derived net income of $305,000 from the implementation of various tax planning arrangements entered into in previous years. This was consistent with previous advices to the Commissioner from Cleary Hoare in the course of the tax audit and also consistent with the Annesley Trust's tax return which was lodged in August 2002 subsequent to that advice. (12) The Annesley Trust's derivation of that income forms no part of the income of the Income Earning Trusts NVI Scheme, and if the scheme had not been entered into, Annesley would still have derived that income. 266 The Commissioner submitted the following matters pertaining particularly to the Annesley Trust meant that it was reasonable to predict that had the Income Earning Trusts NVI Scheme not been entered into, that trust would not have distributed its net income to the Annesley No. 3 Trust, essentially because that was only a scheme-dictated step. Instead, the Commissioner submitted that it would be reasonable to predict that the Annesley Trust would have distributed its net income to entities associated with the four principals of Cleary Hoare, including, on the direction of Mr Hart as one of the two directors of the trustee of the Annesley Trust, the Outlook Trust, which in turn would have distributed that income to Mr Hart. That is because: (1) Mr Hart gave evidence that in the 1996 income year, the Annesley Trust derived net income of $284,500 in addition to trust distributions from the Comlaw Trust and NPT3, another income earning trust in that year, with a total income of $464,125. Of that sum, $252,000 was distributed to the Canowindra Trust, and $211,500 to the unitholding trusts in the Practice Trust, including the Outlook Trust. The distribution by the Annesley Trust in 1996 to the unitholders in the Comlaw Trust accords with the Comlaw Trust's control (via its trustee) of the Annesley Trust and the other Income Earning Trusts as at 30 June 1996. It also accords with the Comlaw Trusts' unitholders' interests in those activities. In the 1997 income year, there was an adjustment to the unitholders' interests, in that Cleary Hoare Corporate Pty Ltd (CHC) as trustee for the CHC Discretionary Trust (CHCDT) replaced the Comlaw Trust. Each of the principals of CHCDT was named as a primary beneficiary. In those circumstances, the Commissioner submitted it was reasonable to predict that the Annesley Trust would still have distributed its net income in equal shares to the four principals of CHCDT, including Mr Hart. (2) This was in keeping with the cash flows that had taken place at about the same time in the absence of a non-Part IVA scheme. The actual cash flows from the Comlaw Trust bank account, an account in part used by the Annesley Trust for the deposit of funds in the 1997 income year, was the means by which payments were made to the Outlook Trust at about the same time as three other equivalent payments were made. In particular: (a) In addition to the Practice Trust bank account, entities associated with Cleary Hoare operated a bank account under the name of Comlaw and subsequently CHC. Annesley did not have a bank account. (b) At no time did Mr Hart identify the transactions or receipts giving rise to the Annesley Trust's derivation of $305,000. At best, Cleary Hoare identified that "… for the most part, they reflect transactions involving the acquisition of the loss trusts and shares in the company, Chester Hill Centre Pty Ltd…". (c) Mr Hart admitted that amounts reflecting income of the Annesley Trust were in part deposited in the 1997 income year to the Practice Trust bank account, but the amounts involved were unknown. (d) Mr Van Homrigh in his supplementary report confirms that cash transactions referable to "Chester Hill" and then to Annesley were made in the 1997 income year. In particular, it was confirmed by reference to source documents that $200,000 was deposited in that income year by a third party into the Comlaw bank account in respect of Chester Hill. (e) Notwithstanding Mr Hart's contention that amounts reflecting the income of the Annesley Trust were deposited, in part, in the relevant income year to the Comlaw Trust and CHC accounts, the source documents support the inference that at least $200,000 and $50,000 respectively, referable to Chester Hill and thence attributable to the Annesley Trust, were deposited into these accounts in the 1997 income year. (f) Not inclusive of the four payments made by the Comlaw Trust to the Outlook Trust prior to 1 July 1996 totalling $31,000, which are not pressed by the Commissioner, each of the remaining payments from the Comlaw Trust's bank account to the Outlook Trust bank account identified in appendix G of Mr Van Homrigh's report (totalling $52,500) was: (i) made in the 1997 income year; (ii) made from a bank account in the name of an income earning trust that had been closed down from about 30 June 1996 but which was used by the Annesley Trust; and (iii) one of four equivalent payments made at about the same time. 267 The Commissioner submitted that the viability of this prediction was reinforced by the following: (1) In respect of the CHCDT, it was common ground that it derived income from the promotion or implementation of two tax planning arrangements known as the employee welfare fund (EWF) and the capital gains tax arrangements. The Inform Systems Records in evidence show Mr Hart as the fee earner for nearly all of the EWF transactions. It was reasonable to expect that Mr Hart would receive payment for the work that he had done, albeit that he would prefer to do so without having to pay tax. (2) The transactions giving rise to the derivation of income attributed to the CHCDT were set out in the tables briefed to Mr Van Homrigh for his supplementary report. His analysis of the funds attributed to CHCDT shows that $416,870 was deposited into the Practice Trust bank account and $346,140 was deposited into the CHC bank account. Of those amounts totalling $763,010, $342,140 was deposited before 30 June 1997 and $420,870 was deposited post 30 June 1997. It was common ground that CHCDT included all amounts so deposited in its gross income for the 1997 income year. (3) The CHCDT income tax return for the 1997 income year lodged in August 2002 is incomplete and that return identifies the trustee as Canerink Pty Ltd and returned net income of $700,410. Notwithstanding the distributions by CHCDT to the Annesley No. 3 Trust of $720,375, the Commissioner took no issue with the net income for CHCDT being the lesser amount of $700,410 as returned by CHCDT and admitted by Mr Hart. CHCDT's derivation of income in that amount forms no part of the Income Earning Trusts NVI Scheme and if the scheme had not been entered into, CHCDT would still have derived that income. 268 The Commissioner contended that it was reasonable to predict that had the Income Earning Trusts NVI Scheme not been entered into, CHCDT would not have distributed its income to the Annesley No. 3 Trust (being part of the Income Earning Trusts NVI Scheme required to be excluded from consideration). Instead, CHCDT would have distributed that income to entities associated with its four principals, including the Outlook Trust. The Outlook Trust would have distributed Mr Hart's share of that income to him because CHCDT as the income earning trust for the Cleary Hoare associated entities and the Comlaw Trust, through the Annesley Trust, had previously distributed income amongst the entities associated with each of the four principals, with payments made at about the same time. This was demonstrated by appendix H to Mr Van Homrigh's report and his analysis at [5.5] concerning the Practice Trust accounting records in his first report, which was confirmed in his supplementary report. 269 The Commissioner submitted that in respect of the LM Income Trust, it was clear by reference to the opinion of Mr Russell QC that this trust was created as a necessary step in the NVI Scheme, it being unable to distribute to Mr Hart as settlor by reason of the terms of its trust deed. But for its creation and given the historical activities of the Annesley Trust, the Comlaw Trust and the CHCDT in the generation of income from tax planning and promotional ventures, it is reasonable to predict that if the NVI Scheme or a similar scheme to which Part IVA would apply had not been entered into, a discretionary trust controlled by Mr Hart and/or the other principals of Cleary Hoare would have derived the income from the Cleary Hoare associates' tax planning and promotional ventures. Further, the trustee of this alternative income earning trust would have distributed a one-quarter share of that income to Mr Hart, or alternatively to the Outlook Trust or another trust controlled by Mr Hart. Such a distribution would be consistent with the one-quarter share of payments made to the Outlook Trust from the CHC bank account following the receipt on 6 June 1997 of $97,750 associated with the LM Income Trust. It would also be consistent with the transactional records for the Cleary Hoare trust account recording the amount of $698,000, inclusive of $136,875 attributable to the LM Income Trust, being transferred from the Zebra Capital Trust and divided into four equal payments, with the amount of $174,500 being paid into the Outlook Crescent Pty Ltd bank account for the Outlook Trust between 9 July 1997 and 21 October 1997. 270 The Commissioner noted that Mr Hart contended as part of his counterfactual that: (1) since the 1993 income year, he had never received or derived any income in his own name from any of the Income Earning Trusts or their predecessors; (2) he would not have derived income personally from any business, including the NVI promotional activities; and (3) accordingly, he asserted that it was not reasonable to expect that, had the scheme not been entered into, the Outlook Trust would have distributed any income to him. 271 The Commissioner's response to the counterfactual so expressed was that, for the same reasons as advanced in response to the Practice Amount NVI Scheme above at [200], Mr Hart's counterfactual did not represent a reasonable prediction of what would have happened, or what might be expected to have happened, had the Income Earning Trusts NVI Scheme not been carried out or entered into in the 1997 income year. The Commissioner submitted that Mr Hart's primary assertions regarding asset protection and the possibility or likelihood of the distribution of income to other beneficiaries or associated entities was not supported by the contemporaneous evidence (as outlined above). In substance, the Commissioner was again advancing a case that the best way to predict what would have happened in the absence of the scheme and in the absence of a factual foundation for a different approach, was the same money flows would have taken place, but without the tax benefits. 272 Mr Hart's counterfactual was again substantially directed to attacking the Commissioner's counterfactual rather than establishing, on a sound evidentiary platform, his own basis for what would have occurred beyond assertion. It was pointed out on his behalf that, in relation to the NVI Scheme concerning the Income Earning Trusts, Mr Hart was two-steps removed from the steps upon which the Commissioner relied. That was because each of the Income Earning Trusts derived income in the 1997 income year. They distributed that income to the Annesley No. 3 Trust. This means that the Commissioner had to contend that, absent the scheme, either each of the trusts would have allocated a share of its income to Mr Hart directly, or that they would have allocated a share to the Outlook Trust, that would in turn have allocated it to Mr Hart personally. Mr Hart relied upon the reasons advanced in relation to the Practice Trust income outlined above to reject the possibility advanced by the Commissioner of an allocation via the Outlook Trust. Accordingly the competing arguments in that respect ended up being much the same as for this aspect of the Part IVA argument in relation to the Practice Amount. In relation to both possibilities, it was pointed out on behalf of Mr Hart that there was no history of any distributions from the Income Earning Trusts either directly to Mr Hart or to the Outlook Trust. 273 As to the first possibility, it was submitted on behalf of Mr Hart that a difficulty that immediately required to be confronted by the Commissioner's counterfactual was that the LM Income Trust could not distribute any of its income either to Mr Hart or to the Outlook Trust because the trust deed for the LM Income Trust specifically precluded that by providing at [2.1] that "[n]o part of the trust Fund or the Income shall ever revert to or be held in trust for the settlor [Mr Hart] or his estate, it being the intention of the Settlor that the Beneficiaries shall take in any event" (irregular spelling in the original). That much seemed to be accepted by the Commissioner. As to the other two Income Earning Trusts, it was asserted that the Commissioner sought to support his alternate postulate (counterfactual) by demonstrating that it could reasonably be expected that the income of those two trusts would have found its way to the Outlook Trust by showing that the Outlook Trust in fact received and had use of the money. That is a correct characterisation of the Commissioner's case and one that was dismissed out of hand by Mr Hart, rather than confronted and met. 274 The Commissioner sought to do this by the use of the reports of Mr Van Homrigh, said (it seems accurately) to have been produced to support the contentions raised at [101.3] and [101.4] of the Commissioner's third further amended appeal statement. Those paragraphs make specific reference to payments from the bank accounts of the Comlaw Trust, the CHCDT and the Practice Trust to, inter alia, the bank account of Outlook Crescent Pty Ltd as trustee of the Outlook Trust and the payments made by the Outlook Trust by its trustee to or for the benefit of, or at the direction of, Mr Hart. In response to this it was asserted on behalf of Mr Hart that the payments from the Cleary Hoare Corporate Pty Ltd and Comlaw Consultants Pty Ltd bank accounts (being the bank accounts utilised by the Incoming Earning Trusts) to the Outlook Trust bank account of $133,500 are not referable to (presumably in the sense of being proven to be) the income of the Income Earning Trusts. This submission relied on the evidence in cross-examination of Mr Van Homrigh at which he agreed with the proposition that he just did a cash flow analysis of inflows and outflows without reference to income, that is, just cash payments and cash deposits. If there was a defect in this evidence, it was one that Mr Hart chose not to address in evidence. The inference that the withdrawals and deposits were as they purported to be was one more readily able to be drawn in the absence of direct evidence by Mr Hart as a person well-able to give such evidence. Weissensteiner reasoning properly applies to this situation. It was not for the Commissioner to make up for the gaps in Mr Hart's evidence for him in cross-examination. 275 It was further submitted on behalf of Mr Hart that the amount of $174,500 indicated by the Commissioner as being transferred from the Practice Trust bank account to the Outlook Trust bank account was in fact a payment from the trustee of the Outlook No. 2 Finance Trust to the Outlook Trust, relying upon the analysis at [5.6] of Mr Van Homrigh's report, which included the following opinion at [5.6.3]: "Based on the analysis above, it would appear that an account that is associated with or controlled by Mr Hart has received funds from the Practice Trust account that are connected to the Income Earning Trusts." The criticism made of Mr Van Homrigh was that he did no more than add up the deposits and payments and allocate them to various categories, and did not undertake a tracing exercise to identify if particular deposits from the Income Earning Trusts flowed down to the Outlook Trust bank account or if those deposits were paid out to other unidentified parties, noting that he had said that certain other payments had been paid to "other". 276 A further criticism was that Mr Van Homrigh did not trace whether deposits into the Outlook Trust bank account flowed through to the joint account of Mr and Mrs Hart or the Oak Arrow Pty Ltd bank account, again noting there were deposits into the Outlook Trust bank account from other unknown sources and payments to other unknown sources. It was therefore submitted that, contrary to the contentions made on behalf of the Commissioner, Mr Van Homrigh cannot say that part of the income that was received or derived by the Income Earning Trusts in the 1997 income year could be traced to Mr Hart or to bank accounts that were controlled by him. It was submitted that the Commissioner could not sensibly identify what reasonably might be expected if each of the respective manifestations of the scheme had not been carried out, because there were no grounds upon which to identify a reasonable alternative postulate (that is, counterfactual) to identify the tax benefit referable to either identified scheme, to anybody in general, or to Mr Hart in particular. It was therefore submitted that when this Court undertakes the factual enquiry required by Peabody into the alternatives open to Mr Hart, no tax benefit will be found to arise pursuant to s 177C(1)(a) as opposed to the flawed exercise of merely stating that the manifestations of the scheme as identified by the Commissioner gave rise to the tax benefit. If those submissions were accepted, then the Commissioner had not identified a tax benefit that arises and the Part IVA determination in each case had to be set aside. 277 I do not accept those submissions on behalf of Mr Hart. While the exercise carried out by Mr Van Homrigh was imperfect, it was sound and carefully reasoned. It went far enough. Mr Van Homrigh provided a reasonable basis for concluding that the money flows he identified had, on the balance of probabilities, taken place. Again, Mr Hart did not give any evidence to rebut that, leaving the connections and inferences relied upon by Mr Van Homrigh in support of his conclusions able to be more safely drawn and accepted by this Court. The arguments that the Commissioner advanced as outlined above are also not perfect, but they provide a reasonable, although less than certain, basis for accepting that they constitute a reasonable prediction as to what would have happened in the absence of the scheme. As noted elsewhere in these reasons, the fact that Mr Hart would rather not have paid tax does not make an outcome whereby he does inherently unreasonable, yet that was the real substance of Mr Hart's counterfactual. 278 Assisted by the evidence of Mr Van Homrigh as to money flows to Mr Hart or to his benefit that can be sufficiently sourced to the Income Earning Trusts (excluding the LM Income Trust), I am satisfied that Mr Hart obtained a tax benefit in connection with the Income Earning Trusts NVI Scheme. The dominant purpose of the Income Earning Trusts NVI Scheme 279 Again, assessment of the dominant purpose of the scheme requires consideration of the eight matters listed in s 177D(b) of the ITAA 1936 as follows. (i) The manner in which the scheme was entered into or carried out 280 The Commissioner characterised the manner in which the Income Earning Trusts NVI Scheme was entered into or carried out in much the same way as for the Practice Trust NVI Scheme, being based on the opinions of Mr Russell QC and the passages from those opinions quoted above which reveal that the key consideration in implementing the NVI Scheme was whether it would be effective to avoid the application of Part IVA. Again, the Commissioner characterised the scheme as comprising a series of artificial steps devised by Mr Hart to avoid paying tax on his share of the income derived by or appointed to the Income Earning Trusts in the conduct of the NVI promotional activities. The interposition of a series of trusts was asserted to serve no commercial purpose other than to avoid the application of Part IVA (and/or s 100A) of the ITAA 1936. Again, it was submitted that the use of a corporate beneficiary, namely Retail Technology Holdings, was explicable only because of its allowable deductions, and that the use of gifts, of subscriptions for units, the appointment of common beneficiaries and the making of a loan were all to ensure that the income from these trusts would ultimately be returned to Mr Hart for his benefit in a tax-free form. The scheme was carried out by the creation and use of trusts that were controlled by Mr Hart and his associates at Cleary Hoare. Payments were made by the use of promissory notes and book entries, as well as cash payments to bank accounts controlled by Mr Hart. (ii) The form and substance of the scheme 281 The Commissioner submitted that the form of the Income Earning Trusts NVI Scheme was to distribute income generated by, or alternatively appointed to, each of these trusts through a series of interposed trusts and transactions that would enable the income to be treated ultimately as a "loan" owing by Mr Hart to the Outlook Trust. In substance, the ultimate use and enjoyment of that income was to remain with Mr Hart. (iii) The time at which the scheme was entered into and the length of the period during which the scheme was carried out 282 The scheme commenced on 9 May 1997 with the creation of the LM Income Trust, and continued with various steps and transactions during the 1997 income year and through to at least the subsequent year. (iv) The result in relation to the operation of [the ITAA 1936] that, but for [Part IVA], would be achieved by the scheme 283 The result achieved by the scheme but for Part IVA was that Mr Hart paid no income tax in respect of the amount of $275,481, or some lesser amount, representing his share of the income derived by or appointed to the Income Earning Trusts during the 1997 income year. (v) Any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme 284 By this way of dealing with the income derived by or appointed to the Income Earning Trusts, the financial position of Mr Hart changed by reason of avoiding the payment of income tax on that income and enabled him to fund his lifestyle expenses and the purchase of investments and other assets in the name of trusts controlled by him. He therefore retained the ultimate use and enjoyment of that income. (vi) Any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may reasonably be expected to result, from the scheme (vii) Any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out (viii) The nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi) 285 Mr Hart's associates at Cleary Hoare were similarly able to avoid paying tax on their respective shares of the income that was derived by or appointed to the Income Earning Trusts, while they also retained the ultimate use and enjoyment of that income. 286 Mr Hart was, at all relevant times, a controlling mind of the trustee for Annesley No. 3 and the Annesley Trust, a controlling mind of the trustee for the CHC Discretionary Trust and a controlling mind of the trustee for the LM income trust. Conclusion on dominant purpose 287 The Commissioner submitted that having regard to each of the eight matters listed in s 177D(b) addressed above, a reasonable person would conclude that the transactions constituting the Income Earning Trusts NVI Scheme were entered into or carried out for the sole or dominant purpose of enabling Mr Hart to obtain his share of the income derived by or appointed to the Income Earning Trusts in a tax-free-form. The Commissioner described the utilisation of this arrangement as contrived and artificial, devoid of a commercial rationale and that the tax benefit it achieved for Mr Hart, namely the avoidance of receipt of income requiring payment of tax on the amount of $275,481 explains the objective purpose behind Mr Hart's participation in the scheme. So much was acknowledged in the evidence of Mr Hart in cross-examination when he referred to not having an entitlement in a strict sense to a particular proportion of the income of the Income Earning Trusts but in an expectation and reality sense that he would in fact receive a quarter of the income of those trusts. 288 The Commissioner submitted that the reality, in light of the eight factors in s 177D(b), was that Mr Hart was being paid the benefit of his one-quarter share in the income generated by the Income Earning Trusts without having to pay tax on that income, by the operation of the Income Earning Trusts NVI Scheme. 289 Mr Hart did not appear to advance any additional arguments as to the dominant purpose for the Income Earning Trusts NVI Scheme than for the Practice Trust NVI Scheme. Dominant purpose was not really the centrepiece of his case. If, as he asserted, there was no tax benefit associated with a scheme, then dominant purpose did not arise. If there was such a tax benefit associated with the scheme, given the terms of the scheme and the way in which it was executed, a dominant purpose was, especially in light of all of the arguments set out above on behalf of the Commissioner, difficult, if not impossible, to resist. I therefore accept that the requisite dominant purpose has been established. The arguments advanced by the Commissioner are not overwhelming because of some of the gaps and uncertainties presented by the facts as proved. But they did not have to be either overwhelming or certain. On balance, I accept that the necessary dominant purpose has been established. Whether Part IVA, ITAA 1936 applies to include the amount of $275,481 (or some lesser amount) in Mr Hart's assessable income for the 1997 income year 290 Senior counsel for the Commissioner therefore submitted that in all circumstances, the Commissioner was entitled to make the determination under s 177F to cancel the tax benefit, and that Part IVA thereby operates to include the sum of $275,481 in Mr Hart's assessable income for the 1997 income year. I agree. Again, once the three gateways of there being a scheme, a tax benefit and a dominant purpose were passed through, there was no remaining impediment to the application of Part IVA. Penalties Whether the assessment dated 3 December 2004 and/or the amended assessment dated 26 April 2006 are excessive for the purposes of s 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) (TAA) 291 It is apparent from the discussion and conclusions above that I do not consider that the assessment or amended assessment has been shown by Mr Hart to be excessive in all the circumstances. That conclusion grounds the application of the former s 226 of the ITAA 1936 as it applied at the time of the assessments. Whether penalties at 50% were correctly imposed under the former s 226(2) of the ITAA 1936 292 The Commissioner asserts that the 50% penalties were correctly imposed under s 226 of the ITAA 1936. That provision, as in force at the relevant time, provided as follows: 226 Penalty tax where Part IVA applies (1) Where: (a) for the purpose of making an assessment or arising out of the consideration of an objection, the Commissioner has calculated the tax that is assessable to a taxpayer in relation to a year of income; (b) in calculating the tax assessable to the taxpayer, a determination or determinations made by the Commissioner under subsection 177F(1) was or were taken into account; and (c) either of the following subparagraphs apply: (i) no tax would have been assessable to the taxpayer in relation to the year of income if no determination had been made under subsection 177F(1) in relation to the taxpayer in relation to the year of income; (ii) the amount of tax (in this section referred to as the amount of claimed tax) that would, but for this section, have been assessable to the taxpayer in relation to the year of income if no determination had been made under subsection 177F(1) in relation to the taxpayer in relation to the year of income is less than the amount of tax referred to in paragraph (a); the taxpayer is liable to pay, by way of penalty, additional tax equal to: (d) in a case to which subparagraph (c)(i) applies—the penalty percentage of the amount of the tax referred to in paragraph (a); or (e) in a case to which subparagraph (c)(ii) applies—the penalty percentage of the amount by which the amount of the tax referred to in paragraph (a) exceeds the amount of claimed tax. (2) In subsection (1): penalty percentage means: (a) subject to paragraph (b)—50%; or (b) if it is reasonably arguable that Part IVA does not apply—25%. 293 It is plain that s 226(1) was engaged via paragraphs (a), (b), (c)(i) and (d) as was the penalty percentage of 50% in s 226(2)(a), unless it was "reasonably arguable" that Part IVA did not apply. In short, Mr Hart contends that his case as to Part IVA not applying was reasonably arguable, warranting a reduction of penalty to 25% (having failed in his attempt not to have Part IVA apply at all). The Commissioner contends that Mr Hart's position was not reasonably arguable. 294 In Walstern Pty Ltd v Commissioner of Taxation [2003] FCA 1428; (2003) 138 FCR 1, consideration was given to the penalty provisions in the former s 226K of the ITAA 1936 set out at 25 [102] of that decision. Consideration was also given to the definition of the phrase "reasonably arguable" which was used in s 226K and at the relevant time for these proceedings continued to be used as applicable to s 226. Section 222C defined the correctness of the treatment of the application of the law as: [r]easonably arguable if, having regard to the relevant authorities and the matter in relation to which the law is applied … it would be concluded that what is argued for is about as likely as not correct. The word "authority" then and for this case was defined to include the relevant income tax law, relevant intrinsic material, decisions of taxation boards of review, tribunals or courts or public rulings. 295 Hill J in Walstern set out the following seven conclusions, which, despite legislative differences, continue to be of assistance, at 26-7 [108]: The following conclusions can be drawn as to the correct approach to penalty under s 226K: 1. The test to be applied is objective, not subjective. This is clear from the use of the words "it would be concluded" in para(1)(b) of the section; 2. The decision-maker considering the penalty must first determine what the argument is which supports the taxpayer's claim; 3. That person will already have formed the view that the claim is wrong, otherwise the issue of penalty could not have arisen. Hence the decision-maker at this point will need to compare the taxpayer's argument with the argument which is considered to be the correct argument; 4. The decision-maker must then determine whether the taxpayer's argument, although considered wrong, is about as likely as not correct, when regard is had to "the authorities"; 5. It is not necessary that the decision-maker form the view that the taxpayer's argument in an objective sense is more likely to be right than wrong. That this is so follows from the fact that tax has already been short paid, that is to say the premise against which the question is raised for decision is that the taxpayer's argument has already been found to be wrong. Nor can it be necessary that the decision-maker form the view that it is just as likely that the taxpayer's argument is correct as the argument which the decision-maker considers to be the correct argument for the decision-maker has already formed the view that the taxpayer's argument is wrong. The standard is not as high as that. The word "about" indicates the need for balancing the two arguments, with the consequence that there must be room for it to be argued which of the two positions is correct so that on balance the taxpayer's argument can objectively be said to be one that while wrong could be argued on rational grounds to be right; 6. An argument could not be as likely as not correct if there is a failure on the part of the taxpayer to take reasonable care. Hence the argument must clearly be one where, in making it, the taxpayer has exercised reasonable care. However, mere reasonable care will not be enough for the argument of the taxpayer must be such as, objectively, to be "about as likely as not correct" when regard is to be had to the material constituting "the authorities"; and 7. Subject to what has been said the view advanced by the taxpayer must be one where objectively it would be concluded that having regard to the material included within the definition of "authority" a reasoned argument can be made which argument when contrasted with the argument which is accepted as correct is about as likely as not correct. That is to say the two arguments, namely, that which is advanced by the taxpayer and that which reflects the correct view will be finely balanced. 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. 296 That approach was quoted in full and approved by the Full Court in Pridecraft Pty Ltd v Federal Commissioner of Taxation [2004] FCAFC 339; (2004) 213 ALR 450 at 476-7 [108]. 297 In D Marks Partnership (by its General Partner Quintaste Pty Ltd) v Commissioner of Taxation [2016] FCAFC 86; (2016) 338 ALR 25, Griffiths J and Pagone J, although constituting a majority in dismissing the appeal by the taxpayer, had a different view on administrative penalties on the facts and circumstances of that case, although the same ultimate conclusion was reached that the penalties should not be disturbed. Griffiths J stated at 47-8 [116] that, although there was no reason to doubt the correctness of Walstern, the application of the principles there stated needs to accommodate the different circumstances in which the question of what is reasonably arguable arises for determination. Griffiths J highlighted that the different circumstances requiring consideration of what was reasonably arguable in previous authorities included factual conclusions about purpose under the provision then being considered in Walstern, the dominant purpose in Pridecraft or competing constructions of relevant statutory provisions in other authorities. 298 Pagone J in D Marks quoted the above passage from Walstern at 67-8 [168]-[169], but observed that other Full Court decisions had taken a "somewhat less strict" approach as to whether a question was "open to debate in the sense of being arguable", although in the context of cases that "turned on a question of statutory construction which was free from statutory authority squarely covering the point", being Cameron Brae Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 135; (2007) 161 FCR 468 and Allen v Federal Commissioner of Taxation [2011] FCAFC 118; (2011) 195 FCR 416. That was not the situation in Walstern, in D Marks, or in this case. Pagone J went on to observe at 69 [171]: The approach adopted by Hill J in Walstern took into account the legislative context introducing the "reasonably arguable" test and the mischief it sought to address. His Honour noted that the same Act introducing the test of "reasonably arguable" had also introduced a provision imposing by way of penalty additional tax where a taxpayer failed to take "reasonable care": Walstern at [106]. The legislature plainly intended the test of "reasonably arguable" to be different from, and be a more rigorous standard than, the test of "reasonable care": see Walstern at [106]–[108]. The legislature also intended the test to be objective and to be determined by reference to authorities. The provisions were aimed to ensure that people who had made an honest and genuine attempt correctly to determine their taxable income would not be penalised. The provisions were not intended to support or encourage doubtful or dubious positions to be taken but to be relied upon where the taxpayers arguments were, to adopt the language in the Explanatory Memorandum referred to in Walstern at [107], "cogent, well-grounded and considerable in its persuasiveness". 299 Griffiths J disagreed with Pagone J on the approach to "reasonably arguable" in that case, and also disagreed (at 49 [123]) that the considerations which led the Full Court in Cameron Brae and Allen to hold that a position was reasonably arguable were not present in D Marks because in that case and in those prior cases there was no judicial authority which was squarely on point on the proper construction of the relevant statutory provisions. However, I do not understand Griffiths J to be taking issue with the approach above in an appropriate case. 300 Relying on the principles in Walstern and the additional comments quoted above, the Commissioner asserts that the penalties were correctly imposed because: (1) Both manifestations of the NVI Scheme were blatant and it was not reasonably arguable that Part IVA did not apply. (2) The written opinions of Mr Russell QC obtained in February 1996 did not assist Mr Hart in proving that his position regarding the application of Part IVA was reasonably arguable because the advice was of a general nature, was qualified in some important respects, was not directed to the specific components and integers of the scheme actually carried out by Mr Hart and his associates at Cleary Hoare in the circumstances of this case and in any event contained contradictory statements and lacked a consistent and coherent course of reasoning. (3) Mr Hart has not identified any authorities that support his position regarding the application of Part IVA to the two manifestations of the NVI Scheme; to the contrary, those authorities that have considered the NVI Scheme, or a scheme that was substantially very similar in key respects, namely McCutcheon both in the AAT and in this Court, determined that Part IVA applied to the NVI Scheme. (4) Mr Hart had not demonstrated any reason why penalties ought to have been remitted. 301 Mr Hart accepts that the "reasonably arguable" principles are set out in Walstern and that the test is objective. However he asserts that it was reasonably arguable that Part IVA did not apply for the following reasons: (1) Income Tax Ruling IT 2639 effectively draws a distinction between what might be called business income and personal services income, a matter to be determined as a question of fact and circumstance, and that it was consistent with that ruling that the income of the Income Earning Trusts was and should be treated as the income of the structure and not from personal services. (2) That ruling contains a guideline as a "rule of thumb" that if a practice company or trust has at least as many non-principal practitioners as principal practitioners, that income is considered to be derived from the business structure and not from personal services. (3) The Practice Trust was at all times operated within this "rule of thumb". (4) Therefore the interest of the Outlook Trust as a unitholder in the net income of a unit trust arises from the holding of property, being the units in the Practice Trust, not from personal exertion of anyone involved in the Practice Trust. (5) In those circumstances, the readiness of the courts to draw the inference for the purposes of Part IVA that the alienation of what might be claimed to be some form of professional practice income is usually done for the dominant purpose of causing an identified taxpayer to derive less income than he might otherwise be reasonably expected to derive is not relevant because the income will not be considered by the Commissioner to be personal services income. (6) Further, it was asserted, in Commissioner of Taxation v Mochkin [2003] FCAFC 15; (2003) 127 FCR 185 the Full Court mostly concluded that the derivation of the income in that case was by the trading entity not by the person who might have been considered the principal of that entity upon the basis that the relevant dominant purpose was other than to provide a tax benefit, in that case limited liability. It was asserted that Mr Hart's circumstances were stronger when regard is had to the terms of the legal restrictions taken into account in the establishment of the original structure in 1992 (which I take to be the establishment of the Practice Trust and the approval obtained from the Law Society) and the asserted continuing dominant purpose of asset protection in the context of Part IVA. (7) Mr Russell QC's opinion was held at all relevant times in the context of the distributions by the Income Earning Trusts in the 1997 income year to support the principles upon which Mr Hart contended that a tax benefit under Part IVA did not exist for him. (8) The Commissioner's reliance on the McCutcheon decisions in the AAT and in this Court was misplaced because, unlike that case, for Mr Hart there was no pattern of distribution upon which the Commissioner could form a proper foundation that he would receive a share of the income of the Income Earning Trusts or by the Practice Trust arrangement. (9) In Cameron Brae at 488 [70] it was considered that although the debate as to whether an outgoing was capital or revenue was clearly found to be capital, the question was open to debate in the sense of being arguable. (10) Accordingly, at the very least, the penalty applied to each scheme should be reduced to 25% in accordance with s 226(2)(b). (11) Further the Commissioner had fallen into error in not forming the view that it was "reasonably arguable" that Part IVA did not apply and therefore did not properly exercise the separate power of remission of the whole or any part of additional tax payable under s 227(3), being a broad discretion not confined by "any explicit factors or considerations", citing Sanctuary Lakes Pty Ltd v Federal Commissioner of Taxation [2013] FCAFC 50; (2013) 212 FCR 483 per Griffiths J at 537-8 [257], [261]. (12) If it was found that Part IVA was "reasonably arguable", the penalty under s 226 should be remitted in full. 302 The substance of Mr Hart's argument cannot be accepted in light of the conclusions reached in these reasons. In particular: (1) It is not to the point that income from a business structure may be alienated by appropriate means that are not caught by Part IVA – that is not this case. (2) Mochkin was a case in which it was found at first instance and upheld on appeal that Part IVA did not apply in very different circumstances to the present, and in any event Mr Hart relies upon complying with the conditions of approval imposed by the Law Society despite evidence that he had not done so, and his argument at this point depends at least upon acceptance as to a dominant purpose of the NVI Scheme being found to be asset protection, which has not been accepted and was at all times a weak and unconvincing argument. (3) The attempt to distinguish the McCutcheon decisions is similarly unconvincing, notwithstanding certain factual differences between that case and this case. (4) Cameron Brae was a case on statutory construction which had not been the subject of prior judicial determination, which is not the situation in this case. 303 I agree with the Commissioner that both manifestations of the NVI Scheme were blatant. In substance, Mr Hart obtained the Practice Amount and the IET Amount by the most artificial of devices of the very kind that Part IVA was evidently intended to capture. I also agree that the written opinions of Mr Russell QC obtained in February 1996 did not assist Mr Hart. They were not tailored to the present two situations and afforded a weak basis for resisting the application of Part IVA. As the Commissioner points out, in the internal opinion, the view is expressed at p 17 that "[t]he operation of Part IVA is somewhat more problematical" and that "[i]t is difficult to see how any purpose other than the securing of [tax] relief can be attributed to any of the participants in the scheme", yet later states at p 18 "[i]f, contrary to my views, Part IVA is capable of application …". Relying on the largely generic advice in those opinions was a high risk strategy. The opinions, considered properly, provide at best very slight support for forming a view that it was reasonably arguable that Part IVA did not apply. I would prefer to characterise the opinions as containing at least implicit warnings that there was a very real chance that Part IVA did apply. In any event, generic advice or an opinion of that kind does not take account of adverse factual findings, which is another risk factor which a person implementing a Part IVA scheme necessarily takes. 304 Applying the reasoning in Walstern, I am unable to be satisfied that Mr Hart's argument as to the application of Part IVA is about as likely as not correct when regard is had to the well-established principles to be applied by long-standing authority. In the end result, the difference between the two cases was not really finely balanced as opposed to requiring attention to detail and conventional and predictable findings on the evidence. The competing arguments leave little room for it to be argued that, on balance, Mr Hart's argument can objectively be said to be one that, while wrong, could be argued on rational grounds to be right. That is especially so as it is very clear that Mr Hart did not take reasonable care in the implementation of the NVI Scheme. 305 The arguments that were presented in support of Part IVA not applying ended up being not at all compelling. This is not to criticise his counsel: they had to do the best with what they were presented and necessarily act on instructions. Their task was difficult. Mr Hart did not properly document any loan arrangements, and did not make any repayments, nor pay any interest, yet pressed ahead with the argument as to the receipt of the money being explained by asserted but largely undocumented loan arrangements. That was a significant reason why the argument on the trust distribution concerning the Practice Amount failed. Mr Hart should have been well aware of the dangers of executing a scheme in this way, and equally aware of the dangers of running an argument upon that basis, noting that in one of the papers he gave on the tax advantages of discretionary trusts, it would seem from the date on the footer around 17 August 1993, he stated: 11.3 The loan should be on a commercial basis covering such matters as interest and the date for repayment. 11.4 Preferably, the interest should be paid by the trustee of the company each year and not be allowed to accumulate. If interest is to be accumulated, the decisions to do so by both the trustee and the corporate beneficiary ought be properly minuted and communicated between each other. Matters ought not be allowed to get out of hand so that it becomes improbable that either the loan or the interest will be paid. 306 Also, Mr Hart was careless in the way in which he went about implementing a trust deed that did not comply with Law Society approval, yet sought to rely upon that approval as an important part of his case for the effectiveness of the Practice Trust NVI Scheme, contributing to the finding that his argument lacked reasonable care in this respect. As Hill J pointed out in Walstern at 26-7 [108], point 6, extracted at [295] above, an argument could not be as likely as not correct if there is a failure on the part of the taxpayer to take reasonable care, and therefore Mr Hart's argument could not be as likely as not correct. 307 While Mr Hart's position was somewhat better in relation to the Income Earning Trusts NVI Scheme, overall there was no room for a real and rational difference of opinion between the views and arguments advanced by the Commissioner as against those advanced on behalf of Mr Hart, such that I am unable to form a view that Mr Hart's case was "about" as likely to be correct as the conclusions that I have reached upholding the Commissioner's argument. 308 Weighing up all of the arguments advanced on behalf of Mr Hart, he did not demonstrate any compelling reason why the penalties ought to have been remitted even in part. Weighing up all of the arguments, I am of the view that it was not ultimately reasonably arguable that Part IVA did not apply and accordingly there is no proper basis to remit, either in whole or in part, the 50% penalties imposed. Conclusions 309 Mr Hart has failed to establish that the Commissioner's notice of assessment dated 3 December 2004 or notice of amended assessment dated 26 April 2006 were excessive for the purposes of s 14ZZK(b)(i) of the TAA. It follows that: (1) In relation to the Practice Trust and the Practice Amount, the amount of $220,398 was properly included in Mr Hart's assessable income for the 1997 income year: (a) under s 97, or alternatively under s 101, of the ITAA 1936: (i) principally by reason of him being a special unitholder in the Practice Trust; or (ii) alternatively, by reason of the Outlook Trust being a unitholder in the Practice Trust and Mr Hart being a beneficiary of the Outlook Trust; and/or (b) further or in the alternative, by way of the application of Part IVA of the ITAA 1936, because the Practice Trust NVI Scheme was entered into by Mr Hart with the overwhelmingly dominant purpose, and perhaps even the sole purpose, of enabling Mr Hart to obtain a tax benefit within the meaning of Part IVA of the ITAA 1936, he obtained such a tax benefit in connection with that scheme, and Part IVA properly applied. (2) In relation to the Income Earning Trusts and the IET Amount, the amount of $275,481 was properly included in Mr Hart's assessable income for the 1997 income year by way of the application of Part IVA of the ITAA 1936, because the Income Earning Trusts NVI Scheme was entered into by Mr Hart with the overwhelmingly dominant purpose, and perhaps even the sole purpose, of enabling Mr Hart to obtain a tax benefit within the meaning of Part IVA of the ITAA 1936, he obtained such a tax benefit in connection with that scheme, and Part IVA properly applied. 310 The penalties imposed by the Commissioner under the former s 226 of the ITAA 1936 at the rate of 50% were reasonable and appropriate in all the circumstances. No proper case was established for them to be either remitted or reduced. 311 Mr Hart must pay the Commissioner's costs of and incidental to these proceedings, subject only to the effect of prior costs orders. 312 The parties are directed to provide agreed or competing short minutes as to any other matters requiring orders to be made within 14 days, or such further period as may be directed. I certify that the preceding three hundred and twelve (312) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich. Associate: Dated: 26 May 2017