FEDERAL COURT OF AUSTRALIA Ierna v Commissioner of Taxation [2024] FCA 592 File numbers: QUD 243 of 2022 QUD 249 of 2022 QUD 250 of 2022 Judgment of: LOGAN J Date of judgment: 6 June 2024 Catchwords: INCOME TAX – where the applicants appeal against objection decisions made by the respondent (Commissioner) in relation to assessments for the 2016 income year made under the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) – where the applicants comprise various entities from the City Beach group and its controllers, Messrs Ierna and Hicks – where the City Beach business was conducted through a trust (CBT), units in which were pre-capital gains tax assets – where there were inter-group Division 7A of the ITAA 1936 loans (Division 7A loans) – where the applicants effected a restructure in 2016 that allegedly resulted in either certain payments that ought to have been treated as dividends pursuant to s 45B of ITAA 1936 or, alternatively, a tax benefit arising under a "scheme" pursuant to Pt IVA of ITAA 1936 – where the applicants transferred the units of the CBT to a new entity which then entered into deeds of assignment that effectively extinguished the Division 7A loans – where the applicants contended that the restructure was effected to eliminate the adverse commercial impacts of the Division 7A loans and was the only commercially viable solution in the circumstances – where the Commissioner contended that the applicants had in fact realised $52 million in value of the CBT units and that their income should be assessed as such – whether there was a genuine commercial purpose for the transaction – whether the applicants had in fact realised $52 million of the CBT units – appeals allowed – objection decision set aside and in lieu objections allowed in full Legislation: Company Law Review Act 1998 (Cth) Corporations Act 2001 (Cth) s 256C Evidence Act 1995 (Cth) s 140 Income Tax Assessment Act 1936 (Cth) ss 6, 25A, 26, 26AAA, 44, 45B, 45C, 96, 97, 109N, 160ZK, 166A, 177A, 177C, 177CB, 177F, 318 Income Tax Assessment Act 1997 (Cth) ss 207-20, 703-50, 995-1, Div 615-A Taxation Administration Act 1953 (Cth) ss 14ZZ, 14ZZO Taxation Laws Amendment (Company Law Review) Act 1998 (Cth) s 3 Duties Act 2001 (Qld) Cases cited: AXA Asia Pacific Holdings Ltd v Commissioner of Taxation (2009) 77 ATR 829 BHP Billiton Ltd v Commissioner of Taxation (2020) 270 CLR 60 Commissioner of Internal Revenue v Brown (1965) 380 US 563 Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503 Commissioner of Taxation v Consolidated Press Holdings Ltd (1999) 91 FCR 524 Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235 Commissioner of Taxation v Glencore Pty Ltd (2020) 281 FCR 219 Commissioner of Taxation (Cth) v Hart (2004) 217 CLR 216 Commissioner of Taxation v Peabody (1994) 181 CLR 359 Commissioner of Taxation (Cth) v Spotless Services Ltd (1996) 186 CLR 404 Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488 Ierna Beneficiary Pty Ltd v Commissioner of Taxation [2023] FCA 725 RCI Pty Ltd v Commissioner of Taxation (2011) 84 ATR 785 Division: General Division Registry: Queensland National Practice Area: Taxation Number of paragraphs: 240 Date of last submission/s: 8 June 2023 Date of hearing: 29 – 31 May 2023 7 – 8 June 2023 Counsel for the Applicant: Mr M Robertson KC and Mr B Jones SC with Mr N Hanna Solicitor for the Applicant: Holding Redlich Counsel for the Respondent: Ms M Brennan KC and Ms M Baker SC with Mr D Marckwald Solicitor for the Respondent: Australian Government Solicitor ORDERS QUD 243 of 2022 BETWEEN: CARMELO IERNA Applicant AND: COMMISSIONER OF TAXATION Respondent QUD 249 of 2022 BETWEEN: MELVILLE HICKS Applicant AND: COMMISSIONER OF TAXATION Respondent QUD 250 of 2022 BETWEEN: HICKS BENEFICIARY PTY LTD ACN 157 868 507 Applicant AND: COMMISSIONER OF TAXATION Respondent order made by: LOGAN J DATE OF ORDER: 6 JUNE 2024 THE COURT ORDERS THAT: 1. In respect of each of the taxation appeals being proceeding numbers QUD 243 of 2022, QUD 249 of 2022 and QUD 250 of 2022, respectively: (a) the appeal be allowed; (b) the respondent's objection decision be set aside; (c) in lieu thereof, it be ordered that the objection of the applicant concerned be allowed in full; and (d) the matter be remitted to the respondent for the issuing, pursuant to s 14ZZQ of the Taxation Administration Act 1953 (Cth), of such amended assessments as are necessary to give effect to this order. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT LOGAN J: 1 Such is the inevitable march of time, there must be relatively few, these days, in public administration in the Australian Taxation Office, and even in the legal and accounting professions, who can remember from personal experience in active public administration or private practice a time, prior to 20 September 1985, when there was no wide-ranging capital gains tax (CGT) regime in Australia. 2 Such a regime came in its initial form by amendments which inserted Part IIIA into the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) on and from that date. Before then, the now former s 26AAA of the ITAA 1936 included, in assessable income, any profit from the sale of property bought within the previous 12 months. Further, in respect of property acquired before then, provisions such as the now former s 26(a) and s 25A of the ITAA 1936 included, in assessable income, profit arising from the sale by a taxpayer of any property acquired by that taxpayer for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme. However, subject to such provisions, the mere realisation of an asset acquired before 20 September 1985 did not, and still does not, result in any inclusion in assessable income of any resultant gain. 3 As will become apparent, such thoughts were provoked by the circumstances of several taxation appeals which were heard together. Some of these appeals have come, after concession by the Commissioner, to be resolved, save in respect of costs, by consensually promoted orders (QUD 247/2022 and QUD 248/2022): see Ierna Beneficiary Pty Ltd v Commissioner of Taxation [2023] FCA 725 (Ierna Beneficiary v Commissioner of Taxation). Others remain contested (QUD 243/2022, QUD 249/2022 and QUD 250/2022). These reasons for judgment determine the contested appeals. 4 As in all taxation appeals, the burden of proving the assessments concerned to be excessive remains on the relevant applicant who, being dissatisfied with the Commissioner's related objection decision, has invoked Commonwealth judicial power by instituting an appeal against that decision in this Court's original jurisdiction: see, as to that burden, s 14ZZO, Taxation Administration Act 1953 (Cth) (TAA). Insofar as the discharge of that burden entails proof of matters of fact, it is for the relevant applicant to prove those matters on the balance of probabilities: s 140, Evidence Act 1995 (Cth). The contested appeals have been heard together, to the end that evidence and related proof of facts in one will, subject to relevance, be evidence and proof in the others. As it happens, there are many facts which are not controversial. 5 In March 1985, before the commencement of the wide-ranging capital gains tax regime mentioned, two then young men, Mr Carmelo Ierna and Mr Melville Hicks, caused what came to be a most successful contemporary street wear business known as "City Beach" to commence at Indooroopilly Shopping Centre in Brisbane. The choice of business name does not just reflect product range. There have long been two core business sites, one in Queen Street, Brisbane, the other at Surfers Paradise on the Gold Coast. These days, that business comprises 66 retail stores throughout Australia, together with an online outlet. From its inception and to this day, Messrs Ierna and Hicks were, and have remained, closely engaged in the management of the business. 6 I had the benefit of observing each of Messrs Ierna and Hicks when they gave their oral evidence. Each gave candid, transparently honest evidence. Although they are directors of numerous companies, I thought it was significant that, in their respective oral evidence, each described himself as a retailer. The sustained success of the City Beach business is proof perfect each is good at fashion retailing. Theirs has been an enduringly successful combination of a flair for fashion and its retailing, acumen and mutual trust and respect in controlling a business that has endured and thrived for the better part of four decades. Although they meet regularly to discuss business operational matters, a high degree of informality attends most such meetings. In a practical sense, though not in strict legal form, Messrs Ierna and Hicks have been business partners. Neither has any formal qualifications in accounting or law. When a need is apprehended, they have always looked to expert advisers in such disciplines and generally followed advice received. 7 Although in a practical sense Messrs Ierna and Hicks have been business partners, the entity which, from its inception, has conducted the City Beach business has been Fewstone Pty Ltd (Fewstone), an Australian registered company, in its capacity as the trustee of what has come to be named the City Beach Trust (CBT) (it was originally named the Frendzmenz Indooroopilly Trust but renamed to City Beach Trust by a deed poll dated 6 April 1993). Fewstone, like each of the other companies I later mention, is an Australian resident in terms of s 6(1) of the ITAA 1936. 8 The CBT was a unit trust settled by deed of trust dated 1 February 1985. This was obviously in anticipation of the commencement of the new business. This deed was subsequently varied by deed poll dated 6 April 1993, a deed of variation dated 22 July 1994, a deed poll dated 30 June 1995 and a deed dated 23 February 2010. 9 Messrs Ierna and Hicks have from the outset in 1985 been the directors and secretaries of Fewstone. 10 Immediately after the settling of the CBT on 1 February 1985, 30 units in that trust were issued. At that time: (a) 15 units were held by Mr Ierna; and (b) 15 units were held by Yorkdon Pty Ltd (Yorkdon) as trustee of the William Hicks Family Trust (WHFT). 11 The WHFT was a discretionary trust established by deed dated 1 February 1985, later varied from time to time, the beneficiaries of which included Mr Hicks and Hicks Beneficiary Pty Ltd (Hicks Beneficiary). 12 On 26 June 1991, Mr Ierna transferred one of his units in the CBT to the then joint trustees of the Ierna Family Trust (IFT). The IFT was a discretionary trust established by a deed dated 22 June 1988 (later varied from time to time). Mr Ierna was an eligible beneficiary of the IFT. On 2 July 2012, Oxlade Pty Ltd (Oxlade) became the trustee of the IFT. Mr Ierna was the sole shareholder in Oxlade. He was also the sole director and secretary of that company. 13 By a deed dated 16 August 2001, Corkdon Pty Ltd (Corkdon) replaced Yorkdon as trustee of the WHFT. Mr Hicks was the sole director and secretary of Corkdon. He was also the sole shareholder of Corkdon. 14 This then was the ownership position in relation to the issued units in the CBT until 20 May 2016. Each of those units, save for the one transferred by Mr Ierna in 1991, was a pre-CGT asset. 15 On 20 May 2016, a restructure occurred. As detailed below, part of that restructure entailed the disposal of the issued units in the CBT. In keeping with the general income tax law position already outlined, in the ordinary course of events, the mere realisation of such of these units as were pre-CGT assets would have no tax consequence. That would be so no matter how much the value those units had increased since their acquisition. However, the Commissioner's position is that, in the events which transpired, there were adverse tax consequences for Mr Ierna, Mr Hicks and their related entities. 16 Before outlining the restructure, some further detail must be given in relation to the way in which, on advice, Messrs Ierna and Hicks caused the net income of the CBT to be dealt with. Although the practice antedated these income years, it is necessary and sufficient to set out the distributions on and from the 2011 income year and prior to 20 May 2016: Year ended 30 June Net Profit available for 'distribution' Total distribution to beneficiaries Distribution to WHFT Distribution to IFT 2011 $11,774,354 $11,390,354 $5,695,046 $5,695,047 2012 $18,024,479 $18,024,479 $9,010,739 $9,010,740 2013 $10,212,725 $10,212,725 $5,106,363 $5,106,362 2014 $5,471,439 $5,471,439 $2,735,719 $2,735,720 2015 $4,743,147 $4,743,147 $2,371,574 $2,371,573 17 As can be seen, the practice in these income years was to distribute the net income of the CBT equally as between a corporate trustee entity controlled by Mr Ierna and a corporate trustee entity controlled by Mr Hicks. 18 In turn, in the 2011 income year, adopting a practice followed in earlier income years, each such corporate trustee appointed the net income in relation to its trust estate to a corporate beneficiary, Mastergrove Pty Ltd (Mastergrove). 19 Mastergrove was owned and controlled by Messrs Ierna and Hicks. Each was a director. Each held one class A ordinary share (A ORD) in that company. That class of share carried no right to vote at any general meeting of members but entitled the shareholder to receive dividends at the discretion of shareholders entitled to vote. Those shareholders were, on and from 28 August 2013, Oxlade and Corkdon, each of which held one ordinary share in Mastergrove non-beneficially, ie in their respective trustee capacities. 20 Mastergrove's practice was consequentially to lend money to Mr Ierna, Mr Hicks, Corkdon (in its separate capacity as trustee of the Hicks Property Trust (HPT)) and to Surfstone Pty Ltd (Surfstone) (in its capacity as the trustee of the Ierna Property Trust (IPT)). Mr Ierna was the sole director and secretary of Surfstone. 21 The HPT was a discretionary trust, established by deed dated 24 October 2003. Mr Hicks was the appointer of that trust. Its beneficiaries included Mr Hicks and Dissh Pty Ltd (Dissh). 22 The IPT was a discretionary trust, established by a deed dated 23 October 2003, as varied by a deed dated 23 February 2010. The beneficiaries of that trust included Ierna Beneficiary Pty Ltd (Ierna Beneficiary) and Mr Ierna. Mr Ierna was the sole director and secretary of Ierna Beneficiary. Naxon Pty Ltd (Naxon), in its capacity as trustee for the Naxon Family Trust, was the sole shareholder of Ierna Beneficiary. The directors of Naxon were Mr Ierna and his spouse, Mrs Joanne Ierna, and the shareholders were Mr Ierna (90%) and Mrs Ierna (10%). The beneficiaries of the Naxon Family Trust included Mr Ierna and the trustee of any trust of which he was a beneficiary, which included the IPT. 23 As to loans made by Mastergrove, I shall adopt the following terms: (a) a series of loans made by Mastergrove to the IPT during the years of income ended 30 June 2006 to 30 June 2011 (inclusive), and the year of income ended 30 June 2015 – the Mastergrove - IPT Loan; (b) a series of loans made by Mastergrove to Mr Ierna during the years of income ended 30 June 2009 to 30 June 2015 (inclusive) - the Mastergrove-CI Loan; (c) a series of loans made by Mastergrove to Mr Hicks during the years of income ended 30 June 2009 to 30 June 2011 (inclusive) - the Mastergrove-MH Loan; (d) a series of loans made by Mastergrove to HPT during the years of income ended 30 June 2010, 30 June 2011 and 30 June 2015 - Mastergrove-HPT Loan. 24 It is common ground that these loans were on terms compliant with Division 7A of Part III of the ITAA 1936 (ie they satisfied s 109N of the ITAA 1936). Materially, the loans required minimum annual repayments to be made (plus interest) over 7 years. 25 On and from the 2012 income year and until the 2016 restructure, the trust income distribution practice changed slightly to replace appointment of the net income of the CBT to Mastergrove with distributions to corporate beneficiaries respectively controlled, as their corporate names suggest, by Messrs Ierna and Hicks, namely Ierna Beneficiary and Hicks Beneficiary. What did not change over this period was the initial distribution stage whereby Fewstone, as the trustee of the CBT, appointed the income of the CBT estate equally to the trustee of the IFT and to the trustee of the WHFT. In turn, over this period, the trustee of the IFT appointed the net income of that trust estate to Ierna Beneficiary and the trustee of the WHFT appointed the net income of that trust estate to Hicks Beneficiary. 26 What followed then, over this period, was that Ierna Beneficiary lent money to Mr Ierna and to the trustee of the IPT. Correspondingly, Hicks Beneficiary lent money to Mr Hicks and to the trustee of the HPT. As to such loans, I shall adopt the following terms: (a) A series of loans made by Ierna Beneficiary to the IPT during the years of income ended 30 June 2012 to 30 June 2015 (inclusive) - IB-IPT Loan; (b) a series of loans made by Ierna Beneficiary to Mr Ierna during the years of income ended 30 June 2012 to 30 June 2015 (inclusive) - IB-CI Loan. (c) a series of loans made by Hicks Beneficiary made to Mr Hicks during the years of income ended 30 June 2012 to 30 June 2015 (inclusive) - HB-MH Loan; (d) a series of loans made by Hicks Beneficiary to HPT during the years of income ended 30 June 2012 to 30 June 2015 (inclusive) - HB-HPT Loan. 27 It is common ground that these loans also were on Division 7A compliant terms (ie they satisfied s 109N of the ITAA 1936). Once again and materially, such loans required minimum annual repayments to be made (plus interest) over 7 years. 28 The total outstanding balance of each of the Mastergrove-IPT Loan, the Mastergrove-CI Loan, the IB-IPT Loan and the IB-CI Loan (collectively, the Ierna Division 7A Loans) at 29 June 2016 is set out in the following table: Loan Outstanding balance at 29 June 2016 Mastergrove‐IPT Loan $10,131,875.56 Mastergrove‐CI Loan $4,154,805.80 IB‐IPT Loan $1,097,170.95 IB‐CI Loan $10,588,236.13 29 The total outstanding balance of each of the Mastergrove-MH Loan, the Mastergrove-HPT Loan, the HB-MH Loan and the HB-HPT Loan (collectively, the Hicks Division 7A Loans) at 29 June 2016 is set out in the following table: Loan Outstanding balance at 29 June 2016 Mastergrove‐MH Loan $3,987,705.93 Mastergrove‐HPT Loan $10,131,640.48 HB‐MH Loan $10,557,682.31 HB‐HPT Loan $1,224,031.19 30 In summary, as at 20 May 2016, there were three Division 7A creditor companies (Ierna Beneficiary, Hicks Beneficiary and Mastergrove) and there were four Division 7A borrowers (Mr Ierna personally, Mr Hicks personally, Surfstone (as the trustee of the IPT) and Corkdon (as the trustee of the HPT)). 31 In the 2005 to 2013 (inclusive) years of income, Mastergrove paid the following dividends on the A ORD shares respectively owned by Messrs Ierna and Hicks: Year of income ended 30 June Dividend paid Dividend paid per A ORD Share 2013 $8,620,000 $4,310,000 2012 $9,200,000 $4,600,000 2011 $8,068,000 $4,034,000 2010 $7,000,000 $3,500,000 2009 $5,200,000 $2,600,000 2008 $4,740,000 $2,370,000 2007 $3,682,000 $1,841,000 2006 $3,054,000 $1,527,000 2005 $2,224,000 $1,112,000 32 None of the facts just related concerning the settling and variation of the several trusts mentioned, ownership and control of various corporate trustees mentioned, loans made or loan balances and dividends paid were controversial. The account I have offered above draws upon an agreed statement of facts filed by the parties. 33 From about the 2000 income year and throughout the period with which these proceedings are concerned, the accounting and taxation advisor to Messrs Ierna and Hicks, both in relation to the City Beach business and their respective personal affairs, has been the firm then known as Hanrick Curran (later known from about the 2019 income year as Mazars). Within that firm, Mr Ross Barrett, until his 2015 retirement, and then, until his 2019 retirement, Mr Kim Hanrick were the principal sources of advice. Later, Mr Hanrick was succeeded as a principal source of advice by a Mr Nathanael Lee, who had from October 2008 worked at Hanrick Curran. From October 2008, Mr Lee was responsible for the day-to-day management of the tax and accounting work done for the City Beach group of entities and Messrs Ierna and Hicks personally. In particular, this entailed preparing financial accounts and tax returns. 34 Mr Lee gave both affidavit and oral evidence. He is an astute, well-experienced chartered accountant. It was obvious that he was well-familiar with the taxation and related business affairs of the City Beach business, the entities associated with the operation of that business, the issues and challenges which had arisen over time from the pre-2016 structure under which the business was conducted, the related ramifications for the personal taxation affairs of Messrs Ierna and Hicks, how those issues, challenges and ramifications might be addressed and how they ultimately, in 2016, were addressed. He was also well familiar with their personal financial positions. I thought his evidence was frank, candid and honest. It was entirely consistent with contemporaneous advice furnished from time to time to Messrs Ierna and Hicks directly or via the Chief Financial Officer for the time being of the City Beach group of entities. Taken in conjunction with the evidence of Messrs Ierna and Hicks, it was obvious from Mr Lee's evidence that they placed great faith in his professional advice and that he, in turn, consistently endeavoured to repay that faith when furnishing that advice. Mr Lee's direct personal knowledge of, and involvement in, the furnishing of advice pre-dated the retirement of Messrs Barrett and Hanrick. 35 Mr Lee's answers under cross-examination did not, to my mind, provide any basis for questioning the accuracy, honesty and integrity of the account which he gave, and the opinions which he expressed, in his affidavit evidence in chief as to how the need for a restructure came about, how it was effected and why and alternatives which were or were not considered. The findings which follow reflect my acceptance of his evidence and draw upon it. 36 I have mentioned above the sustained profitability of the City Beach business. The amount of profitability has fluctuated markedly over the years. Understanding that profitability and how it fluctuated provides important background to the 2016 restructure. For that purpose, it is both necessary and sufficient to set out the net accounting profit for the business from the 2007 to 2017 income years (inclusive): Income Year Net Accounting Profit 2007 $25,080,465 2008 $24,870, 632 2009 $29,251,151 2010 $12,645,700 2011 $11,390,093 2012 $18,021,479 2013 $10,212,725 2014 $5,471,439 2015 $4,743,147 2016 $4,642,780 37 Another important background fact is a change in understanding engendered in Mr Lee (and inferentially also Mr Barrett or Mr Hanrick) in relation to the prevailing income tax position concerning unpaid present entitlements (UPE) on and from 1 July 2009 of private company beneficiaries as a result of views expressed by the Commissioner in Taxation Ruling 2010/3 concerning Division 7A. It is not necessary to quote extracts from Taxation Ruling 2010/3. It matters not whether the ruling was right or wrong in law, only that it was made and that it engendered the understanding related by Mr Lee. Further, although as is inherently likely, Messrs Ierna and Hicks did not understand the detail of the ruling or its consequences, they were accepting of a need, on advice from Hanrick Curran, to take reactive measures and took measures as so advised. In this sense, the purposes sought to be achieved by Mr Lee and other advisers then in Hanrick Curran became their purposes and those of various entities in the City Beach under their control which were parties to these measures. 38 The understanding engendered by Taxation Ruling 2010/3 was that, for UPEs arising from 1 July 2009, there would be a "loan" where a corporate beneficiary did not call for the UPE or the amount of the UPE is, to the knowledge of the company, credited a loan account in the name of the company. 39 Mr Lee related that Taxation Ruling 2010/3 was controversial in accounting circles, in effect reversing what had been regarded in the past as acceptable practice as to the operation of Division 7A in relation to the UPEs of corporate beneficiaries. However that may be, there can be no doubt, and I find, that Taxation Ruling 2010/3 engendered reactive advice to (by Hanrick Curran), and action by, Messrs Ierna and Hicks in relation to companies and trusts which they controlled within the City Beach group. 40 Mr Lee's advice had a number of dimensions. Because Taxation Ruling 2010/3 did not apply to UPEs which had arisen before 1 July 2009, he recommended that these be "quarantined" in the accounts of the CBT. 41 The immediate impact of Taxation Ruling 2010/3 for the City Beach corporate trustee conducted business model was, Mr Lee related, and I find, cushioned by the reduced profits after 2009. This reduction is evident from the table set out above. However, the impact did not go away. Via a letter of 24 June 2011, and in further reaction to Taxation Ruling 2010/3, Hanrick Curran advised Messrs Ierna and Hicks that formal loan agreements be prepared that complied with the requirements (as expounded in that taxation ruling) of Division 7A (Division 7A loan agreements). This was done. Thereafter, UPEs of the corporate beneficiaries of the CBT were accounted for accordingly. 42 The opinions Mr Lee held and related in evidence as to the impact of Taxation Ruling 2010/3 with respect to its application to the UPEs of private company beneficiaries, then prevailing business financing conditions and related disadvantages which can attend conducting a business via a corporate trustee acting in its trust capacity, as opposed to a corporation conducting a business in its own right, have relevance on two bases, in my view. Firstly, they were operative in relation to the consequential advice tendered by Hanrick Curran to Messrs Ierna and Hicks. Secondly, as the opinions of a person who is qualified by formal study, professional admission and experience to express them, they are also evidence of the effect in commerce of conducting a business in a trust capacity, such as City Beach, and of adherence to his and Hanrick Curran's understanding of Taxation Ruling 2010/3 by a corporate trustee, such as Fewstone as trustee of the CBT. 43 Mr Lee's opinion, which I accept, is that the views expressed in the ruling "worked to severely disadvantage a trust which conducted business operations – such as CBT – because the UPE would be subject to interest and minimum repayments in compliance with the requirements of s.109N [of the ITAA 1936] to prevent it being deemed to be a dividend". Mr Lee further opined, and I accept, that, at the time when the Taxation Ruling 2010/3 reactive advices were tendered to, and acted upon by, Messrs Ierna and Hicks, "it was especially difficult to obtain new external debt funding and so the UPE's were in effect funding the assets and operations of the [City Beach] business". Based on, I infer, his very particular knowledge of the City Beach business, acquired in the course of his professional association, Mr Lee related, and I find, that "the funds represented by the UPE's were typically applied to meet payments for inventory, equipment and store fitouts". 44 Another opinion voiced by Mr Lee, which I also accept, was that a difficulty of operating a business through a trust is that profits cannot be accumulated and used within the business, unless that income is taxed at the top marginal rate (thereby reducing the amount available to be re-invested in the business). He further opined, and I accept, that this difficulty does not arise where a corporation operates a business in its own right, or where a trust is a member of a tax consolidated group. 45 A sequel to the Division 7A loan agreements was a need, annually, to fund the payments required thereunder. For this purpose, Mastergrove declared dividends to Messrs Ierna and Hicks in each of the 2010 to 2013 income years. For each of the 2014 and 2015 years the annual repayments under the Division 7A loan agreements were made by each of Messrs Ierna and Hicks individually and by their respective property trusts using available cash. 46 On the evidence, the funding need and sources to meet it were identified annually by Hanrick Curran as part of the financial accounting and taxation advisory services which that firm provided to Messrs Ierna and Hicks and the companies and related trusts which they controlled. Although not then the lead responsible partner, Mr Lee was involved on and from his commencement with that firm in the provision of this advice. Accepting, as I do, Mr Lee's evidence, this funding need interplayed in periodic advices by Hanrick Curran to Messrs Ierna and Hicks, I find, with the inherent difficulty (as mentioned earlier) of operating the City Beach business via a corporate trustee rather than a corporation in its own right. Other factors which intruded arose from the large number of leasehold premises from which the business had, on expansion, come to be conducted, a related need to meet fitout costs, securities which were required by third party banks and financiers to be provided for business funds (including these fitout costs) and changes in such security requirements. 47 Such advices were conveyed to Messrs Ierna and Hicks by Hanrick Curran both via personal attendances upon them and via email communications both brief and more formal. They also, as occasion required, were complemented by advice from solicitors, as suggested to be obtained in the advices from Hanrick Curran. Mr Lee offered in his affidavit evidence a fair and accurate summary of the effect of these advices. It is convenient to reproduce that summary, rather than setting out at length extracts from particular written advices over the years. 48 The idea of having some profits of the City Beach business accumulate in a corporate entity was first raised in discussions with Messrs Ierna and Hicks by Hanrick Curran in about 2011. It features in a list of items to be discussed in an email dated 11 November 2011 from Mr Barrett to Mr Hicks in relation to a meeting on 15 November 2011. It is more likely than not that this item was then the subject of oral advice, discussion and consequential instructions to proceed further at this meeting. The initial advice concept was to have a distribution company that would purchase inventory and sell for a small profit alongside the City Beach business. 49 By about March 2012, this concept had evolved into one whereby new plant and equipment (including store fitouts) of the City Beach business would be held within a new company. Inferentially, as a sequel to instructions to proceed further given at the November 2011 meeting, this evolved concept was considered in 2012 by both Hanrick Curran and a firm of solicitors, Thynne and Macartney. On the evidence, Thynne and Macartney undertook corporate and commercial legal work for various entities within City Beach group but were not specialist federal income tax advisors to those entities. An email from Mr Peter Archos of Thynne and Macartney to Mr Barrett of Hanrick Curran dated 2 March 2012 canvasses, amongst other things, the holding of plant and equipment in a corporate entity for leasing to the CBT. A related Excel spreadsheet was prepared by Hanrick Curran to illustrate, diagrammatically, the proposed structure. 50 A consequence of this evolved advice and, inferentially, consequential instructions from Messrs Ierna and Hicks was that, on 18 April 2012, City Beach P&E Co Pty Ltd (City Beach P&E) was incorporated. Thereafter, City Beach P&E acquired new plant and equipment, which was leased to CBT. In the result, and as Mr Lee explained (and I find), City Beach P&E did not accumulate significant profits because of the limited margin on the applicable lease. 51 As mentioned, Fewstone, as trustee of the CBT, had several finance facilities in place, principally for the fitout of leased store premises. Prior to the 2016 restructure, Mr Lee had discussions over several years with Messrs Ierna and Hicks and the person from time to time occupying the position of the City Beach Chief Financial Officer (Mr Mike Wilson and Mr Kush De Alwis in particular) about looking for new sources of finance. The security offered in support of the fitout finance included guarantees provided by Mastergrove and then later by Ierna Beneficiary and Hicks Beneficiary. 52 A good example in evidence of these finance facilities and related securities, especially pertinent because of its proximity to advice given by Hanrick Curran to Messrs Ierna and Hicks in October 2014, is a summary as at September 2014. This discloses finance facilities with the Australia and New Zealand Banking Group (ANZ) ($6 million limit in favour of Fewstone as trustee), the Commonwealth Bank (two facilities, one with a limit of $10 million in favour of Fewstone as trustee of the CBT, City Beach P&E, Corkdon and Surfstone, each as trustees; the other with a limit of $14.249 million in favour of Corkdon and Surfstone, each as trustees), the National Australia Bank (NAB) (two facilities, one with a $10.66 million facility limit in favour of Fewstone as trustee and City Beach P&E, the other with a limit of $9,649,230 in favour of Corkdon and Surfstone, each as trustees) and Westpac Banking Corporation (the latter facility with a $500,000 exposure by Fewstone as trustee then in the process of being wound down) with guarantors which included the entities mentioned. Notably, Messrs Ierna and Hicks were already also personal guarantors in respect of the facilities with the NAB. This summary also discloses a lesser finance facility with the Bank of Queensland and another facility with Rentmax Limited. 53 In 2015, Mr Lee dealt with ANZ in relation to City Beach business financing. On 8 April 2015, Mr Lee received an email from Mr De Alwis that forwarded an email from the ANZ. By that email, ANZ advised Mr De Alwis (and, through him, Messrs Lee, Ierna and Hicks and the City Beach business entities they controlled) that the bank required greater security in the form of guarantees, including from Messrs Ierna and Hicks personally, and from entities in which they respectively held personal investments, on the fitout leases. This prompted a winding down of the finance facilities with ANZ, as is evident from a 2016 summary of finance facilities. 54 On and from the change in understanding in relation to the tax treatment of UPEs generated by Taxation Ruling 2010/3 and the reactive compliance measures via the Division 7A loan agreements, Mr Lee had, I find, an ever present apprehension that, over time, the size of these loans would diminish the value of the guarantee securities in respect of the various finance facilities in place with the various third party financiers of entities within the City Beach group. Related to this was how to fund the minimum interest payments under the Division 7A loan agreements from the relatively limited financial resources at the command of Messrs Ierna and Hicks. Mr Lee also knew that neither of them had sufficient other financial resources to repay in full, from cash, the Division 7A loans, but did, directly or indirectly, have assets of significant value in the form of the units in the CBT. These considerations, and the inherent profit accumulation disadvantage of conducting a business via a corporate trustee, as opposed to a corporation in its own right, informed a proposal formulated by Mr Lee and presented to Messrs Ierna and Hicks by Hanrick Curran by an advice of 24 October 2014 and related discussions with them. 55 Mr Lee stated, and I find, that this proposal entailed a restructure of the City Beach entities which had two objectives: (a) realise a part of the value of the interests which Messrs Ierna and Hicks then held, directly or indirectly, in the City Beach business in order to repay the Division 7A loans; and (b) create a corporate structure that would allow profits to be accumulated in circumstances where Division 7A would not apply. 56 The proposed restructure involved, in each instance at market value, either: (a) the City Beach business being transferred from Fewstone as trustee of the CBT to a new holding company; or (b) the units in CBT being transferred to a new holding company. 57 The proposal envisaged that the new holding company could acquire the business or units principally with debt payable to the unit holders. The quantum of that debt would, Mr Lee considered, be more than enough to enable the outstanding Division 7A loans to be repaid (by way of assignment of the debt to the creditor companies). In the event the units were transferred rather than the business. The proposal envisaged that the new holding company would make an election to form a consolidated group. 58 Mr Lee's purpose behind this 2014 proposed restructure was to ensure that: (a) the net income of the City Beach business would be taxed at corporate rates at first distribution, rather than requiring an additional distribution through the family trusts of Messrs Ierna and Hicks; and (b) there would be an ability to retain earnings in the new holding company, thereby resulting in a greater likelihood of obtaining bank finance (if and as required) without Messrs Ierna and Hicks or the trustees of their personal investment trusts having to give personal guarantees: and (c) some of the pre-CGT value Messrs Ierna and Hicks had, directly or indirectly, accrued since 1985 in their units in the CBT was released so the outstanding Division 7A loans could be repaid. 59 The 2014 proposal contemplated that the restructure could be completed by 30 June 2015. 60 The 2014 proposal did not proceed at that time. On the whole of the evidence, it is more likely than not that Messrs Ierna and Hicks were not then persuaded it was urgent enough, because each was reticent about the CGT consequences in the future, if the new holding company sold the City Beach business or, as the case may be, the units in the CBT to a third party, and had a related desire to preserve the pre-CGT status of units in the CBT and avoid the substantial State transfer (stamp) duty which would be payable on the transfer of either the business or the units. 61 In hindsight, this 2014 decision by Messrs Ierna and Hicks not to implement the proposal put off the inevitable. That is because the issues which had informed the making of the proposal put to them by Hanrick Curran did not go away. 62 Mr Lee, I find, continued to hold the apprehensions mentioned which had informed the 2014 proposal. Moreover, by late 2015, his view, borne out by the evidence, was that cash resources at the command of Messrs Ierna and Hicks had been exhausted by the Division 7A loan repayments in the 2014 and 2015 income years. This is quite apparent from their respective then assets and liabilities positions. Mr Lee's view was, and I find, that the only way of making the minimum repayments in the 2016 income year was a further dividend from Mastergrove, Hicks Beneficiary and/or Ierna Beneficiary. Mr Lee's view was, I find, that such a course would itself have created further Division 7A issues. 63 After the 2014 restructure was proposed and rejected, Mr Lee became aware of amendments to the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) which had inserted Division 615-A. His understanding of Division 615-A was that it allowed a roll-over of units into a holding company in return for shares, whereby the shares would take the pre-CGT status of the units. It was Mr Lee's further understanding that the rollover in Division 615-A would only apply where the units were transferred in exchange for shares in the new holding company and nothing else. Put another way, his understanding was that it was not possible to transfer the units for a mixture of debt (that was of sufficient quantum that would enable them to be assigned to repay the loans) and equity. 64 What followed was what one might accurately term a "resurrection" of the October 2014 proposal, undoubtedly informed by the introduction of Division 615-A into the ITAA 1997, but more especially influenced by, I find, a settled view within Hanrick Curran that it was just not possible, for all of the reasons which had led to the making of the 2014 proposal and having regard to the later, relatively modest profits of the City Beach business and the financial positions of Messrs Ierna and Hicks, to continue to fund as before the payments due under the Division 7A loan agreements before the end of the 2016 income year. 65 On 8 April 2016, a meeting was held between Mr Lee, Mr Hanrick, Mr Ierna and Mr Hicks to discuss a restructure of the City Beach group and the steps to achieve that by the end of the 2016 income year. A sequel to this meeting was a need to identify a lead time within which approval by the Australian Securities and Investments Commission (ASIC) for a share cancellation might be obtained. This led that same day to Thynne and Macartney being briefed on the proposed steps and requested to advise on this ASIC lead time if the proposed steps were implemented before 30 June 2016. Consequential advice about this was received from Thynne and Macartney on 18 April 2016. 66 Thynne and Macartney also confirmed that State transfer duty would be occasioned by the transfer of the units in the CBT. This necessitated that a valuation of the dutiable value of the City Beach business be obtained. Another then partner in Hanrick Curran (Mr Alex Fraser) came to prepare a formal valuation advice for that purpose. On 10 June 2016, Hanrick Curran produced a report valuing the intangibles of the City Beach business at $56,162,024 as at 20 May 2016. A related document titled, "City Beach Unit Trust, Assets & Liabilities at Market Value, as at 20 May 2016" was produced by Hanrick Curran which valued the net assets of the CBT at $77,628,766, inclusive of intangibles of $56,162,024, as at 20 May 2016. State transfer duty in the amount of $2,533,593.25 was later assessed and paid accordingly. 67 On 18 April 2016, a new company, Methuselah Holdings Pty Ltd (Methuselah) was registered. On registration, the shares in Methuselah were held as follows: (a) 14 shares were held by Mr Ierna; (b) 1 share was held by Oxlade, as trustee of the IFT; and (c) 15 shares were held by Corkdon, as trustee of the WHFT. 68 It is not a coincidence that the shareholding in Methuselah corresponded, exactly, with the ownership of the units in the CBT. 69 At all material times since its registration, Messrs Ierna and Hicks have been the directors of Methuselah, with Mr Hicks being the secretary. 70 This advice from Thynne and Macartney to hand, Hanrick Curran furnished a formal advice concerning the proposed restructure to Messrs Ierna and Hicks via a letter dated 20 April 2016. In summary the steps proposed to them were as follows: (a) Step 1 – a transfer of the units in CBT to a new company (Methuselah) in consideration for new shares in Methuselah; (b) Step 2 – the undertaking of a selective share buy-back to allow, in substance, a realisation of pre-CGT capital gains to the shareholders in Methuselah; (c) Step 3 – the assignment of the debt (loan) interests arising from the share buy-back to the Division 7A entities; and (d) Step 4 – an election by Methuselah to form a consolidated group with the CBT. 71 Mr Lee's purposes in relation to this 2016 restructure proposal were as follows. The proposed share buy-back would give rise to a liability in the new company (which became Methuselah), which would be payable to the existing unitholders – viz, Mr Ierna, the trustee of the WHFT and the trustee of the IFT. Mr Lee considered that, as Methuselah "would not have the cash available to fund the 'cancellation', loan agreements were proposed to be put in place to recognise the debts due under the share buy-back, which could then be assigned as an asset of the shareholders thereby enabling the Division 7A loans to be repaid". 72 Mr Lee considered that "this was the optimal result as it would result in both [Messrs Ierna and Hicks] retaining a portion of the pre-CGT value and only realising the amount necessary to enable repayment of the balances of each of the Division 7A loans". 73 Messrs Ierna and Hicks accepted this advice. They gave instructions to Mr Lee to proceed with the restructure as formalised in the 20 April 2016 advice. 74 Insofar as subjective purpose has any relevance in this case, and it is certainly not determinative, the subjective purposes of Messrs Ierna and Hicks and entities they controlled either jointly or, as the case may be, severally are to be assimilated with the purposes related by Mr Lee in his evidence, which, in turn, informed the advice of 20 April 2016 in relation to the proposed restructure. I have already canvassed above that Messrs Ierna and Hicks placed faith in the advice which Hanrick Curran furnished to them, even though they did not understand all of the technical detail in such advice. The position is no different in relation to their choosing to act on the 20 April 2016 advice. 75 As to the sequel to Messrs Ierna and Hicks giving authorisation to proceed instructions to Hanrick Curran, it is common ground, as reflected in the filed agreed statement of facts, that the following events occurred in 2016, which effected a restructure of the conduct of the City Beach business. Interposition of Methuselah as the holding company of the CBT 76 On 20 May 2016: (a) Methuselah and Mr Ierna entered into a Unit Sale Agreement, under which Methuselah agreed to issue 14,000,000 shares to Mr Ierna in exchange for the 14 units held by him in the CBT; (b) Methuselah and Oxlade as trustee for the IFT entered into a Unit Sale Agreement, under which Methuselah agreed to issue 1,000,000 shares to the IFT in exchange for the 1 unit held by Oxlade as trustee of the IFT in the CBT; and (c) Methuselah and Corkdon, as trustee for the WHFT, entered into a Unit Sale Agreement, under which Methuselah agreed to issue 15,000,000 shares to the WHFT in exchange for the 15 units held by Corkdon as trustee of the WHFT in the CBT, (collectively, the Unit Sale Agreements) 77 Under the Unit Sale Agreements, the units in the CBT were provided as consideration for the issue of shares in Methuselah. No further cash consideration was payable by the former unitholders for the issue of the shares. 78 The Unit Sale Agreements were tendered at a meeting of the directors of Methuselah, which was held at 12.10pm on 20 May 2016 and closed at 12.20pm. At that same meeting, Messrs Ierna and Hicks, in their capacity as directors of Methuselah, resolved that Methuselah would issue additional ordinary shares at $2.50 per share to comply with its obligations under the Unit Sale Agreements. 79 The price of the shares in Methuselah was determined having regard to the value of the net assets of the CBT at 20 May 2016 determined on the basis of the valuations made by Hanrick Curran, as set out above. 80 On 20 May 2016, Methuselah issued 30,000,000 shares with a fully paid amount of $2.50 per share, in compliance with its obligations under the Unit Sale Agreements. 81 As a consequence of the share issue on 20 May 2016, the shares in Methuselah were held as follows: (a) 14,000,014 shares (46.67%) were held by Mr Ierna; (b) 1,000,001 shares (3.33%) were held by Oxlade, as trustee of the IFT; and (c) 15,000,015 shares (50%) were held by Corkdon, as trustee of the WHFT. 82 Each of the shareholders in Methuselah chose to obtain a roll-over under Subdivision 615-A of the ITAA 1997 in respect of their disposal of their units in the CBT. Methuselah's selective capital reduction 83 Messrs Ierna and Hicks met again in their capacity as directors of Methuselah at 12.40pm on 20 May 2016. The minutes of this meeting record that: a) "to realise value from the shares held in the Company, it has been recommended to the Company that the Company implement a selective capital reduction"; and b) Methuselah intended to cancel 10,400,000 ordinary shares held by each of Mr Ierna and Corkdon as trustee of the WHFT. 84 On 23 May 2016, the directors of Methuselah held a meeting at which they resolved that Methuselah would send a notice of general meeting to all shareholders to consider the resolution for the selective capital reduction. The notice of general meeting tendered at the meeting on 23 May 2016 gave notice of a meeting to be held at 10am on 14 June 2016 and proposed a resolution and a special resolution for consideration by the shareholders of Methuselah. 85 The resolution proposed that Methuselah reduce its share capital by way of a selective capital reduction, with Methuselah cancelling 10,400,000 ordinary shares held by each of Mr Ierna and Corkdon as trustee of the WHFT, and paying $2.50 per share cancelled and the special resolution, which was to be considered only if the first resolution was passed by all the shareholders, gave effect to the cancellation of the shares. 86 The selective capital reduction was undertaken in accordance with the requirements of s 256C of the Corporations Act 2001 (Cth) (Corporations Act). 87 For the purposes of s 256C(2) of the Corporations Act, at 10am on 14 June 2016, the shareholders of Methuselah held a meeting at which they resolved to implement the selective capital reduction and to pay $2.50 per share cancelled to the affected shareholders. 88 For the purposes of s 256C(3) of the Corporations Act, on 15 June 2016, Methuselah provided a Notification of Resolution regarding shares to the ASIC. 89 On 29 June 2016, 14 days after notice had been lodged, Methuselah implemented the selective capital reduction. 90 The consideration payable by Methuselah in respect of the shares cancelled on 29 June 2016 (cancellation amount) is summarised in the table below: Shareholder Shares cancelled Cancellation amount payable Mr Ierna 10,400,000 $26,000,000 Oxlade as trustee of the IFT Nil Nil Corkdon as trustee of the WHFT 10,400,000 $26,000,00 Total cancellation amount payable by Methuselah $52,000,000 91 Following the selective capital reduction on 29 June 2016, the shares in Methuselah were held as follows: (a) 3,600,014 shares (39.13%) were held by Mr Ierna; (b) 1,000,001 shares (10.87%) were held by Oxlade, as trustee of the IFT; and (c) 4,600,015 shares (50%) were held by Corkdon, as trustee of the WHFT. Loans in respect of the cancellation amount 92 On 14 June 2016, Messrs Ierna and Hicks met for a fourth time in their capacity as directors of Methuselah, starting at 10.20am. The minutes of the meeting of directors record that Methuselah requested that Mr Ierna and Corkdon as trustee of the WHFT forebear from requiring Methuselah to pay the cancellation amount. 93 On 14 June 2016: (a) Mr Ierna and Methuselah entered into a Loan Agreement by which the applicant agreed to loan $26,000,000 to Methuselah, by way of forbearance from requiring Methuselah to pay the cancellation amount on 29 June 2016; and (b) Corkdon as trustee of the WHFT and Methuselah entered into a Loan Agreement by which the trustee of the WHFT agreed to loan $26,000,000 to Methuselah, by way of forbearance from requiring Methuselah to pay the cancellation amount on 29 June 2016, (collectively, the Loan Agreements). 94 No interest was payable under either of the Loan Agreements and no security was provided. The loans made under the Loan Agreements were repayable within 90 days of the lender providing written notice that repayment was required, although Methuselah was permitted to repay the loans earlier if it had the funds to do so. Deeds of Assignment – Mr Ierna 95 On 29 June 2016, Mr Ierna entered into a deed of assignment with Methuselah, Ierna Beneficiary and Surfstone as trustee of the IPT (IB Deed of Assignment), under which: (a) Mr Ierna assigned to Ierna Beneficiary all of his right title and interest in $11,685,407.08 of the $26,000,000 owed to him by Methuselah, including the right to demand performance of or to sue for and enforce the payment of that amount; and (b) in consideration of the assignment, Ierna Beneficiary received the assignment of the debt of $11,685,407.08 as repayment of the IB-CI Loan and the IB-IPT Loan, which the parties agreed were in the amount of $10,588,236.13 and $1,097,170.95, respectively, at 29 June 2016. 96 Also on 29 June 2016, Mr Ierna entered into a deed of assignment with Methuselah, Mastergrove and Surfstone as trustee of the IPT (Mastergrove Deed of Assignment), under which: (a) Mr Ierna assigned to Mastergrove all of his right title and interest in $14,286,681.36 of the $26,000,000 owed to him by Methuselah, including the right to demand performance of or to sue for and enforce the payment of that amount; and (b) in consideration of the assignment, Mastergrove received the assignment of the debt of $14,286,681.36 as repayment of the Mastergrove-IPT Loan and the Mastergrove-CI Loan, which the parties agreed were in the amount of $10,131,875.56 and $4,154,805.80, respectively, at 29 June 2016. 97 The effect of the IB Deed of Assignment and the Mastergrove Deed of Assignment was that Mr Ierna assigned $25,972,088.44 of the $26,000,000 owed to him by Methuselah to companies within the City Beach group on 29 June 2016, as follows: Assignee Amount assigned Ierna Beneficiary $11,685,407.08 Mastergrove $14,286,681.36 Total $25,972,088.44 98 The IB Deed of Assignment and the Mastergrove Deed of Assignment effectively extinguished the Ierna Division 7A Loans. Deeds of Assignment – Mr Hicks 99 On 29 June 2016, Corkdon as trustee of the WHFT entered into a deed of assignment with Methuselah, Hicks Beneficiary, Mr Hicks and Corkdon as trustee of the HPT (HB Deed of Assignment), under which: (a) the trustee of the WHFT assigned to Hicks Beneficiary all of its right title and interest in $11,781,713.50 of the $26,000,000 owed to it by Methuselah, including the right to demand performance of or to sue for and enforce the payment of that amount; and (b) Hicks Beneficiary received the assignment of the debt of $11,781,713.50 as repayment of the HB-MH Loan and the HB- HPT Loan, which the parties agreed were in the amount of $10,557,682.31 and $1,224,031.19, respectively, at 29 June 2016. 100 On 29 June 2016, Corkdon as trustee of the WHFT entered into a deed of assignment with Methuselah, Mastergrove, Mr Hicks and Corkdon as trustee of the HPT (Mastergrove-Hicks Deed of Assignment), under which: (a) the trustee of the WHFT assigned to Mastergrove all of its right title and interest in $14,119,346.41 of the $26,000,000 owed to it by Methuselah, including the right to demand performance of or to sue for and enforce the payment of that amount; and (b) in consideration of the assignment, Mastergrove received the assignment of the debt of $14,119,346.41 as repayment of the Mastergrove-HPT Loan and the Mastergrove-MH Loan, which the parties agreed were in the amount of $10,131,640.48 and $3,987,705.93, respectively, at 29 June 2016. 101 The effect of the HB Deed of Assignment and the Mastergrove-Hicks Deed of Assignment was that Corkdon as trustee of the WHFT assigned $25,901,059.91 of the $26,000,000 owed to it by Methuselah to companies within the City Beach group on 29 June 2016, as follows: Assignee Amount Assigned Hicks Beneficiary $11,781,713.50 Mastergrove $14,119,346.41 Total $25,901,059.91 102 The HB Deed of Assignment and the Mastergrove-Hicks Deed of Assignment effected the extinguishment of the Hicks Division 7A Loans. Distribution of income in the 2016 year by the CBT 103 In the 2016 year, the pattern of CBT distributing its net profit equally (50% each) to the WHFT and IFT changed, with CBT distributing 100% of its income and capital gains to Methuselah. As a consequence, its net profit for the 2016 year of $4,642,780 was distributed to Methuselah. Distribution of income in the 2016 year by the trustee of the IPT 104 On 30 June 2016, Surfstone as trustee of the IPT resolved that the income of the IPT would be classified into separate classes to be streamed to different beneficiaries and, in effect: (a) Mr Ierna was made presently entitled to all the capital gains made by the trustee, including the "discount" part of any capital gains so that he was entitled to receive the benefit of all the profits from the disposal of assets during the year; and (b) Ierna Beneficiary was presently entitled to any other income. Distribution of income in the 2016 year by the trustee of the WHFT 105 On 30 June 2016, Corkdon as trustee of the WHFT resolved that, in effect: (a) Mr Hicks was made presently entitled to all of the capital gains made by the trustee, including the "discount" part of any capital gains so that he was entitled to receive the benefit of all the profits from the disposal of assets during the year; and (b) Hicks Beneficiary was presently entitled to the income. Distribution of income in the 2016 year by the trustee of the HPT 106 On 30 June 2016, Corkdon as trustee of the HPT resolved that, in effect, the total income for the year ended 30 June 2016 be appropriated, set aside and applied to Dissh. 107 For the 2016 year, and on the basis of the trustee resolution referred to in the preceding paragraph, Dissh was presently entitled to all of the income of the HPT. 108 The assignments and repayments of the Division 7A loans were recorded in the accounts of the relevant entities by accounting entries. 109 Mr Lee opined in evidence (and was qualified so to do), and based thereon I accept, the following: (a) When recording transactions into financial accounts, each transaction requires two accounting entries – a debit and a credit. (b) For accounting purposes, assets are considered to have a debit nature and liabilities have a credit nature. (c) Debiting an asset increases the asset's value, crediting it decreases the asset's value. (d) For liabilities, the effects of debiting or crediting are reversed. 110 Thus, the debts payable by Methuselah, which were assigned by Mr Ierna and WHFT, became assets to Mastergrove, Ierna Beneficiary and Hicks Beneficiary as a result of the assignments. Further, the Division 7A loans payable by Mr Ierna, Mr Hicks and their respective property trusts to Mastergrove, Ierna Beneficiary and Hicks Beneficiary were also assets of these companies. 111 Corresponding entries were made in the financial accounts of Mastergrove, Ierna Beneficiary and Hicks Beneficiary. 112 Mr Lee also opined in evidence (and was qualified so to do), and based thereon I accept, that the effect of the accounting entries on the balance sheet were that the asset represented by the Division 7A loan receivable was decreased while the asset represented by the loan receivable from Methuselah was increased by the same amount. 113 Mr Lee further opined in evidence (and was qualified so to do), and based thereon I accept, that there was no net change to the asset position of Mastergrove, Ierna Beneficiary or Hicks Beneficiary as a result of these accounting entries. In effect, the Division 7A loan assets were replaced by another loan asset of equal value. Mr Lee's further opinion, again one he was qualified to express, and which I accept, was that the recording of the repayment of the Division 7A loans in the accounts of Mastergrove (that is via the credit entry as described) did not, in accounting terms, record or reflect any payment to or for the entity repaying the Division 7A loans being made by those companies, because the companies received something of equal value in exchange for the reduction of the Division 7A loans. Consolidation 114 On 6 March 2018, Methuselah chose to form an income tax consolidated group under s 703-50 of the ITAA 1997, with effect from 1 July 2016. Methuselah was the head company of the income tax consolidated group and the CBT was a subsidiary member. Mr Ierna: QUD 243/2022 115 Mr Ierna lodged his income tax return for the 2016 year on 4 May 2017, disclosing a taxable income of $727,707. 116 On 11 May 2017, a notice of assessment for the 2016 year issued to Mr Ierna, which assessed his taxable income as $727,707 and his income tax payable thereon as $300,561.15 ($301,015.15 less a franking credit offset of $454). 117 Commencing on or around 8 February 2018, the Commissioner conducted an audit of the City Beach group, focusing on the restructure of the CBT and the extinguishment of the complying Division 7A loans in the 2016 year. 118 On 19 July 2021, the Commissioner made the following determinations: (a) under s 45B(3)(b) of the ITAA 1936, that s 45C of the ITAA 1936 applies to the capital benefit of $26,000,000 derived by the applicant in the 2016 year; (b) in accordance with s 45C of the ITAA 1936, that the capital benefit of $26,000,000 is taken for the purposes of the ITAA 1936 to be an unfranked dividend paid out of the profits of Methuselah and shall be included in the assessable income of the applicant in the year of income in which the benefit was derived, (the Ierna Section 45B determination). 119 On 19 July 2021, the Commissioner also made the following determinations: (a) under s 177F(1)(a) of the ITAA 1936, that the amounts of $25,972,088.44 and $7,791,626.53, being tax benefits referable to amounts that had not been included in Mr Ierna's assessable income for the 2016 year, be included in his assessable income for that year of income; and (b) under s 177F(2) of the ITAA 1936 that: (a) the amount of $25,901,059.91 be deemed to be included in Mr Ierna's assessable income by virtue of s 44(1) of the ITAA 1936; and (b) the amount of $7,770,317.97 shall be deemed to be included in Mr Ierna's assessable income by virtue of s 207-20 of the ITAA 1997, (the Ierna Part IVA determination). 120 There is an apparent error in the second paragraph of the Ierna Part IVA determination in that the references to the amounts of $25,901,059.91 and $7,770,317.97 have been mistakenly copied from the amounts recorded in the Hicks Part IVA determination (see below), rather than, as was put on behalf of Mr Ierna they should be, references to $25,972,088.44 and $7,791,626.53 respectively. Nothing of substance turns on this apparent error. 121 On 27 July 2021, the Commissioner issued to Mr Ierna a notice of amended assessment of income tax for the 2016 year. By this assessment, a further $40,743,041 was included in his assessable income for the 2016 year, resulting in his taxable income for that income year being increased to $41,470,748 with the income tax payable thereon being $18,634,929.60 ($18,635,383.60, less a franking tax offset of $454). 122 The primary basis for this amended assessment was that Mr Ierna's assessable income was adjusted to include: (a) an amount of $14,743,041.93 under Division 7A of the ITAA 1936; and (b) an amount of $26,000,000 under s 45B of the ITAA 1936, based on the Ierna Section 45B determination. 123 Alternatively, the Commissioner relied on the Ierna Part IVA determination. 124 On or about 27 September 2021, Mr Ierna objected against this amended assessment. The grounds set out in his objection addressed each of the alternative bases on which the amended assessment. 125 On 28 June 2022, the Commissioner: (a) decided to disallow Mr Ierna's objection with respect to the operation of Division 7A and s 45B of the ITAA 1936; and (b) allowed the applicant's objection to the Commissioner's alternative position under Part IVA of the ITAA 1936 in part, reflecting the Commissioner's decision that the amount of the franking credit gross up and tax offset under s 207-20 of the ITAA 1997 should have been $11,130,895.05 and not $7,791,626,53. 126 On 14 July 2022, Mr Ierna filed a notice of appeal in this Court, thereby commencing under s 14ZZ(a)(ii) of the TAA taxation appeal QUD243/2022. QUD 247/2022: Ierna Beneficiary 127 Ierna Beneficiary lodged its income tax return for the 2016 year on 5 January 2017, disclosing a taxable income of $1,563,833. 128 On 5 January 2017, an assessment of income tax for the 2016 year was deemed to have been made in respect of Ierna Beneficiary, and notice was deemed to have been served on the applicant, in accordance with s 166A of the ITAA 1936. Ierna Beneficiary's taxable income was assessed as $1,563,833 with its income tax payable thereon being $469,149.90. 129 On 23 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Ierna Beneficiary by the Commissioner. By this amended assessment, a further $11,229,046 was included in its assessable income for the 2016 year, resulting in its taxable income for that income year being increased to $12,792,879 with the income tax payable thereon being $3,625,642.70 (being $3,837,863.70 less PAYG instalments raised of $212,221). 130 On or about 27 September 2021, Ierna Beneficiary objected against this amended assessment. The grounds contested the alleged operation of Division 7A upon which the amended assessment was based. 131 On 28 June 2022, the Commissioner disallowed Ierna Beneficiary's objection. 132 On 18 July 2022, Ierna Beneficiary filed a notice of appeal in this Court thereby commencing under s 14ZZ(a)(ii) of the TAA taxation appeal QUD247/2022. 133 On 8 June 2023, following a submission jointly made by Ierna Beneficiary and the Commissioner, I ordered that this appeal be allowed in full, the objection decision set aside and, in lieu thereof, that the objection by it to its 2016 amended assessment be allowed: see, as to the reasons for these orders, Ierna Beneficiary v Commissioner of Taxation. At that time, I reserved questions in respect of the costs of that taxation appeal for consideration following the determination of the appeals which remained controversial. QUD 248/2022: Dissh 134 Dissh lodged its income tax return for the 2016 year on 25 January 2017, disclosing a taxable income of $0 after having deducted $332,347 of carried forward tax losses. The return also disclosed tax losses from an earlier year of income, which were to be carried forward to a later year of income, of $1,003,809. 135 On 25 January 2017, an assessment of income tax for the 2016 year was deemed to have been made in respect of Dissh, and notice was deemed to have been served on the it, in accordance with s 166A of the ITAA 1936. Dissh's taxable income was assessed as $0 and its income tax payable thereon was $0. 136 On 14 September 2017, Dissh lodged an amended income tax return for the 2016 year, which also disclosed a taxable income of $0. Dissh lodged its income tax return for the 2017 year on 17 April 2018, disclosing a taxable income of $0 after having deducted $987,920 of carried forward tax losses. 137 On 17 April 2018, an assessment of income tax for the 2017 year was deemed to have been made in respect of Dissh, and notice was deemed to have been served on it, in accordance with s 166A of the ITAA 1936. Dissh's taxable loss was assessed as $987,920 and its income tax payable thereon was $0. 138 On 23 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Dissh, by which a further $11,355,671 was included in its assessable income for the 2016 year, resulting in the taxable income for that year being increased to $10,351,862 (after the deduction of all available carried forward tax losses in the 2016 year) and the income tax payable thereon to $3,105,558.60. 139 On 23 July 2021, a notice of amended assessment of income tax for the 2017 year was issued to Dissh, by which the amount of carried forward tax losses deducted was reduced from $987,920 to $0, resulting in its taxable income increasing to $987,920 and the income tax payable thereon increasing from $0 to $296,376. 140 On or about 27 September 2021, Dissh objected against its 2016 amended assessment and its 2017 amended assessment. The only grounds of objection were in relation to the operation of Division 7A. 141 On 28 June 2022, the Commissioner disallowed Dissh's objections to its 2016 amended assessment and its 2017 amended assessment. 142 On 18 July 2022, Dissh filed a notice of appeal in this Court against the Commissioner's objection decision, thereby commencing under s 14ZZ(a)(ii) of the TAA taxation appeal QUD248/2022. 143 On 8 June 2023, following a submission jointly made by Dissh and the Commissioner, I ordered that this appeal be allowed in full, the objection decision set aside and, in lieu thereof, that the objection by it to its 2016 amended assessment be allowed: see, likewise, Ierna Beneficiary v Commissioner of Taxation for the reasons for these orders. As with Ierna Beneficiary's taxation appeal, I reserved consideration of costs in respect of Dissh's taxation appeal for consideration in conjunction with the determination of the appeals which remained controversial. QUD 249/2022: Mr Hicks 144 Mr Hicks lodged his income tax return for the 2016 year on 24 April 2017, disclosing a taxable income of $703,552. 145 On 2 May 2017, a notice of assessment for the 2016 year issued to Mr Hicks, which assessed his taxable income as $703,552 and his income tax payable thereon as $290,125.40. 146 On 19 July 2021, the Commissioner made the following determinations: (a) under s 177F(1)(a) of the ITAA 1936, that the amounts of $25,901,059.91 and $7,770,317.97, being tax benefits referable to amounts that had not been included in Mr Hick's assessable income for the 2016 year, be included in his assessable income for that year of income; and (b) under s 177F(2) of the ITAA 1936 that: (i) the amount of $25,901,059.91 be deemed to be included in his assessable income by virtue of s 44(1) of the ITAA 1936; and (ii) the amount of $7,770,317.97 be deemed to be included in his assessable income by virtue of s 207-20 of the ITAA 1997, (the Hicks Part IVA determination). 147 On 26 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Mr Hicks (First Hicks Amended Assessment), by which a further $33,671,376 was included in his assessable income for the 2016 year, resulting in his taxable income for that year being increased to $34,374,928 and the income tax payable thereon to $15,442,264.60 less franking credit offset of $7,770,337. 148 The amounts included in the First Hicks Amended Assessment were determined by reference to his assessable income being adjusted to include those amounts determined as tax benefits in the Hicks Part IVA determination. The Commissioner relied on the Hicks Part IVA determination in the alternative to his primary position, which was that Mr Hick's assessable income should be increased to include an amount of $14,545,388.24 in his assessable income for the 2016 year under Division 7A and s 44 of the ITAA 1936. However, the amendment was required to give effect to the Part IVA determination, which resulted in the greater liability to income tax. 149 On or about 27 September 2021, Mr Hicks objected against the First Hicks Amended Assessment. The grounds set out in his objection addressed the alternative bases on which the First Hicks Amended Assessment had been issued, addressing Division 7A and Part IVA of the ITAA 1936. 150 On 28 June 2022, the Commissioner: (a) allowed the applicant's objection to the Commissioner's position under Part IVA of the ITAA 1936 in part, reflecting the Commissioner's decision that the amount of the franking credit gross up and tax offset under s 207-20 of the ITAA 1997 should have been $11,100,545.25 and not $7,770,317.97. (b) disallowed the applicant's objection with respect to the operation of Division 7A; and (c) advised that that the applicant's 2016 assessment would now be amended to reflect the Commissioner's position with respect to the application of Division 7A as this position now had the higher resultant liability. 151 On 18 July 2022, Mr Hicks filed a notice of appeal in this Court against the Commissioner's objection decision, thereby commencing under s 14ZZ(a)(ii) of the TAA taxation appeal QUD249/2022. 152 On 26 July 2022, a further notice of amended assessment of income tax for the 2016 year was issued to Mr Hicks (Second Hicks Amended Assessment), by which $14,545,388 was included in his assessable income for the 2016 year, resulting in his taxable income for that year being reduced from the amount assessed in the First Hicks Amended Assessment to $15,248,940 with the income tax payable thereon, $6,835,570. QUD 250/2022: Hicks Beneficiary 153 Hicks Beneficiary lodged its income tax return for the 2016 year on 5 January 2017, disclosing a taxable income of $560,785 comprised of income by way of interest with no distribution from trusts. 154 On 11 May 2017, a notice of assessment for the 2016 year issued to Hicks Beneficiary, which assessed its taxable income as $560,785 and its income tax payable thereon as $95,558.50. 155 On 19 July 2021, the Commissioner made the following determinations: (a) under s 45B(3)(b) of the ITAA 1936, that s 45C of the ITAA 1936 applies to the capital benefit of $26,000,000 derived by WHFT in the 2016 year; (b) in accordance with s 45C of the ITAA 1936, that the capital benefit of $26,000,000 is taken for the purposes of the ITAA 1936 to be an unfranked dividend paid out of the profits of Methuselah and shall be included in the assessable income of WHFT in the year of income in which the benefit was derived, (the Hicks Beneficiary Section 45B determination). 156 On 23 July 2021, a notice of amended assessment of income tax for the 2016 year was issued to Hicks Beneficiary (Hicks Beneficiary Amended Assessment), by which a further $26,000,000 was included in its assessable income for the 2016 year, resulting in its taxable income for that year being increased to $26,560,785 and the income tax payable thereon to $7,968,235.50. 157 The basis for the Hicks Beneficiary Amended Assessment issued to Hicks Beneficiary was s 97 of the ITAA 1936, having regard to the application of ss 44(1), 45B and 45C to the WHFT based on the Hicks Beneficiary Section 45B determination. 158 On or around 27 September 2021, Hicks Beneficiary objected against the Hicks Beneficiary Amended Assessment. The grounds set out in its objection addressed the application of s 45B. The grounds did not include an objection on the basis of the application of s 97 of the ITAA 1936. 159 On 28 June 2022, the Commissioner disallowed Hicks Beneficiary's objection. 160 On 18 July 2022, Hicks Beneficiary filed a notice of appeal in this Court against the Commissioner's objection decision, thereby commencing under s 14ZZ(a)(ii) of the TAA taxation appeal QUD250/2022. Settling of Division 7A Loans – Alternative Options? 161 Part of my acceptance of Mr Lee's evidence entails my acceptance of the following explanation which he gave responsive to what he understood to be an alternative postulate advanced by the Commissioner as to what might have happened had the 2016 restructure not been carried out as described above. His understanding of this postulate was that, had the 2016 restructure as described not been carried out, Mastergrove would have paid a fully franked dividend in the sum of, in total, $51,944,176.88 ($25,972,088.44 to Mr Ierna and $25,972,088.44 to Mr Hicks), which would have been sufficient to repay the Division 7A loans (which he presumed was postulated to be by way of set-off in the case of Mastergrove's Division 7A loans to Messrs Ierna and Hicks). 162 To the extent that this evidence had an argumentative quality, it was not admissible. However, to the extent that Mr Lee advanced opinions, those opinions were, once again, those of a person qualified by formal training, professional admission, and experience to voice them, based on the facts to which he referred. Those primary facts were proved. This includes the personal assets and liabilities positions of Messrs Ierna and Hicks. Details of these positions were given in evidence but I have chosen not to set out that detail in these reasons for judgment. That it is because, on that evidence (which is set out in overview below), Mr Lee gave an accurate summary of their respective overall positions in terms of sufficiency to meet or pay the obligations to which he refers. The assets and liability positions of Messrs Ierna and Hicks are relevant facts, as are Mr Lee's opinions based thereon. 163 Mr Lee noted, and the position is, that neither IPT nor HPT were shareholders in Mastergrove. He opined, and I accept, that, in order to settle the Division 7A loans of IPT and HPT, an assignment would have been required of a portion of the receivable in respect of the dividends for the benefit of IPT and HPT (which would then be set off against their respective liabilities to Mastergrove). 164 Mr Lee further opined, and I accept, that, in the case of the Division 7A loans held by Ierna Beneficiary and Hicks Beneficiary to the same parties, each of Messrs Ierna and Hicks would also need to assign to Ierna Beneficiary and Hicks Beneficiary the balance of the dividend payable, in repayment of their own loans and the loans of HPT and IPT. 165 Mr Lee stated, and I accept, that the payment of such a dividend to set-off the Division 7A loans was something that he never considered, nor was it ever discussed as a possibility within Hanrick Curran or with Messrs Ierna and Hicks. 166 Mr Lee opined, and I accept, that the payment of such a dividend would itself have resulted in Messrs Ierna and Hicks having a liability for "top up tax" of $14,079,287.55 in total (or $7,049,566 for Mr Ierna and $7,030,287 for Mr Hicks). In amplification, Mr Lee made reference to an Excel spreadsheet in the joint bundle of documents, which records a calculation of the tax liability for each of Messrs Ierna and Hicks had such a dividend been declared by Mastergrove. 167 Mr Lee stated, and I accept, that he was familiar with Mr Ierna's and Mr Hicks' investments and liabilities. That was because he prepared their personal taxation returns (and financial statements) each year as well as the income tax returns and financial statements of each of their related entities and was as a professional adviser involved in their business and personal affairs on a regular basis. He stated, and I accept, that he routinely advised their staff (which I took to be those of the various entities in the City Beach group) and had in the past prepared cash flow reports – particularly for payments to be made to ensure that the various entities could show Division 7A compliance. 168 Based on what he took to be (and is I accept proved to be) the assets and liabilities of each of Messrs Ierna and Hicks respectively as at 30 June 2015 and 30 June 2016, Mr Lee opined, and I accept, that neither had cash or readily disposable investments, in their respective names in sums of $7,049,566 and $7,030,287, that might have been deployed to pay the "top up tax". Based on his examination of their respective assets and liabilities, Mr Lee opined, and I accept, that the only practicable way of meeting the "top up tax" liability using available cash resources would have been for: (a) CBT to pay $14,079,854 in cash to IFT and WHFT in partial payment of outstanding UPEs; (b) IFT and WHFT then to pay the same amount in cash to Mastergrove in partial payment of outstanding UPEs; and (c) Mastergrove then to make loans of $7,049,566 and $7,030,287 to Messrs Ierna and Hicks respectively, subject to Division 7A loan terms. 169 In expressing this opinion, Mr Lee noted, and it is proved that, as at 30 June 2016, the CBT had $19,441,947 available in cash to fund the ongoing business operations. 170 Mr Lee opined, and I accept, based on their assets and liabilities as proved, that, while Messrs Ierna and Hicks had other assets, these either were insufficient or impractical to liquidate to satisfy any additional tax liability. Mr Lee opined, and I accept, that while each of Messrs Ierna and Hicks had loan assets, predominantly amounts payable by IPT and HPT, IPT and HPT had insufficient cash on hand to repay those loans. Mr Lee instanced that (as proved) the trustees of IPT and HPT had joint bank accounts, which, based on his knowledge of the City Beach business, I accept, were operated for the purpose of collecting rent on their jointly held property, those bank accounts held cash totalling $1,257,969 as at 30 June 2016 and $1,254,133 as at 30 June 2017. Mr Lee opined, and I accept, that, whilst a portion of this cash could possibly have been utilised to repay the loans owed to Messrs Ierna and Hicks, the amount available would have fallen far short of the $14,079,854.00 required to fund the "top up tax" liability. Mr Lee further opined, and I accept, that IPT and HPT hold two properties (which are leased to CBT for use one as a retail store and the other as the distribution centre) that are not readily convertible to cash. Based on his knowledge of the City Beach business, Mr Lee stated, and I accept, that both of these properties were, at that time, subject to first registered mortgages by the National Australia Bank and the Commonwealth Bank respectively. Again based on such knowledge, Mr Lee opined, and I accept, that the loans so secured by these mortgages required principal and interest repayments. 171 Mr Lee further opined, and I accept, that, although Ierna Beneficiary and Hicks Beneficiary had outstanding loans payable to Messrs Ierna and Hicks, they had no cash on hand with which to repay those loans. Mr Lee stated, and the evidence is that, as at 30 June 2016, Mr Ierna had a loan payable to him of $856,497 from the Naxon Family Trust, but it was insufficient to repay the Division 7A loans. 172 Mr Lee stated that the only other investment available to Messrs Ierna and Hicks was the property at 13 Cavill Ave, Surfers Paradise, which was jointly owned by them. The evidence was, and Mr Lee noted, that this property was leased to City Beach as a retail store. The evidence was that that this location in the surfing capital of Australia was (and remains) critical to the City Beach business. On the evidence, this is one core location, in effect the "Beach" with the other core location being the Queen Street store, which is, in effect, the "City". Mr Lee opined, and on the whole of the evidence I find, that selling the Surfers Paradise property was not a realistic option, given the likely negative impact on the business. 173 Mr Lee stated, and I accept, that, apart from the advice tendered in 2016 which, as accepted, led to the 2016 restructure as described, the only other option that he considered to achieve the principal objective of repaying the Division 7A loans in full by using the pre-CGT capital gain that had accrued by then on the units (save 1) in the CBT, and which he would have strongly recommended, was the transfer of the units in CBT for market value in exchange for a debt equal to the outstanding amount of the Division 7A loans. This he opined, and I accept, could then have been assigned to repay the Division 7A loans and equity (by way of share issue) for the balance. This, Mr Lee opined, and I accept, would have resulted in the same debt and equity outcome as the 2016 restructure, although it would have resulted in the units (save for the 1 already a post-CGT asset) and the shares becoming post-CGT assets. Based on what he knew was a diminished profitability of the City Beach business in the few years leading up to the 2016 income year (which is evidenced above), Mr Lee's opinion was that any CGT liability on a subsequent disposal of the shares or units would not, as a consequence, be materially different under either scenario, given the cost base of the shares in Methuselah were at current market value and about a third of the units were taken to be post-CGT in any event as a result of the operation of Division 615-A (as outlined in Hanrick Curran's 2016 advice). Mr Lee's view was also that this would have resulted in a relatively small discount capital gain of $2,483,249.50 for the IFT ($1,241,624.75 after the discount), which held 1 of the 30 units in CBT. He calculated that gain to be as follows: Disposal Value $2,500,000.00 Less Cost Base $16,750.50 Capital Gain $2,483,249.50 Net Capital Gain (50% discount) $1,241,624.75 174 Obviously enough, although he considered this option, the advice which came to be tendered in April 2016 to Messrs Ierna and Hicks was different. The option did no more than reflect internal thinking within Hanrick Curran. Which is not to say that, based on the primary facts, it might not provide a basis for an alternative postulate. Issues for determination 175 Prior to my acceptance of the jointly promoted outcome in respect of the taxation appeals by Ierna Beneficiary and Dissh, there were three principal issues for determination. Each issue arose because it was said by the Commissioner to yield a pathway whereby dividends were taken to have been paid under s 44 of the ITAA 1936: (a) Whether the 2016 restructure entailed, in terms of s 45B of the ITAA 1936, a scheme under which a demerger benefit or a capital benefit was provided for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer to obtain a tax benefit? [If so, the Commissioner was entitled make a determination under s 45B(3)(b) of the ITAA 1936 that s 45C applied such that the amounts nominated in the determination were taken to be an unfranked dividend paid out of the profits of Methuselah, and thereby to be included in assessable income for the 2016 year pursuant to s 44(1) of the ITAA 1936.] (b) Whether the repayment of the loans owed to Mastergrove Pty Ltd was a dividend paid by those companies to the borrowers under s 109C ITAA 1936? (c) In any event, whether Part IVA of ITAA 1936 applied. 176 Issue (b) always entailed the odd notion that the repayment of a loan by a borrower was a payment to the borrower. However, in light of the resolution of Ierna Beneficiary's and Dissh's taxation appeals, nothing further need be said of issue (b) (save perhaps in the context of costs). Section 45B 177 The Commissioner's position was that the planning and implementation of Methuselah's selective capital reduction, as described above, was a "scheme" (as defined in s 995-1(1) of the ITAA 1997) within the meaning of s 45B(10) of the ITAA 1936. 178 The Commissioner contended that s 45B of the ITAA 1936 applied by operation of s 45B(2) because: (a) under this "scheme", Mr Ierna and the WHFT were provided with a capital benefit within the meaning of s 45B(5) of the ITAA 1936; and (b) having regard to the "relevant circumstances" (as defined in s 45B(8)) of this "scheme", it would be concluded that Mr Ierna and, as the controller of the trustee of the WHFT, Mr Hicks entered into or carried out the "scheme" for a purpose of enabling each of them to obtain a tax benefit. 179 The Commissioner submitted that Mr Ierna and the WHFT were each provided with a "capital benefit" (within the meaning of s45B(5)) of $26,000,000 by Methuselah in connection with the share capital reduction. 180 To give context, the terms of s 45B should now be set out: Schemes to provide certain benefits Purpose of section (1) The purpose of this section is to ensure that relevant amounts are treated as dividends for taxation purposes if: (a) components of a demerger allocation as between capital and profit do not reflect the circumstances of a demerger; or (b) certain payments, allocations and distributions are made in substitution for dividends. Application of section (2) This section applies if: (a) there is a scheme under which a person is provided with a demerger benefit or a capital benefit by a company; and (b) under the scheme, a taxpayer (the relevant taxpayer), who may or may not be the person provided with the demerger benefit or the capital benefit, obtains a tax benefit; and (c) having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a purpose (whether or not the dominant purpose but not including an incidental purpose) of enabling a taxpayer (the relevant taxpayer) to obtain a tax benefit. Commissioner to determine that section 45BA or 45C applies (3) The Commissioner may make, in writing, a determination that: (a) section 45BA applies in relation to the whole, or a part, of the demerger benefit; or (b) section 45C applies in relation to the whole, or a part, of the capital benefit. A determination does not form part of an assessment. Note: If section 45BA applies in relation to the whole, or a part, of a demerger benefit, this benefit may be a capital benefit. Meaning of provided with a demerger benefit (4) A person is provided with a demerger benefit if in relation to a demerger: (a) a company provides the person with ownership interests in that or another company; or (b) something is done in relation to an ownership interest owned by the person that has the effect of increasing the value of an ownership interest (which may or may not be the same ownership interest) owned by the person. Meaning of provided with a capital benefit (5) A reference to a person being provided with a capital benefit is a reference to any of the following: (a) the provision of ownership interests in a company to the person; (b) the distribution to the person of share capital or share premium; (c) something that is done in relation to an ownership interest that has the effect of increasing the value of an ownership interest (which may or may not be the same interest) that is held by the person. (6) However, a person is not provided with a capital benefit to the extent that the provision of interests, the distribution or the thing done referred to in subsection (5) involves the person receiving a demerger dividend. (7) For the purposes of this section, a non-share distribution to an equity holder is taken to be the distribution to the equity holder of share capital to the extent to which it is a non-share capital return. Meaning of relevant circumstances of scheme (8) The relevant circumstances of a scheme include the following: (a) the extent to which the demerger benefit or capital benefit is attributable to capital or the extent to which the demerger benefit or capital benefit is attributable to profits (realised and unrealised) of the company or of an associate (within the meaning in section 318) of the company; (b) the pattern of distributions of dividends, bonus shares and returns of capital or share premium by the company or by an associate (within the meaning in section 318) of the company; (c) whether the relevant taxpayer has capital losses that, apart from the scheme, would be unutilised (within the meaning of the Income Tax Assessment Act 1997) at the end of the relevant year of income; (d) whether some or all of the ownership interests in the company or in an associate (within the meaning in section 318) of the company held by the relevant taxpayer were acquired, or are taken to have been acquired, by the relevant taxpayer before 20 September 1985; (e) whether the relevant taxpayer is a non-resident; (f) whether the cost base (for the purposes of the Income Tax Assessment Act 1997) of the relevant ownership interest is not substantially less than the value of the applicable demerger benefit or capital benefit; (h) if the scheme involves the distribution of share capital or share premium—whether the interest held by the relevant taxpayer after the distribution is the same as the interest would have been if an equivalent dividend had been paid instead of the distribution of share capital or share premium; (i) if the scheme involves the provision of ownership interests and the later disposal of those interests, or an increase in the value of ownership interests and the later disposal of those interests: (i) the period for which the ownership interests are held by the holder of the interests; and (ii) when the arrangement for the disposal of the ownership interests was entered into; (j) for a demerger only: (i) whether the profits of the demerging entity and demerged entity are attributable to transactions between the entity and an associate (within the meaning in section 318) of the entity; and (ii) whether the assets of the demerging entity and demerged entity were acquired under transactions between the entity and an associate (within the meaning in section 318) of the entity; (k) any of the matters referred to in subsection 177D(2). Meaning of obtaining a tax benefit (9) A relevant taxpayer obtains a tax benefit if an amount of tax payable, or any other amount payable under this Act, by the relevant taxpayer would, apart from this section, be less than the amount that would have been payable, or would be payable at a later time than it would have been payable, if the demerger benefit had been an assessable dividend or the capital benefit had been an assessable dividend. (10) In this section: "scheme" has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997. [emphasis in original] 181 The Commissioner submitted that the capital benefit received by Mr Ierna and the WHFT was attributable to profits (unrealised or realised) of the CBT. It was put that Fewstone, the trustee of the CBT, was an "associate" of Methuselah within the meaning of s 318 of the ITAA 1936, for the purposes of having regard to the "relevant circumstance" as set out in s45B(8)(a). 182 Such is the breadth of the definition of "associate" in s 318 of the ITAA 1936, it may be accepted that, on the evidence, Fewstone as trustee of the CBT was an "associate" of Methuselah: see, in combination, s 318(2)(c), s 318(3)(a) and also s 318(6)(a) of ITAA 1936 and, as to "sufficiently influenced", BHP Billiton Ltd v Commissioner of Taxation (2020) 270 CLR 60. 183 Section 318 of the ITAA 1936 specifies how entities, be they individual or corporate, become "associates" of a "primary entity". The point was made for the applicants that a trust has no separate legal personality. This is fundamental. A "trust" may be described as obligations, enforceable in a court of equity, assumed by a person having legal personality in respect of property or income (or both). The absence of legal personality of a trust is so even though, for the purposes of income taxation, the net income of a trust estate is treated as if a trust did have legal personality separate from the person who was subject to the relevant trust obligation. From this, it was said to follow that, although a trustee, individual or corporate, of a trust may, under s 318, be such an "associate", the same would not be true for a trust itself. On that construction, a unit holder in the CBT might be an "associate" of a "primary entity", which may include a trustee of a trust, but not of a trust. A corollary of this submission was therefore that the Commissioner's s 45B determination had been based on a false legal premise. The return of share capital was not "attributable" to any profits of CBT. Fewstone had no profits realised or unrealised of its own. The return of share capital effected by the 2016 restructure could not, so the submission went, be attributable to its profits. The applicants therefore submitted that, for these reasons alone, the assessments, insofar as they depend on such a determination, have been shown to be excessive, because s 45B had no application. Although that determination does not form part of the assessment concerned (s 45B(3)), the unfranked dividend deeming effected by s 45C as a consequence of a determination could not rise higher than a determination which could be made under s 45B. If s 45B had no application, there could be no deeming consequential upon a determination. 184 The Commissioner's riposte was that, in construing s 318, a rule of necessity operated such that the role of "associate" was attached to the trustee of the trust in its capacity as such. This was said to arise by implication such that, materially, the "profit" of a trust was to be regarded as the profit of its trustee. 185 A difficulty with any such implication is that the text of s 318 draws a distinction between a trustee of a trust and the trust: see s 318(2)(c). Moreover, and further to develop a point earlier made as to the taxation of trusts, the ITAA 1936, by s 96, expressly provides that, "Except as provided in this Act, a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate." The presence of that expressly stated general position, and the exception to it, suggests that it is unlikely that an exception was intended to arise by implication. As it happens, there are other reasons, flowing from the circumstances of this case, why s 45B had no application. So, the case can be decided by assuming that the Commissioner's construction is correct. I do, however, record my preference, for the reasons just given, for the construction promoted by the applicants. 186 Of the application provision, s 45B(2), the phrase "it would be concluded" imports an objective test. Correctly, this was common ground between the parties. 187 But was the asserted capital benefit "attributable" in terms of s 45B(8)(a) to the profits of Methuselah or an "associate"? 188 It was also common ground between the parties that, as found in s 45B(8)(a), "attributable" imports a causal connection between the capital benefit and profits of the kind specified. As a matter of ordinary English flowing from the text and the context in which "attributable" appears this must be so. The word "attributable" carries meanings such as caused by, or owing to, or produced by a particular source: see Oxford English Dictionary, Online Edition. The element of "particular source" in the meaning of "attributable" was an important feature of the applicants' submissions. 189 As yet, s 45B of the ITAA 1936 has not been the subject of judicial consideration. However, in respect of its construction and albeit for different reasons, each party sought to gain comfort by analogy from certain observations made in Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488 (Sun Alliance Investments). 190 The applicants cited the following passage from Sun Alliance Investments, at [79] to [81], concerning the now former s 160ZK(5) of the ITAA 1936, both in support of the causative quality of "attributable", but also to contrast the language of that provision with that of s 45B(8)(a): 79. However, unlike s 44 of the 1936 Act, s 160ZK(5) speaks, not of "dividends paid … out of profits derived" by a company, but of a distribution that "could reasonably be taken to be attributable to profits that were derived by the company" before the taxpayer's acquisition of shares in it. The inquiry contemplated by that provision is therefore not directed exclusively towards the identification of the source of funds from which a dividend is paid. 80. It is the concept of causation, rather than source, with which s 160ZK(5) is concerned. In determining whether the plaintiff's loss of employment was "attributable to" the provisions of the Local Government Act 1972 (UK), Donaldson J in Walsh v Rother District Council said: "[T]hese are plain English words involving some causal connection between the loss of employment and that to which the loss is said to be attributable. However, this connection need not be that of a sole, dominant, direct or proximate cause and effect. A contributory causal connection is quite sufficient." Nothing, either in the text of s 160ZK(5) or in its objects as expressed in the Explanatory Memorandum on the Bill for the Amending Act, indicates that a narrower meaning should be presently ascribed to that phrase. 81. As explained above, the phrase "could reasonably be taken to be" indicates that in order for s 160ZK(5) to be enlivened the relevant pre-acquisition profits need not actually be a contributory cause to a subsequent distribution: it would suffice that those profits may reasonably be capable of being seen as such. [Footnote references omitted; emphasis added] 191 The applicants drew attention to the emphasised observation in the passage quoted, so as to contrast the text of s 160ZK(5) on which it was based with the text of s 45B(5). They submitted that the language of s 45B(8)(a) was narrower such that, "the existence of profits in the company or an associate must actually be a contributory cause of the decision to return capital" (emphasis by applicants). This submission should be accepted. There is nothing in the text of s 45B(8)(a) which has the quality of "could reasonably be taken to be", which informed the observation in [81] of Sun Alliance Insurance that profits need not actually be a contributory cause of a subsequent distribution. 192 The Commissioner's embrace of Sun Alliance Insurance was for the explanation found earlier in the judgment, at [61], of the ordinary meaning of "profits", "a gain made by a business and disclosed by a comparison between the state of that business at one point in time and its state at another". There is nothing in the text of s 45B(8)(a) which would suggest that "profits" is being used in any different sense in that provision. Indeed, given the alternative postulates of "capital" and "profits" as used with respect to a company (or an associate of a company), context confirms that "profits" is being used in accordance with its ordinary meaning. 193 Understanding the purpose of these alternative postulates and, for that matter, s 45B generally is, in my view, assisted by reference to a wider context. 194 That wider context is supplied by the Act which inserted s 45B in its original form into the ITAA 1936, the Taxation Laws Amendment (Company Law Review) Act 1998 (Cth) (Taxation Laws CLR Act), and by other amendments made by that Act. Materially, at the same time as the original s 45B was inserted, extensive amendments were made by s 3 and Schedule 3 of the Taxation Laws CLR Act to the definition of "dividend" in s 6(1) of the ITAA 1936. As so amended, and as later applicable to the present case, the definition of "dividend" became: dividend includes: (a) any distribution made by a company to any of its shareholders, whether in money or other property; and (b) any amount credited by a company to any of its shareholders as shareholders; but does not include: (d) moneys paid or credited by a company to a shareholder or any other property distributed by a company to shareholders (not being moneys or other property to which this paragraph, by reason of subsection (4), does not apply or moneys paid or credited, or property distributed for the redemption or cancellation of a redeemable preference share), where the amount of the moneys paid or credited, or the amount of the value of the property, is debited against an amount standing to the credit of the share capital account of the company; or (e) moneys paid or credited, or property distributed, by a company for the redemption or cancellation of a redeemable preference share if: (i) the company gives the holder of the share a notice when it redeems or cancels the share; and (ii) the notice specifies the amount paid-up on the share immediately before the cancellation or redemption; and (iii) the amount is debited to the company's share capital account; except to the extent that the amount of those moneys or the value of that property, as the case may be, is greater than the amount specified in the notice as the amount paid-up on the share; or (f) a reversionary bonus on a life assurance policy. Note: Subsection (4) sets out when paragraph (d) of this definition does not apply. 195 One of the amendments made to the definition of "dividend" by the Taxation Laws CLR Act (s 3 and schedule 3, item 5) was to "Omit "a share premium account of the company;", substitute "the share capital account of the company; or"." This omission of the reference in income tax law to "share premium account" in the definition of "dividend" was no coincidence. It is reactive to changes to company law made by the Company Law Review Act 1998 (Cth). This is confirmed by regard to the second amendment reading speech in respect of what became the Taxation Laws CLR Act, as delivered by the Parliamentary Secretary to the Prime Minister: The changes made in the Taxation Laws Amendment (Company Law Review) Bill 1998 make various consequential amendments to the taxation laws as a result of changes to the Corporations Law made by the Company Law Review Bill 1997, which will abolish the concept of par value for shares and the associated concepts of share premiums as well as make it easier for companies to return capital to shareholders. The amendments will ensure that the provisions in the tax law that are currently dependent on the concept of par value can continue to operate appropriately in the future and introduce an anti-avoidance measure to prevent companies entering into capital streaming and dividend substitution arrangements. See Commonwealth, Parliamentary Debates, House of Representatives, 27 May 1998, 4038 (The Hon. Chris Miles). 196 A detailed account of the history of the changes to corporations law which led to the abolition of the concept of a "par value" for a share in a company was offered by the High Court in Commissioner of Taxation v Consolidated Media Holdings Ltd (2012) 250 CLR 503, at [24] to [29]. The High Court observed in that case, at [31], that amendments to income tax legislation had "tracked" the amendments to corporations legislation. Section 45B offers an example of such "tracking". 197 Obviously enough, s 45B, as enacted, was an anti-avoidance measure of the kind referred to in this second amendment reading speech. Although later amended (so as to include demerger benefits) into the form quoted above, that form retains, in my view, an evident purpose of preventing companies "entering into capital streaming and dividend substitution arrangements". Put another way, and as did the applicants in their submissions (inspired by a description offered by the Commissioner in PSLA 2005/21), the purpose is to ensure companies do not "distribute what are effectively profits to shareholders as preferentially-taxed capital rather than dividend". 198 Presently materially, and flowing from the definition of "dividend" in s 6(1) of the ITAA 1936, it may be said that a "dividend" is "any distribution made by a company to any of its shareholders, whether in money or other property … but does not include [such monies and the like] debited against an amount standing to the credit of the share capital account of the company". 199 Drawing these threads about the construction and purpose of s 45B together, a question to be answered is whether, objectively, the capital benefit received by Mr Ierna and the WHFT was "attributable to" (in the sense of actually caused by or sourced in) Methuselah's share capital account? That company's only account was its genuine share capital account of $75 million. 200 Or was it, as the Commissioner contended, sourced in an increase in value of the CBT units (from $1 to $2,587,626 each), which was realised, in part, by the cancellation of the Methuselah shares effected by the selective capital reduction? 201 There is just no doubt that the value of the units in the CBT had increased over time from the original $30 capital contributed by unit holders upon the settlement of the CBT in 1985. Neither side challenged the reliability of the valuation, as at 20 May 2016, undertaken by Hanrick Curran. Indeed, each party's case was predicated upon its accuracy. I accept the accuracy of that valuation. 202 Having regard to that valuation, and to the financial accounts of the CBT in evidence, the Commissioner put that there had been an increase in value of the units in the CBT from $1.00 to $2,587,626. This was calculated based on a comparison between the valuation which put the market value of the units as at 20 May 2016 as $77,628,766 (inclusive of a market value of intangibles of $56,162,024, comprised of director know-how of $17,477,337 and goodwill of $38,684,687, and the market value of inventory of $42,390,378, and net of liabilities) and the CBT 2016 financial accounts, which put the amounts for intangibles and inventory in the CBT's financial accounts at $1,912,990 and $24,963,645, respectively. The difference in the values was said to be a "profit" (in the sense described above) realised, in part, by the cancellation of the Methuselah shares. 203 The Commissioner's submission does not survive an objective examination of the whole of the circumstances, informed by reference to considerations specified in s 45B(8) of the ITAA 1936. 204 Fundamentally, the reason for this flows from Methuselah being a newly formed company. In terms of s 45B(8)(b), it had no "pattern of distributions of dividends, bonus shares and returns of capital or share premium", and neither did any "associate". Even if one looks to pre-existing entities within the City Beach group of companies, there is no "pattern" of dividend payments which, objectively, would support a conclusion that the $52 million was a substitute for a payment from profits. In the 2014 and 2015 income years, the evidence is that no dividends were declared by any of the companies in that group. In each of the 2010 to 2013 income years, dividends were declared by Mastergrove. But the only conclusion open in respect of these is that they were declared to meet the minimum required interest payments on the Division 7A loans, which then totalled $32,888,000.29. A corollary is that they were not paid to fund the repayment of the loans of Hicks Beneficiary or Ierna Beneficiary. 205 Moreover, as a newly formed accompany, Methuselah had no profits, realised or otherwise. But it did have a genuine share capital account. That was its only account. There has never been, and there could not be, any suggestion that any step in the selective capital reduction was a sham. Indeed, the efficacy of that share capital reduction in company and taxation law was wholly dependent upon it not being a sham. 206 When Mr Ierna and Corkdon, as trustee of the WHFT, disposed of their units in the CBT to Methuselah in return for shares in that company, they did so at market value. Undoubtedly, they made a gain on that disposal. But that gain was of no concern under the ITAA 1936, because in so doing each disposed of pre-CGT assets. As it happens, because by then Parliament had inserted Division 615-A into the ITAA 1997, it was possible to obtain a roll-over under that subdivision 615-A of the ITAA 1997 in respect of that disposal of units, and Mr Ierna and Corkdon, as trustee of the WHFT, chose, as was their perfect right, to obtain the relief Parliament intended be available. 207 Prior to the share capital reduction, Methuselah had a share capital account in the amount of $75 million. This was its true value. It reflected contributed capital of that same value. 208 Objectively, the two stages in the selective capital reduction were directed to the ends of ensuring that: (a) Methuselah, as a newly formed company, had what Messrs Ierna and Hicks, acting on and accepting on advice from Hanrick Curran, regarded as an appropriate balance of debt and equity; (b) acquiring shares worth $23 million ($75 million, less $52 million); (c) taking advantage of the available rollover relief under Division 615-A; and (d) viewing events more broadly, returning capital to Mr Ierna and Corkdon, as trustee of the WHFT, respectively, for extinguishing Division 7A loans. 209 It is clear to the point of demonstration that Methuselah had no profits, only its share capital account. On no objective view could the return of capital from that account to its shareholders be regarded as a substitute for the payment of a "dividend", as defined, to them. The payment to the shareholders was wholly "attributable to" (actually sourced in or caused by) Methuselah's share capital account. The method chosen had nothing to do with dividend substitution but was explicable by a purpose of taking advantage of Division 615-A rollover relief. Indeed, that was the distinguishing feature of what occurred in 2016 compared with what Hanrick Curran had proposed to Messrs Ierna and Hicks in 2014. 210 Related to this, a point made in the applicants' submissions is a sound one. The capital position of Methuselah was exactly the same as the shareholders undertaking that 2014 proposal of selling their CBT units for $75 million to Methuselah for consideration comprising the right to $52 million cash and the balance in fully paid shares. 211 For these reasons, s 45B had no application to the "scheme" as postulated by the Commissioner. There was never any basis for the making of a determination under s 45C. Part IVA 212 It will already be evident, from the discussion thus far, that there can be no doubt that considerations flowing from income tax law in part informed the events of May and June 2016, which saw the selective capital reduction and the extinguishment of Division 7A loans. That conclusion flows from an objective assessment of those events, which, in turn, is completely congruent with the evidence of Messrs Ierna and Hicks, the contemporaneous advice tendered to them by Hanrick Curran and, especially, Mr Lee's evidence. In itself, that conclusion does nothing more than reflect the reality of business life. It has been ever thus. This was accepted in the majority judgment in Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 (Spotless Services); after referring with approval to the voicing of such an understanding by Harlan J of the United States Supreme Court in Commissioner of Internal Revenue v Brown (1965) 380 US 563, at 579 – 580, it was observed, at 416 (per Brennan CJ, Dawson, Toohey, Gaudron, Gummow and Kirby JJ): [T]he tax laws are one part of the legal order within which commerce is fostered and protected. Another part is Pt IV of the Trade Practices Act 1974 (Cth), which regulates or proscribes certain restrictive trade practices. In this broad sense, "[t]axes are what we pay for civilised society", including the conduct of commerce as an important element of that society. [Footnote reference omitted] See also Commissioner of Taxation (Cth) v Hart (2004) 217 CLR 216, at [15] – [16] (Gleeson CJ and McHugh J), at [52] – [53] (Gummow and Hayne JJ). 213 This same understanding is evident in the separate, concurring judgment of McHugh J in Spotless Services, at 425, which is helpful to recall because his Honour grounded it in conclusions to be drawn from the text of Part IVA of the ITAA 1936: However, Pt IVA does not authorise the Commissioner to make a determination under par (a) of s 177F(1) merely because a taxpayer has arranged its business or investments in a way that derives a tax benefit. More is required before the Commissioner of Taxation can lawfully make a determination under that paragraph. First, the scheme must be examined in the light of the eight matters set out in par (b) of s 177D. Second, that examination must give rise to the objective conclusion that the taxpayer or some other person entered into or carried out the scheme or a part of the scheme for the sole or dominant purpose of enabling the taxpayer or the taxpayer and some other person to obtain a tax benefit in connection with the scheme. That conclusion will seldom, if ever, be drawn if no more appears than that a change of business or investment has produced a tax benefit for the taxpayer. 214 The Commissioner particularised the applicable "scheme" as: (a) the recommendation and implementation of the selective capital reduction of shares in Methuselah; (b) the entry into the Loan Agreements; and (c) the entry into the IB Deed of Assignment, the Mastergrove Deed of Assignment, the HB Deed of Assignment and the Mastergrove-Hicks Deed of Assignment (collectively, the Deeds of Assignment). 215 Such is the breadth of definition of "scheme" in s 177A of the ITAA 1936, these events constitute a "scheme" for the purposes of Part IVA. The applicants did not contest this. 216 For the purposes of s 177C(1) and s 177CB of the ITAA 1936, the tax benefit identified by the Commissioner, which was said would have occurred, or might reasonably be expected to have occurred, if this "scheme" had not been entered into or carried out, was the non-inclusion of the dividend and the franking offset (as identified above) in the assessable income of Messrs Ierna and Hicks for the 2016 income year. 217 For this purpose, the Commissioner put forward the following alternative postulate. It was submitted that Mastergrove would have paid a fully franked dividend to Messrs Ierna and Hicks as its shareholders, "sufficient to discharge the Division 7A loans of the applicant[s] and [their] associated [entities]" (i.e. $52 million). 218 An obvious difficulty with this postulate, identified by the applicants in their submissions, is that it fails to provide for how the Division 7A loans from Ierna Beneficiary and Hicks Beneficiary are to be repaid. Mastergrove has never, on the evidence, paid dividends in order to provide for any repayments by Ierna Beneficiary and Hicks Beneficiary. So there is nothing in any past course of conduct which might support an objective conclusion that this would have occurred, or might reasonably be expected to have occurred, if the "scheme" as identified had not been entered into or carried out. 219 At most, this postulate is a theoretical possibility, and one unconsidered (save ex post facto within the Commissioner's office) at that. For the purposes of Part IVA, more is required in relation to an alternative postulate. What is necessary is a prediction based on evidence: Commissioner of Taxation v Peabody (1994) 181 CLR 359, at [385], per the Court; Commissioner of Taxation v Glencore Pty Ltd (2020) 281 FCR 219, at [184], per Middleton and Steward JJ. 220 Nothing remotely of the order of $52 million had ever been paid by Mastergrove in any earlier income year. On the evidence, the only dividends which Mastergrove had paid in the past were, as already mentioned, in the 2010-2013 income years (inclusive) period and then only in order to pay such interest as was minimally necessary to service the amount of the Division 7A loans in accordance with an understanding informed by the Commissioner's taxation ruling (Taxation Ruling 2010/3). Also as mentioned earlier, on the evidence, neither Mastergrove nor any other company in the City Beach group of entities had paid dividends in the two immediately preceding income years (2014 and 2015). 221 Such a dividend payment by Mastergrove formed no part of the proposal put to Messrs Ierna and Hicks in 2014. Mr Lee's evidence was that such a thought had never occurred to him. At that time, as even more so in 2016, there were large outstanding Division 7A loans, interest on which needed to be serviced. These loans and the related interest liabilities were not shams. For all of the reasons given by Mr Lee in evidence, which reflected the evidence of the business environment in which the City Beach business was conducted and the overall financial position of Messrs Ierna and Hicks, these loans needed to be repaid, in his view in the 2014 income year and, in a view shared by Messrs Ierna and Hicks in 2016, in the 2016 income year. Objectively in any event, as well as insofar as relevant at all, subjectively on the part of Mr Lee, Messrs Ierna and Hicks had, directly or indirectly, a means – indeed the only means – of repaying these loans. That was via the disposal of the pre-CGT assets constituted by units in the CBT trust. 222 On the evidence, an essential part of the business environment, in which the City Beach business was conducted, was a need to fund fit outs of stores. The related finance facilities required the provision of securities. Materially, these included, on the evidence, the provision of securities by way of guarantee by Mastergrove, to say nothing of Messrs Ierna and Hicks personally. It is trite that a security is only as good as the net asset position which backs it. On the Commissioner's alternative postulate, $52 million in Mastergrove's "profits" are paid out to its two shareholders with a necessary corollary being that the net assets of that company are reduced by the same amount. In terms of predication, a feature of this postulate is a major change in the worth of any security provided by Mastergrove to a third party financier. Yet on the evidence, one such financier, ANZ, was patently seeking, in 2015, to increase the provision of securities. The Commissioner's alternative postulate is just not reasonable. Indeed, and with all due respect, it does violence to the evidence as to the environment in which the City Beach business was conducted. 223 In contrast, and as the applicants submitted, the "scheme" leaves Mastergrove's net assets available for future distribution to shareholders (and related taxing, when they receive the same). It also leaves them available for the provision of security in the meantime. 224 The form and substance of the "scheme" are the same. Methuselah's share capital is reduced by $52 million (leaving it with a capital structure which comprises share capital of $23 million and debt of $52 million) with a debt of the same amount payable by Methuselah. In turn, that debt to is used to repay in full the Division 7A loans from Mastergrove, Hicks Beneficiary and Ierna Beneficiary. The Commissioner's alternative postulate embraces the repayment of the loan from Mastergrove but otherwise the substance of that postulate is different. It just results in the stripping out of $52 million from Mastergrove and a related reduction in its net assets. 225 There were non-'tax benefit' results from the "scheme" for Messrs Ierna and Mr Hicks: (a) Mr Ierna's shareholding in Methuselah was reduced from 46.67% to 39.13%; (b) the Division 7A loans from Ierna Beneficiary and Hicks Beneficiary were repaid in full; and (c) the Division 7A loans from Mastergrove to Messrs Ierna and Mr Hicks were repaid in full. 226 The Commissioner's alternative postulate entails none of these. It is just not reasonable. 227 In contrast, there is a reasonable alternative postulate open on the evidence. Moreover, so identifying that postulate has the advantage of being supported by authority. As Jessup J stated in AXA Asia Pacific Holdings Ltd v Commissioner of Taxation (2009) 77 ATR 829, at [118], "what the taxpayer and his or her associates in fact did in the commercial circumstances which existed is likely to shed much light on what they would have done in the absence of the scheme, and in some cases to be, as a matter of prediction, elements of that counterfactual". 228 Further, as the Full Court stated in RCI Pty Ltd v Commissioner of Taxation (2011) 84 ATR 785, at [134] – [135], as to how a taxpayer might discharge its onus of proof in a Part IVA case: It may, for example, lead evidence that the taxpayer would have undertaken a particular activity, or adopted a particular course, in lieu of the scheme; or it may lead evidence that the taxpayer would not have undertaken a particular activity, or adopted a particular course, in lieu of the scheme: see, for example Commissioner of Taxation v News Australia Holdings Ltd (2010) 79 ATR 461. Generally, such evidence is unlikely to be sufficient to discharge the onus unless it is supported by objective indicia to be gleaned from the context and matrix of underlying or "foundation" facts, as they have been called (see McCutcheon v Federal Commissioner of Taxation (2008) 168 FCR 149 at [37]-[39] per Greenwood J) as well as the logic of the taxpayer's counterfactual having regard to the commercial or financial aspirations and limitations of the parties to the scheme; without such support, such evidence is likely to be regarded as no more than purely speculative. On the other hand, in a given case, such evidence may not be necessary because, for example, the result of any objective enquiry as to the counterfactual is, at best, inevitable or, at worst, compelling. In such a case, the failure to lead evidence to say that the taxpayer would have undertaken a particular activity or adopted a particular course, in lieu of the scheme; or the failure to lead evidence that the taxpayer would not have undertaken a particular activity, or would not have adopted a particular course, in lieu of the scheme, will not lead to the taxpayer failing to discharge the onus. 229 In the present case, I have the evidence of Mr Lee, described at length above, and accepted by me as reliable. Moreover, his evidence is supported by the "foundation facts", also described at length above. In combination, and as the applicants submitted, this discloses that, had the "scheme" not been entered into or carried out, the unit holders in CBT would just have transferred their units to Methuselah for market value in consideration for shares worth $23 million and cash of $52 million payable on the terms of the loan agreements. In turn, that loan receivable would have been assigned to the creditor companies in repayment of the Division 7A loans. 230 These days, account must be taken of s 177CB. It is obvious that, in 2014, Messrs Ierna and Hicks were concerned about the loss of pre-CGT asset status that a disposal of units in the CBT would entail. But s 177CB(4)(b) directs that this tax result is to be disregarded in relation to this alternative postulate. Mr Lee described in evidence another option, repayment in cash, which did not entail an assignment to the creditor companies but would nonetheless have seen the Division 7A loans repaid in full. 231 The applicants' alternative postulates have the advantage of featuring the substance of the "scheme" and its non-tax results. It follows from an application of s 177CB to those postulates that neither Mr Ierna nor Mr Hicks obtained a tax benefit in connection with the "scheme". 232 Strictly, that conclusion as to an absence of a tax benefit makes it unnecessary to consider the application of s 177D to the facts. But so doing serves only to reinforce an objective conclusion that no foundation existed for the application of Part IVA. 233 One certainty which follows from any objective examination of the facts in light of the considerations specified in s 177D is that the dominant purpose of the "scheme" was never avoid the inclusion of a $26 million dividend in the assessable income of Messrs Ierna and Hicks. Objectively, the dominant purpose was always to use pre-CGT assets, namely units in the CBT, to repay the Division 7A loans. This purpose was overarching. There were other purposes, as already described by me in the discussion of s 45B. Indeed, much of that discussion is just as relevant to an examination of whether Part IVA is applicable. That the "scheme" to achieve this overarching end took an applicable form is, as already explained in relation to s 45B, referable to these other purposes. Viewed through the s 177D prism, this is just one of those cases, as in Commissioner of Taxation v Consolidated Press Holdings Ltd (1999) 91 FCR 524, at [93], per the Court (and see, on subsequent appeal, (2001) 207 CLR 235, at [94], per the Court), in which "the relevant dominant purpose may be so apparent, taken from the evidence as a whole that the consideration of the statutory factors can be collapsed into a global assessment of purpose". 234 Objectively, by the 2016 income year, given the structure by which the CBT business was conducted, financing requirements for the conduct of that business, existing third party finance facilities and related securities and net assets at their command (apart from units in the CBT), Messrs Ierna and Hicks no longer had any room to manoeuvre in relation to the Division 7A loans. These loans needed to be repaid by the end of that income year. Their accountants, Hanrick Curran had foreseen in 2014 such a difficulty. This time, in 2016, Messrs Ierna and Hicks accepted the advice tendered. That entailed the disposal of the units in the CBT. The sugar coating was that, this time, Division 615-A rollover relief was available on such a disposal. 235 One of the s 177D considerations is a change in the financial position of any taxpayer connected with the scheme (s 177D(2)(f)). As the applicants correctly submitted, on the evidence, there was no change in the financial position of the creditor companies namely, Mastergrove, Ierna Beneficiary and Hicks Beneficiary, under the "scheme". Before that "scheme", these creditor companies had an asset (the Division 7A loans); after the "scheme", they had another asset (the loans from Methuselah) of equal value. That is one marker that the dominant purpose was repaying the Division 7A loans. 236 To rehearse further (insofar as not already evident from the s 45B discussion) individual considerations specified in s 177D would be to examine trees when a forest is already evident from the whole. Although the parties offered this in submissions, embarking on that course would serve only unnecessarily to add to the length of already lengthy reasons for judgment, so stark is the conclusion which flows from a global assessment. 237 For these reasons, Part IVA had no application in the circumstances of this case. Outcome 238 Objectively, there was an adverse revenue law consequence entailed in the 2016 capital reduction and any related "scheme" as propounded by the Commissioner. But that adverse revenue law consequence lay in State, not Federal, revenue law. It took the form of transfer duty payable under the Duties Act 2001 (Qld), not income tax payable by virtue of the application of either s 45C or Part IVA of the ITAA 1936. 239 Insofar as they remained controversial, the assessments have, for the reasons given, been proved to be excessive. The appeals must therefore be allowed, the objection decisions set aside and, in lieu thereof, it must be ordered that the objections be allowed in full. As contemplated by the TAA, it will be for the Commissioner to issue the required amended assessments. 240 In keeping with the costs position already reserved, it will be necessary to hear the parties as to the overall orders which should be made in respect of costs. I certify that the preceding two hundred and forty (240) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Logan. Associate: Dated: 6 June 2024