High Court of Australia Stephen J. Perron (as Trustee for Brennan Trust) v Commissioner of Taxation (Cth) [1972] HCA 47 ORDER Order accordingly. Cur. adv. vult. Stephen J delivered the following written judgment:— Oct. 11 Stephen J In this appeal the taxpayer, as trustee of a trust estate, appeals against an assessment raised by the Commissioner pursuant to s. 99 of the Income Tax Assessment Act and contends that the relevant income of the trust estate should instead have been assessed to tax pursuant to s. 99A. That is the only matter which is in question on this appeal. The facts are not in issue; indeed, before me a statement of agreed facts was tendered. It disclosed that during the year of income out of a net income of over $326,000 a distribution of $4,000 was made to a beneficiary of the trust, the balance of the net income of the trust estate, amounting to over $322,000, being accumulated. It was income to which no beneficiary was presently entitled and thus fell for assessment under one or other of ss. 99 or 99A. Which of these two sections was to apply is made to depend upon the formation of an opinion by the Commissioner. Section 99 is expressed to apply "only if the next succeeding section does not apply" and s. 99A (2) provides that s. 99A does not apply "if the Commissioner is of the opinion that it would be unreasonable that this section should apply". The significance to the trust estate of a selection as between these two sections arises from the fact that the rate of tax under the one may readily differ from the rate of tax under the other. The rate of tax where the assessment is made under s. 99A is such a rate as may be "declared by the Parliament for the purposes of this section"—s. 99A (4). In fact, at all material times a rate of fifty cents in the dollar has applied to the income of a trust estate assessed pursuant to s. 99A. Where an assessment is made under s. 99 the applicable rate is that which would apply if the income were that of an individual and were not subject to any deduction. In a case such as the present, where that part of the income of a trust estate to which no beneficiary is presently entitled is very large, the rate of tax resulting from an assessment made under s. 99 will be well in excess of fifty cents in the dollar. Accordingly, in such a case, it will be in the interests of the trust estate that s. 99A, rather than s. 99, should apply. In the present case, the Commissioner did form the opinion that it would be unreasonable that s. 99A should apply and, in response to an inquiry from the trustee's solicitors, informed them that the facts before him when he formed that opinion comprised the information disclosed with the trust returns for the relevant year of income and previous years and the relevant trust deeds; he added that: Consideration was of course given to the amounts of income derived in the year and to the rates of tax applicable. As Windeyer J. said in Giris v. Federal Commissioner of Taxation [1] : "I assume that "(the Commissioner)" is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it That purpose I take it is to enable the Commissioner to keep s. 99A as an instrument to prevent avoidance of tax by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose". 1. (1969) 119 C.L.R. 365, at p. 384. The quotation of this passage from the judgment of Windeyer J. was not, perhaps, the course best calculated to reconcile the trustee to payment of tax at the higher, s. 99, rate rather than at the lower, s. 99A, rate. The piquancy of a situation in which the Commissioner, by refraining from recourse to the instrument with which he has been armed to deal with tax avoidance by trusts, succeeds in imposing upon a trust a higher rate than had he employed that instrument, is not likely to be much appreciated by the object of the Commissioner's restraint. Two distinct arguments were urged on behald of the taxpayer; first, it was contended that sub-s. (2) of s. 99A was a dispensing power conferred upon the Commissioner which he could not properly employ against the interests of a taxpayer so as to increase rather than to reduce the rate of tax payable on income of a trust estate. To do so, it was said, was inconsistent with the notion of the exercise of a dispensing power. The second contention, to some extent allied to the first, was that the power conferred upon the Commissioner by sub-s. (2) of s. 99A was one which should only be exercised following upon an application in that behalf by a taxpayer. In this case, there had, understandably enough, been no such application; accordingly, it was said, no occasion had arisen for the Commissioner to turn his mind to the formation of any opinion under s. 99A (2); he was not authorized to form such an opinion and could not lawfully give effect to it by assessing income of the trust estate under s. 99. The pattern of the legislation is such that if the Commissioner fails to form the opinion that it would be unreasonable that s. 99A should apply s. 99 cannot be invoked and s. 99A will apply of its own force. Thus, unless this particular opinion is formed s. 99A will always operate in preference to s. 99 and the formation of the opinion by the Commissioner may, in this sense, be said to be the exercise of a dispensing power, a phrase used by the Chief Justice in describing the operation of s. 99A in the course of his judgment in Giris Pty. Ltd. v. Federal Commissioner of Taxation [1] . In that case Kitto J. referred to the effect of s. 99A (2) as being to make the liability under that section "defeasible" upon the formation by the Commissioner of the relevant opinion. [2] However, although in the context of the facts in the Giris Case [3] these phrases were employed, I do not understand either of these judgments as in any way supporting the present taxpayer's first contention. That contention involves the view that the Commissioner should only form the necessary opinion if to do so will be favourable to the taxpayer and such a view is not, I think, open either on the words of the sections or having regard to anything which was said by this Court in the Giris Case [3] , a decision which, although concerned with constitutional validity, involved the Court in a quite detailed consideration of the task of the Commissioner under s. 99A (2). 1. (1969) 119 C.L.R. 365, at p. 371. 2. (1969) 119 C.L.R., at p. 377. 3. (1969) 119 C.L.R. 365. 4. (1969) 119 C.L.R. 365. The views of Windeyer J. [4] in the Giris Case [3] regarding the legislative purpose given effect to by s. 99A (2) have already been quoted in the Commissioner's letter. I would, with respect, adopt those views of that legislative purpose. However, because of the particular rate of tax which Parliament has declared to be applicable to assessments under s. 99A, the instrument for prevention of tax avoidance which s. 99A represents becomes, on one view, ineffective and, on another, unnecessary once the income of a trust estate is so large as to attract under s. 99 a rate of tax greater than fifty per cent. 1. (1969) 119 C.L.R., at p. 384. 2. (1969) 119 C.L.R. 365. In such a case there is no work to be performed by s. 99A; the amount of income of the trust estate will be such as to ensure that no tax avoidance, in the sense of low rates of tax brought about by the splitting of incomes between several trusts, will result and this will be so either because the trust has not been one created so as to avoid tax or because it has failed in its purpose of tax avoidance. It would appear to me to be proper for the Commissioner, in such a case, to conclude that it would be unreasonable that s. 99A should apply. To do otherwise would be to confer upon trust estates with large incomes a concessional rate of tax not available to equally large incomes when derived by individuals or by those types of trust which are altogether excluded from the application of s. 99A, being trusts resulting from a will or codicil, or from an intestacy or from orders under testator's family maintenance legislation—see s. 99A (1). If the Commissioner is, as the appellant contends, only to form the relevant opinion when to do so will favour the interests of the particular trust estate, it follows that he must always have regard to the size of the income of the trust estate so that he may know which section will best suit the taxpayer. But what is he then to do in the case of trust estates having such large incomes? Is he to refrain from forming the relevant opinion in all such cases or only where no taint of tax avoidance appears to him to exist? If the former, a tainted trust estate will receive a concessional rate of tax by reason of the introduction into the legislation of s. 99A; if the latter an equally odd consequence will ensue, the Commissioner will consign all such tainted trust estates to s. 99, retaining under s. 99A only those which are not suspect of tax avoidance. Thus s. 99A will apply to tainted trust estates having low incomes and to unsullied trust estates with high incomes, its rate of fifty cents in the dollar operating for some as a penalty and for others as a concession. If I were to decide the case by reference to what I take to be the legislative policy which s. 99A was intended to effect, these considerations would lead me to the conclusion that it would not be improper for the Commissioner to have formed the opinion that it was unreasonable for s. 99A to apply in a case in which the consequence would be that the rate of tax applicable under s. 99A would be less than that applicable under s. 99. In doing so the Commissioner would, in the words of Windeyer J., be refraining from using s. 99A when to use it would seem to him not in accordance with the legislative purpose of keeping that section for use to prevent avoidance of taxation. However a more sure basis for my decision is afforded by the judgments in the Giris Case [1] . It was there accepted that the formation of the Commissioner's opinion that it was unreasonable that s. 99A should apply was subject only to a quite limited degree of judicial scrutiny. The Chief Justice [2] described the Commissioner's function as legislative in character, conferring upon him a wide charter so that the interests of the public generally, of the citizen to be affected and of the revenue and also matters of policy were all germane to his decision. He said [3] that what was relevant to the formation of the Commissioner's opinion might range over an extremely wide spectrum of fact and consideration adding only that it must not be formed "arbitrarily or fancifully, or upon facts or considerations which could not be regarded as relevant even to such a question as the unreasonableness of applying a taxing provision to a particular taxpayer in respect of the income of a particular year". Implicit in the judgments of McTiernan, Kitto, Menzies and Owen JJ. is the view that a wide variety of considerations might be taken into account by the Commissioner and Windeyer J. [4] , described the Commissioner's discretion as "apparently at large", controlled only by the manifest policy and purpose of the enactment, so that unconstitutional or fanciful and prejudiced criteria must be excluded. He would, it seems, have applied to the Commissioner's power to form his opinion limits not unlike those expressed by the Chief Justice. 1. (1969) 119 C.L.R. 365. 2. (1969) 119 C.L.R., at p. 372. 3. (1969) 119 C.L.R., at p. 374. 4. (1969) 119 C.L.R., at p. 384. If then the Commissioner has had conferred upon him a power to form an opinion by reference to such a very wide range of criteria he is clearly not to be confined, as the appellant would have it, to one consideration only, namely that which is most beneficial to the taxpayer. I have already set out the facts which the Commissioner has said were before him when he formed his opinion and which, indeed, the parties have expressly agreed were before him at that time. I must, I think, assume that they were the facts upon which he formed that opinion, certainly no others have been shown to exist. None of them appear to me to be so irrelevant to the task before him as to vitiate the opinion so formed; nor does it appear either that there was anything arbitrary or fanciful in the Commissioner's opinion or that that opinion was not bona fide held by the Commissioner. That the Commissioner had regard, among other facts, to the amount of the income of this trust estate and to the rates of tax gave me, initially, some concern. However, on consideration, these matters do not appear to me to be improper for him to take into consideration, if he sees fit, in the formation of his opinion, and it may indeed be important that he should do so where the income of the trust estate proves to be large so that if s. 99A were to be applied it would operate to confer a concessional rate. I note in passing that it is inherent in the appellant's own first contention that these two matters, the size of the income and the rates of tax, should lie at the threshold of the Commissioner's consideration. In those circumstances I think that there exists no ground upon which I could interfere with the Commissioner's opinion and, accordingly, no ground upon which the taxpayer can succeed in his contention that s. 99A should be applied in the assessment of income of this trust estate. As to the second contention urged on behalf of the taxpayer, namely, that the Commissioner should only enter upon the task of forming an opinion under s. 99A (2) following some application in that behalf made to him by the taxpayer, not only does such a submission find no support in the terms of sub-s. (2) but it also runs counter to some, at least, of the reasoning expressed in the judgments in the Giris Case [1] . I see no ground whatever for implying into s. 99A (2) a limitation upon the power of the Commissioner to form an opinion, such as this contention involves. 1. (1969) 119 C.L.R. 365. For the foregoing reasons I would dismiss this appeal.