Supreme Court New South Wales Medium Neutral Citation: Smeaton Grange Holdings Pty Ltd v Chief Commissioner of State Revenue [2016] NSWSC 1594 Hearing dates: 4 November 2015 Decision date: 15 November 2016 Jurisdiction: Equity - Revenue List Before: White J Decision: Refer to paras [109] and [110] of judgment. Catchwords: TAX — payroll tax — businesses grouped for payroll tax purposes by operation of subs 106I(6) of the Taxation Administration Act 1996 and s 72(6) of the Payroll Tax Act 2007 — person with controlling interest in grouped businesses who could benefit from discretionary trusts as a result of the trustees exercising some power or discretion disclaimed his right as a discretionary object on becoming aware of the grouping — whether the disclaimer meant that subs 106I(6) of the Taxation Administration Act 1996 and s 72(6) of the Payroll Tax Act 2007 had no application for the tax years in question — whether a person who may benefit from a discretionary trust as a result of the trustee exercising some power or discretion may disclaim their right as a discretionary object — held they can — whether a person who may benefit from a discretionary trust as a result of the trustee exercising some power or discretion may disclaim their right as a discretionary object in the absence of valuable consideration — held they can — whether the disclaimer of a person who may benefit from a discretionary trust as a result of the trustee exercising some power or discretion operates retrospectively — held it does — notices of assessment revoked Legislation Cited: Bankruptcy Act 1966 (Cth) Family Law Act 1975 (Cth) Finance Act 1940 (UK) Pay-roll Tax Act 1971 (NSW) Payroll Tax Act 2007 (NSW) Taxation Administration Act 1996 (NSW) Taxation Administration Act 1999 (ACT) Cases Cited: Banque Nationale de Paris v Falkirk Developments Ltd (1977) 136 CLR 177 Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1986) 8 NSWLR 621 Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642 Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 23 FCR 82 Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39; (2005) 58 ATR 485 Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; [2008] HCA 55 Hardoon v Belilios [1901] AC 118 HJA Holdings Pty Ltd v ACT Revenue Office [2011] ACAT 91 Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 In re Gulbenkian's Settlements (No. 2) [1970] Ch 408 In re Stratton's Disclaimer [1958] Ch 42 JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56 Lady Naas v Westminster Bank Limited [1940] AC 366 Lewis v Lohse [2003] QCA 199 Mallott v Wilson [1903] 2 Ch 494 Marshin Holdings Pty Ltd v Attorney-General of New South Wales [2013] NSWSC 326 Mirzikinian v Tom & Bill Waterhouse Pty Ltd [2009] NSWCA 296 Rann v Hughes (1778) 7 Term Rep 350n; 101 ER 1014n Re Cranstoun [1949] 1 Ch 523 Re Hayes Settlement Trusts [1982] 1 WLR 202 Re Manisty's Settlement [1974] Ch 17 Re Paradise Motor Co Ltd [1968] 1 WLR 1125 Tantau v MacFarlane [2010] NSWSC 224 Townson v Tickell (1819) 3 B & Ald 31; 106 ER 575 Texts Cited: Crago, "Principles of Disclaimer of Gifts" (1999) 28 Western Australian Law Review 65 Hardingham & Baxt, Discretionary Trusts (2nd ed, 1984, Butterworths) Category: Principal judgment Parties: Smeaton Grange Holdings Pty Ltd (1st Plaintiff) Tri-City Smash Repairs Pty Ltd (2nd Plaintiff) Ifould Holdings Pty Ltd (3rd Plaintiff) Chief Commissioner of State Revenue (Defendant) Representation: Counsel: I Young (Plaintiffs) J Needham SC with S Kaur-Bains (Defendant) Solicitors: NSW Compensation Lawyers (Plaintiffs) Crown Solicitors Office (Defendant) File Number(s): 2014/366015 Judgment 1. HIS HONOUR: In these proceedings the plaintiffs seek the review of assessments or reassessments of payroll tax issued to the first plaintiff Smeaton Grange Holdings Pty Ltd ("Smeaton Grange"), and the second plaintiff, Tri-City Smash Repairs Pty Ltd ("Tri-City Smash Repairs"). The assessments to Smeaton Grange were for the financial years ended 30 June 2005 to 30 June 2012. The assessments to Tri-City Smash Repairs were for the financial years ended 30 June 2009 to 30 June 2013, and for part of the following financial year. The third plaintiff, Ifould Holdings Pty Ltd ("Ifould Holdings"), applies for the review of a decision of the Chief Commissioner to include it in a group for payroll tax purposes. On 5 August 2015 I ordered that the following question be determined separately and in advance of other issues in the proceedings, namely: "Did the disclaimer signed by Michael Gerace dated 27 June 2015 in respect of the Smeaton Trust and the Gerace Family Trust mean that subs 106I(6) of the Taxation Administration Act 1996 and s 72(6) of the Payroll Tax Act 2007 have no application for the tax years in question." 1. This judgment answers that separate question. 2. The question arises in the following way. Under the Pay-roll Tax Act 1971 (NSW) and the Payroll Tax Act 2007 (NSW) an employer by whom taxable wages are paid or payable is liable to pay payroll tax on the wages. Payroll tax is payable within seven days (or after the end of June within 21 days) of the end of the month in which wages are paid or payable. The Payroll Tax Act 2007, and for the period prior to 1 July 2007, the Taxation Administration Act 1996 (NSW), contain grouping provisions. Under s 81 of the Payroll Tax Act 2007 if a member of a group fails to pay an amount that the member is required to pay in respect of any period, every member of the group is liable jointly and severally to pay that amount to the Chief Commissioner (s 81(1)). A provision to the same effect was contained in s 16LA of the Pay-roll Tax Act 1971 in respect of the periods prior to 1 July 2007. 3. It is common ground that the Chief Commissioner assessed a company now in liquidation (Tri-City Trucks (NSW) Pty Ltd (in liq) ("Tri-City Trucks")) as being liable for payroll tax, interest and penalty tax. It is also common ground that the Chief Commissioner issued assessments to Smeaton Grange and to Tri-City Smash Repairs on the basis that they were members of a group of companies of which Tri-City Trucks was a member. The basis on which the Chief Commissioner has contended that Tri-City Trucks, Smeaton Grange and Tri-City Smash Repairs were members of the same group after 1 July 2007 was by the operation of s 72(1), (2)(g) and (6) of the Payroll Tax Act 2007. That section relevantly provides: "72 Groups of commonly controlled businesses (1) If a person or set of persons has a controlling interest in each of 2 businesses, the persons who carry on those businesses constitute a group. Note. Section 79 (Exclusion of persons from groups) allows the Chief Commissioner, for payroll tax purposes, to exclude persons from a group constituted under this section in certain circumstances. (2) For the purposes of this section, a person or set of persons has a controlling interest in a business if: (a) in the case of 1 person—the person is the sole owner (whether or not as trustee) of the business, or (b) in the case of a set of persons—the persons are together as trustees the sole owners of the business, or (c) in the case of a business carried on by a corporation: (i) the person or each of the set of persons is a director of the corporation and the person or set of persons is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation, or (ii) a director or set of directors of the corporation that is entitled to exercise more than 50% of the voting power at meetings of the directors of the corporation is under an obligation, whether formal or informal, to act in accordance with the direction, instructions or wishes of that person or set of persons, or (d) in the case of a business carried on by a body corporate or unincorporate—that person or set of persons constitute more than 50% of the board of management (by whatever name called) of the body or control the composition of that board, or (e) in the case of a business carried on by a corporation that has a share capital—that person or set of persons can, directly or indirectly, exercise, control the exercise of, or substantially influence the exercise of, more than 50% of the voting power attached to the voting shares, or any class of voting shares, issued by the corporation, or (f) in the case of a business carried on by a partnership—that person or set of persons: (i) own (whether beneficially or not) more than 50% of the capital of the partnership, or (ii) is entitled (whether beneficially or not) to more than 50% of the profits of the partnership, or (g) in the case of a business carried on under a trust—the person or set of persons (whether or not as a trustee of, or beneficiary under, another trust) is the beneficiary in respect of more than 50% of the value of the interests in the first-mentioned trust. (3) If: (a) 2 corporations are related bodies corporate within the meaning of the Corporations Act 2001 of the Commonwealth, and (b) 1 of the corporations has a controlling interest in a business, the other corporation has a controlling interest in the business. (4) If: (a) a person or set of persons has a controlling interest in a business, and (b) a person or set of persons who carry on the business has a controlling interest in another business, the person or set of persons referred to in paragraph (a) has a controlling interest in that other business. (5) If: (a) a person or set of persons is the beneficiary of a trust in respect of more than 50% of the value of the interests in the trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of another trust, the person or set of persons has a controlling interest in the business. (6) A person who may benefit from a discretionary trust as a result of the trustee or another person, or the trustee and another person, exercising or failing to exercise a power or discretion, is taken, for the purposes of this Part, to be a beneficiary in respect of more than 50% of the value of the interests in the trust. (7) If: (a) a person or set of persons has a controlling interest in the business of a trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a corporation, the person or set of persons is taken to have a controlling interest in the business of the corporation. (8) If: (a) a person or set of persons has a controlling interest in the business of a trust, and (b) the trustee of the trust (whether alone or together with another trustee or trustees) has a controlling interest in the business of a partnership, the person or set of persons is taken to have a controlling interest in the business of the partnership." 1. Section 106I(6) of the Taxation Administration Act as in force during the 2005, 2006 and 2007 financial years was to the same effect as s 79(6) of the Payroll Tax Act 2007. It is sufficient to refer to the Payroll Tax Act 2007. It is common ground that the same questions arise for all periods. 2. Mr Michael Gerace was the shareholder and director of Tri-City Trucks. Smeaton Grange was the trustee of a discretionary trust known as the Smeaton Trust. The Chief Commissioner grouped Smeaton Grange (as trustee for the Smeaton Trust) with Tri-City Trucks on the basis that Michael Gerace is taken to be a beneficiary in respect of more than 50 per cent of the value of the interests in the Smeaton Trust. Clause 2.2 of the Smeaton Trust Deed provides: "2.2 The Trustee shall stand possessed of the Trust Fund or any part of it or the income or any part of the income of the Trust Fund or any combination in trust for all or such one or more exclusively of the others or other of the General Beneficiaries and in such shares or proportions as the Trustee may in its uncontrolled discretion revocably or irrevocably from time to time before the Vesting Day appoint and with such provision for their respective advancement, maintenance, education and benefit as the Trustee shall determine at the time of such appointment, provided that no such appointment shall be revoked or revocable after the Vesting Day." 1. Clauses 3.1 and 5 provide in substance that the trustee can apply income or advance capital to any of the General Beneficiaries in such proportions and in such manner as the trustee might in its absolute discretion determine. As from the Vesting Day the trustee is to stand possessed of the trust fund in trust for those of the General and Remainder Beneficiaries or for charitable purposes as the trustee might in its absolute discretion appoint. The expression "General Beneficiaries" is defined relevantly to mean: "(a) Ralph Gerace and the persons related to Ralph Gerace as follows, namely: (i) spouse; (ii) children; (iii) children and more remote descendants of such children; (iv) brothers, sisters and parents; (v) children and more remote descendants of brothers and sisters; and (vi) spouses of any of the foregoing; (b) any corporation of which any one or more of the foregoing beneficiaries is a member; …" 1. Michael Gerace is a General Beneficiary because he is the brother of Ralph Gerace. 2. It is common ground that Ifould Holdings is the trustee of a discretionary trust. It was established by a firm of accountants for the parents of Michael and Ralph Gerace many years ago. Michael and Ralph Gerace became directors of Ifould Holdings in 1997 to assist their parents. Michael Gerace deposed that it had always been his understanding that Ifould Holdings was the trustee of two trusts, one of which is called the Gerace Family Trust. The directors and shareholders of Ifould Holdings were initially Francesco and Maria Gerace. Although the trust deed could not be found there was no dispute that on the balance of probabilities Michael Gerace and Ralph Gerace were both discretionary objects of the Gerace Family Trust. It is not known whether they are also takers in default of appointment. The Chief Commissioner says that by reason of s 72(2)(g) and 72(6) of the Payroll Tax Act 2007 Ifould Holdings is a member of a group with Tri-City Trucks because Michael Gerace is entitled to exercise more than 50 per cent of the voting power at meetings of directors of Tri-City Trucks and owned the shares in that company and is taken to be a beneficiary in respect of more than 50 per cent of the value of the interests in Ifould Holdings as trustee of the Gerace Family Trust. 3. The Chief Commissioner also says that Smeaton Grange and Tri-City Smash Repairs are members of the same group because Ralph Gerace has a common controlling interest in both Tri-City Smash Repairs and Smeaton Grange as trustee of the Smeaton Trust. He is taken to be a beneficiary in respect of more than 50 per cent of the value of the interests in the Smeaton Trust. He is entitled to exercise more than 50 per cent of the voting power at meetings of directors and controls more than 50 per cent of the voting power attached to the shares in Tri-City Smash Repairs. He was also a discretionary object of the Gerace Family Trust, and is taken to be a beneficiary in respect of more than 50 per cent of the value of the interests of Ifould Holdings as trustee of the Gerace Family Trusts. 4. Section 74 of the Payroll Tax Act 2007 provides: "74 Smaller groups subsumed by larger groups (1) If a person is a member of 2 or more groups, the members of all the groups together constitute a group. (2) If 2 or more members of a group have together a controlling interest in a business (within the meaning of section 72), all the members of the group and the person or persons who carry on the business together constitute a group. Note. Section 79 (Exclusion of persons from groups) allows the Chief Commissioner, for payroll tax purposes, to exclude persons from a group constituted under this section in certain circumstances." 1. The Chief Commissioner contends that Smeaton Grange is a member of two groups, that is: 1. the group of Smeaton Grange as trustee of the Smeaton Trust and Tri-City Trucks; and also, 2. the group of Smeaton Grange as trustee of the Smeaton Trust and Tri-City Smash Repairs. He contends that pursuant to s 74(1) the members of both groups together constitute a group and hence Tri-City Smash Repairs is a member of a group of which Tri-City Trucks was also a member and it is liable for the payroll tax for which Tri-City Trucks was liable. 1. By the same process of reasoning the Chief Commissioner contends that Tri-City Smash Repairs is liable for the payroll tax for which Tri-City Trucks is liable through Tri-City Trucks and Tri-City Smash Repairs both being grouped with Ifould Holdings. 2. The plaintiffs alleged that Michael Gerace was first informed that he was included within a class of discretionary beneficiaries of either or both of the Smeaton Trust or the Gerace Family Trust upon receipt of a letter from the Chief Commissioner dated 10 June 2014. This was the letter in which the Chief Commissioner advised that having completed a payroll tax investigation for Tri-City Trucks and other related entities, that members of the "Tri-City Group" that included Smeaton Grange, Ifould Holdings and Tri-City Smash Repairs were jointly and severally liable for the payroll tax on taxable wages paid by the members of the group. 3. On 27 June 2014 Michael Gerace executed various deeds poll in which he disclaimed any interest he might have had under the Smeaton Trust and the Gerace Family Trust. The Chief Commissioner accepts that the only basis upon which he relies for grouping Tri-City Trucks with the Smeaton Trust and the Gerace Family Trust is if Michael Gerace falls within s 106I(6) of the Taxation Administration Act as in force prior to 1 July 2007, and s 72(6) of the Payroll Tax Act 2007 from 1 July 2007, as a discretionary object of those trusts. 4. The plaintiffs contend that the disclaimers are effective and operate retrospectively so that Michael Gerace is taken never to have been a discretionary object of either trust. 5. Four principal questions arise. First, whether it is possible for Michael Gerace to have disclaimed his right as a discretionary object. The Chief Commissioner contends that Michael Gerace's rights as a discretionary object did not amount to property and he had no property interest to disclaim. If the trustee exercised his discretion to appoint capital or income to Michael Gerace, then, but only then, according to the Chief Commissioner, could he disclaim the proposed distribution. 6. Secondly, whether disclaimer of Michael Gerace's rights as a discretionary object can be effected by a deed poll, without consideration being provided to him for the surrender of those rights. Michael Gerace was still named as a discretionary object in the trust deeds. The Chief Commissioner submitted that therefore, in the terms of s 72(6) he was "a person who may benefit … as a result of the trustee … exercising … a power or discretion." 7. Thirdly, whether Michael Gerace tacitly accepted his position as a discretionary object of either trust so that it was too late for him to disclaim. 8. Fourthly, whether the disclaimers could operate retrospectively so as to defeat the operation of the statute, notwithstanding that a liability for payroll tax was imposed on the employer (Tri-City Trucks) in each month in the tax years in question and was imposed on every member of a group of which Tri-City Trucks was a member when it failed to pay the tax for which it was liable. Can the rights of a discretionary object be disclaimed? 1. The Smeaton Trust Deed was made on 27 August 2003. The trustee had a discretion from time to time before the Vesting Day to appoint income or capital to such one or more of the General Beneficiaries and in such shares or proportions as the trustee in its discretion might decide. The trustee had the power to accumulate all or part of the income of the Trust Fund. The Vesting Day is the 80th anniversary of the date of the deed or such earlier date as the trustee might with the consent of the Appointor appoint. Mr Ralph Gerace is the Appointor. From the Vesting Day the trustee is to stand possessed of the trust fund for those of the General and Remainder Beneficiaries or for charitable purposes as the trustee might in its absolute discretion have appointed before the Vesting Day. In default of appointment the trust fund is to be held for the Remainder Beneficiaries, being the Royal New South Wales Institute for Deaf and Blind Children. 2. As a discretionary object Mr Michael Gerace had an equitable chose in action being the right to compel due administration of the trust. That included the right to enforce the trustee's obligation to act in good faith and to give due consideration to the exercise of its discretions. The right might include the right to an account, or to inspect trust documents, or to apply for the removal of the trustee. Such rights did not amount to a proprietary interest in the assets of the trust. The rights were not assignable and could not be transmitted by will. The plaintiffs argued that the rights nonetheless constituted property. In Kennon v Spry (2008) 238 CLR 366; [2008] HCA 56 French CJ said (at [75]) that the rights of a discretionary object to consideration and due administration are in the nature of equitable choses in action. His Honour observed that the right of a residuary legatee of an unadministered deceased estate (which is also not an interest in the assets of the estate but a right to compel due administration) has been treated as property for the purposes of the Bankruptcy Act 1966 (Cth). He agreed with Gummow and Hayne JJ that Mrs Spry's right with respect to due administration of the trust of which she was a discretionary object and to due consideration could be taken into account as part of her property (at [78] for the purposes of s 79 of the Family Law Act 1975 (Cth)). Gummow and Hayne JJ held (at [126]) that the right of Mrs Spry as one of a class of discretionary objects to due administration of the trust was included in her property for the purposes of ss 4(1) and 79(1) of the Family Law Act. 3. In Hardingham & Baxt, Discretionary Trusts (2nd ed, 1984, Butterworths) the learned authors say (at [609], p 133-134): "While an object's expectancy is not in the nature of a property interest, it is clear that his chose in action may be so described. Because the object of a mere power (not being a taker in default) cannot directly enforce his right of administration against the trustees, generally speaking, but may only enforce his right indirectly by seeking the removal and replacement of the trustees and the invalidation of any improper distribution … it does not follow that his right is not 'property'. For it has been observed that a chose in action is no less 'property' because it is unenforceable: Cain's Case (1954) 91 CLR 540; a fortiori, where it is not totally unenforceable but, rather, indirectly enforceable. Nor does inalienability deprive a chose in action of a quality indispensable to 'property': Cain's Case (1954) 91 CLR 540. An object's chose in action is, because of its inherent nature, inalienable. The chose in action involves a right in the object as an object to require the trustees to administer the trust properly. An object may not artificially expand the range of objects designated by the settlor alienating that personal right to a stranger; the chose in action will not amount to a right in an object if it be alienated to one who is not so qualified or who may not thereupon become so qualified. Of course, on the object's death his right is extinguished and so may not pass by will. Further, it is not appropriate to consider the possibility of an object alienating his right of administration to another object. For that other object will already have such a right. But it will be in the interests of any other object that the object should renounce his right to have the trustees administer the trust, and thereby cease to be an object. This the object may do, whether he be the object of a trust power or a mere power." (Footnotes omitted.) 1. I do not doubt that in some statutory contexts the rights of a discretionary object may amount to property. In my view, the question is not relevant in the present case. Whether Michael Gerace's equitable chose in action as a discretionary object to compel due administration and to due consideration is a personal right or a property right does not determine whether it is capable of being disclaimed. 2. In In re Gulbenkian's Settlements (No. 2) [1970] Ch 408 Plowman J held (at 418) that Mr Nubor Gulbenkian's rights as a discretionary object could be disclaimed, without having to analyse whether his rights were merely personal or amounted to a right of property. He said: "His argument is this, that the duty of the trustees under the power contained in clause 2 (i) of the settlement is a duty owed to each object of the power to consider whether or not to exercise their discretion in its favour; that there is no reason in law why an object of that power should not release the trustees from that duty quoad hunc, and if he does so he thereupon ceases to be an object of the power. Mr. Templeman submits this is in effect what clause 12 of the Lisbon agreement did. No authority was cited to me which in terms decides this point, but I see no reason for not accepting the argument. On the contrary, it appears to me to be in conformity with the general principle that no one can be compelled to accept a gift against his wish. As long ago as the Year Books it was somewhat quaintly said that 'a man cannot have an estate put into him in spight of his teeth.' … If a man cannot be compelled to accept a gift I see no reason why he should not be equally free to refuse to accept the exercise of a power which the donor has conferred on the trustees to make a gift in his favour." 1. Most of the authorities on the question of disclaimer concern disclaimer of gifts of property. But there is no reason as a matter of principle that a person should be compelled to accept a gift of personal rights against his or her wishes (In Re Gulbenkian's Settlements (No. 2) at 418). A disclaimer operates by way of avoidance rather than assignment or disposition (Re Paradise Motor Co Ltd [1968] 1 WLR 1125 at 1143). There is therefore no reason in principle that a merely personal right cannot be disclaimed. 2. In In Re Gulbenkian's Settlements (No. 2) the disclaimer was prospective only and was made for consideration. That does not mean that where the disclaimer is of a gift of merely personal rights the disclaimer can only be for consideration and can only be prospective. 3. In Federal Commissioner of Taxation v Ramsden [2005] FCAFC 39; (2005) 58 ATR 485 the taxpayers were both discretionary objects to whom income could be appointed and takers in default of appointment of income. The trustee purported to distribute income to a company that had no entitlement to it and the taxpayers were assessed for their share of the income of the trust estate to which they were entitled as takers in default of appointment. They purported to disclaim any entitlement to income of the trust for the particular financial year in question. The Full Court of the Federal Court (Lee, Merkel and Hely JJ) held that the taxpayers could disclaim their interest as takers in default of appointment without necessarily disclaiming all of their other rights under the trust deed, but that to be effective a disclaimer had to extend to the whole of the subject matter of the gift, being relevantly, their entitlement as takers in default of appointment. To be effective the disclaimer could not relate only to one financial year (at [40]-[42]). The disclaimer also failed on other grounds considered further below. 4. Observations of the Full Court concerning a possible disclaimer of the taxpayers' rights as discretionary objects were obiter. The Full Court said (speaking of the relevant clauses that gave the trustee power to appoint income for an accounting period to any one or more of the General Beneficiaries (clause 3(b)) or to appoint the corpus on the Vesting Day for such of the General Beneficiaries as the trustee might appoint (clause 4(a))): "[35] No entitlement to income or other property passes to a Specified Beneficiary under cl 3(b)(i) or 4 of the Deed unless and until the Trustee exercises its discretion in favour of that beneficiary. Until appointment, a Specified Beneficiary has only a hope that the Trustee's discretion will be exercised in his or her favour, and a right to apply to a court to secure due administration of the Trust. The Trustee's discretion to appoint under cl 3(b)(i) arises in relation to each Accounting Period. Each exercise of the discretion for an Accounting Period results in a gift to the person in whose favour the discretion is exercised. Different persons may take in different Accounting Periods. [36] When, and if, a gift is made under cl 3(b)(i) or 4, it is consistent with principle that the Specified Beneficiary should be entitled to accept or reject the subject matter of that gift, because a person cannot be forced to accept a gift of property unwillingly. The subject matter of a gift under cl 3(b)(i) is the net income of the trust for a particular Accounting Period. The subject matter of a gift made under cl 4 on the vesting day is the corpus of the Trust Fund. There is no reason in principle why a Specified Beneficiary should lose his or her entitlement to disclaim a particular gift merely because he or she has accepted some other gift from the Trustee in the past although acceptance of the earlier gift may have relevance to the question whether that person had knowledge of his or her interest in the Trust under which the latter gift was obtained and to whether the reasonable time had elapsed within which that person could disclaim that interest. If and when gifts are made pursuant to these clauses or as a result of the operation of these clauses, they are independent gifts, and a donee may accept one or more of the gifts and disclaim the benefit of the interest under another clause or clauses: Theobald on Wills 16th Ed at 14–25, and this is so whether or not the respective interests are vested interests." 1. Consistently with this view the Full Court explained that in In Re Gulbenkian's Settlements (No. 2) Mr Nubar Gulbenkian was able effectively to disclaim the exercise of a power of distribution in his favour prospectively, notwithstanding his having received distributions of income in the past, on the basis that each exercise of a power involved the making of an independent gift such that acceptance of one did not preclude a disclaimer of another (at [47] and [48]). 2. In HJA Holdings Pty Ltd v ACT Revenue Office [2011] ACAT 91 the ACT Civil and Administrative Tribunal (Professor Spender presiding) applied this reasoning in holding that because under the trust deed in question rights were conferred on beneficiaries only from time to time and upon the exercise of the discretion by the trustee, the subject matter of the gift that could be disclaimed was the income to be applied or paid to a beneficiary pursuant to the exercise of the trustee's discretion, such that a disclaimer could only operate for a relevant year of income (at [61]-[63]). Therefore, there could be no retrospective alteration of the status of the persons as discretionary objects so as to prevent the operation of s 115(6) of the Taxation Administration Act 1999 (ACT) that was in the same terms as s 106I(6) of the Taxation Administration Act 1996 (NSW). I do not agree with this reasoning. 3. Prior to the exercise of the trustee's discretion to appoint income or capital to the discretionary object, the discretionary object has a right to compel due administration of the trust and to due consideration. In some contexts that might be considered property. Or it may be a merely personal right. It is different in kind to the right arising from the trustee's exercise of discretion in favour of the discretionary object to appoint income or capital. Once the discretion is exercised in favour of the discretionary object, then he or she becomes entitled to call for the payment of the income or capital so appointed. That right is of a different kind. Subject possibly to the terms of the particular trust deed it will ordinarily amount to the conferral of a right of property. In paras [35] and [36] of the reasons in Federal Commissioner of Taxation v Ramsden quoted at [29] above the Full Court of the Federal Court was concerned only with the position once the discretion had been exercised in the beneficiaries' favour. The Full Court did not say that it would not be possible for a discretionary object to disclaim the right to be considered as an object of the trustee's discretion, although that might be implicit in the way in which the Full Court explained In Re Gulbenkian's Settlements (No. 2). But in that case Plowman J did not address the question of whether Mr Nubar Gulbenkian could not disclaim his right to due administration of the trust as a discretionary object because he had already received distributions of income. Because the disclaimer was prospective only, there would be no inconsistency between his having accepted past distributions of income and his disclaiming his right to be considered for future distributions. But this does not affect the fact that what was disclaimed in In Re Gulbenkian's Settlements (No. 2) was the right to be considered as a future object of the trustee's discretion to appoint income. 4. For these reasons I reject the Chief Commissioner's submission that Michael Gerace could not disclaim his right as a discretionary object. Is Valuable Consideration Necessary for the Disclaimer to be Effective? 1. The Chief Commissioner submitted that absent an agreement for valuable consideration by a discretionary object that he or she did not wish to be considered for any future distributions from the discretionary trust, such an agreement made by a discretionary object alone does not affect the trustee's power nevertheless to make a distribution to the beneficiary. The Chief Commissioner noted that it was a significant aspect of the rationale of Plowman J's reasoning in In Re Gulbenkian's Settlements (No. 2) that the release was part of a contractual arrangement for which consideration was given and it was this that rendered the disclaimer effective. Plowman J said (at 418): "I should perhaps emphasise that the release which I am considering was a release for valuable consideration and I am not concerned to consider whether a different result might have followed if the release had been a voluntary release not under seal." 1. The Chief Commissioner submitted that Michael Gerace remained a named discretionary object and therefore he was someone who could benefit from the trustee's exercise of discretion within the meaning of s 72(6). 2. The question is whether in the absence of valuable consideration, notwithstanding the terms of the deeds poll, Michael Gerace remained "a person who may benefit from a discretionary trust as a result of the trustee … exercising … a power or discretion" (Payroll Tax Act 2007, s 72(6)). 3. The provision only applies to a case in which a trustee could properly, in accordance with the terms of the discretionary trust and the trustee's obligations to the beneficiaries, exercise a discretion to appoint trust income or property to the relevant person. 4. The deeds were entitled "Deeds of Disclaimer". Only Michael Gerace was a party to the deeds. The deed of disclaimer in relation to the Smeaton Grange Trust was dated 27 June 2014. The "Trust" was defined to mean the trust over the trust fund established by the trust deed known as the Smeaton Trust. The "Trustee" meant Smeaton Grange. The "Beneficiary" meant Michael Gerace. "General Beneficiary" had the same meaning as defined in the Trust Deed. The deed contained the following recitals: "A. On 27 August 2003, the Trust was established by the Trust Deed. B. The Trustee was appointed trustee of the Trust by the Trust Deed and has continuously held such office up to and including the date of this deed. C. The Beneficiary wishes to irrevocably and absolutely disclaim any right, entitlement or interest in respect of the Trust or arising pursuant to the Trust Deed in the manner set out in this deed." 1. Clause 2 of the deed (omitting the heading) provided: "2. … (1) The Beneficiary irrevocably and absolutely disclaims all of his rights, entitlements and interests howsoever arising whether in equity or in law in respect of the Trust or arising pursuant to the Trust Deed including but without limitation: (a) the right to prevent the misappropriation of capital; (b) the right to require the Trustee to exercise bona fide its discretion as to whether and if so to whom income shall be distributed; (c) the right to take and enjoy whatever part of the income the Trustee chooses to give; (d) the right to take and enjoy whatever part of the capital the Trustee chooses to give; (e) any other right, entitlement or interest arising whether in equity or in law as a consequence of the Beneficiary being specified as a General Beneficiary in the Trust Deed; and (f) any other right, entitlement or interest arising whether in equity or in law as a consequence of the Beneficiary being found to be a beneficiary under the Trust Deed. (2) This disclaimer takes effect on and from the date of settlement of the Trust." 1. The deed described itself as "Deed Poll of Disclaimer". Separate deeds were executed in respect of each financial year from that ending 30 June 2004 to 30 June 2014. Those deeds recited that they were made as an abundance of caution and contained disclaimers in the same terms of clause 12 but were expressed to apply in respect of each of those financial years. It is not suggested that anything turns on this. 2. Michael Gerace also executed what was called a Deed Poll of Disclaimer in respect of the Gerace Family Trust. The deed defined the expression "Trust Deeds" as meaning: "deeds of settlement made on unknown dates between unknown persons as settlor and Ifould Holdings Pty Limited A.C.N. 002 193 553 as the trustee creating the Trusts." 1. "Trusts" was defined to mean: "the trusts over the trust funds established by the Trust Deeds known as the 'Gerace Family Trust' and the 'Gerace Investment Trust'." 1. The "Trustee" was defined to mean Ifould Holdings Pty Ltd. "Beneficiary" meant Michael Gerace. "General Beneficiary" had the same meaning as in the Trust Deed. This deed poll recited: "A. On dates unknown it is believed that the Trusts were established by the Trust Deeds. B. The Trustee was appointed trustee of the Trusts by the Trust Deeds and has, presumably, continuously held such office up to and including the date of this deed. C. The Beneficiary wishes to irrevocably and absolutely disclaim any right, entitlement or interest in respect of the Trusts or arising pursuant to the Trust Deeds in the manner set out in this deed." 1. Clause 2 (omitting the heading) provided: "2. … (1) The Beneficiary irrevocably and absolutely disclaims all of his rights, entitlements and interests arising whether in equity or in law in respect to the Trusts or arising pursuant to the Trust Deeds including but without limitation: (a) the right to prevent the misappropriation of capital; (b) the right to require the Trustee to exercise bona fide its discretion as to whether and if so to whom income shall be distributed; (c) the right to take and enjoy whatever part of the income the Trustee chooses to give; (d) the right to take and enjoy whatever part of the capital the Trustee chooses to give; (e) any other right, entitlement or interest arising whether in equity or in law as a consequence of the Beneficiary being specified as a General Beneficiary in the Trust Deeds; and (f) any other right, entitlement or interest arising whether in equity or in law as a consequence of the Beneficiary being found to be a beneficiary under the Trust Deeds. (2) This disclaimer takes effect on and from the date of settlement of the Trusts." 1. Again, separate deeds poll were made in respect of the financial years ended 30 June 2004 to 30 June 2014 that were said to be made for an abundance of caution. Again, nothing turns on this. 2. Each of the deeds was said to be executed by the parties (sic) as a deed. Michael Gerace signed the deeds against the statement "signed, sealed and delivered by the said Michael Gerace in the presence of [a named witness]." His signature was witnessed. 3. The Chief Commissioner submitted that a unilateral deed may be altered at any time. He also submitted that as the disclaimer was voluntary and without consideration it would be open to Michael Gerace to retract the disclaimer unless some other person had changed his or her position in reliance on it, citing Re Cranstoun [1949] 1 Ch 523. 4. The only authority cited for the proposition that a unilateral deed may be altered at any time was Banque Nationale de Paris v Falkirk Developments Ltd (1977) 136 CLR 177 at 186. That case is not authority for that proposition. In that case, under a building contract, in lieu of the proprietor's retaining a retention fund, it agreed to accept an unconditional promise by the bank to pay a sum of money. The promise was contained in a deed delivered by the bank. By mistake the proprietor returned the deed to the builder who sent it to the bank stating that it had been returned to it by the proprietor for cancellation. An officer of the bank wrote across the face of the deed in parallel lines the word "cancelled". The bank argued that its liability was brought to an end by that act of cancellation, even though the proprietor's physical release of the deed was inadvertent. The bank's submission was rejected on the ground that the proprietor to whom the bank was obliged by the terms of the deed did not deliver it up for the purposes of its being cancelled. The proprietor was a party to the deed. 5. This case does not lend any support for the proposition that the deeds poll that were signed, sealed and delivered by Michael Gerace could be unilaterally cancelled by him. Although they are not parties to the deed, the persons who benefit from the disclaimers in the deed are the other discretionary objects. 6. The general effect of a deed is described in Halsbury's Laws of Australia (at [140-165]) as follows: "Once a deed has been executed in accordance with all necessary formalities for valid execution and subsequently delivered by the party making the deed, this party becomes conclusively bound by the provisions of the deed and cannot thereafter resile from it or recall it." 1. As the deeds operate for the benefit of the other discretionary objects, it may be that if they are all sui juris, with their unanimous consent the deeds poll could be terminated (Seddon on Deeds (2015, Federation Press) at [7.6]). But as a general rule, a deed poll is irrevocable unless the deed expressly reserves a power of revocation (Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1986) 8 NSWLR 621 at 639-640 per Young J). 2. Burns Philp Hardware Ltd v Howard Chia Pty Ltd concerned a rent review clause of a commercial lease. The lease provided that the premises could not be used otherwise than as a hardware store without the lessor's consent. The lessor executed deeds poll that were sent to the lessee by which it irrevocably consented to any use of the premises which the lessee might request. The lessee denied that the execution of the deeds poll had any effect and effectively disclaimed them by saying "we regard the relationship as unchanged until both parties have agreed upon a change". The lessor's execution of the deeds poll was designed to maximise the rent that a valuer would find was the current market rent for the premises. At first instance, Young J held that the deeds poll were effective and irrevocable saying, with citation of authority, that "as I understand it a deed cannot be delivered on the basis that it can be recalled at will by the obligor." 3. This conclusion was not accepted in the Court of Appeal (Burns Philp Hardware Ltd v Howard Chia Pty Ltd (1987) 8 NSWLR 642), but not for reasons which might indicate that the deeds poll in the present case could be revoked. Mahoney JA held (at 646) that by the deeds poll the lessor sought to confer a right on or to undertake obligations in favour of the lessee and to the extent that the deeds would have that effect, it was open to the lessee to disclaim them, which it did. 4. Priestley JA, with whom Glass JA agreed, held that although the deeds were sent to the lessee they were not "delivered" in the sense required to make them effective and irrevocable. Priestley JA said (at 659-660): "… the lessor says that it has consented in advance to anyrequest the lessee may ever make in regard to use of the premises for anypurpose. It is submitted that the consent is irrevocable because the lessor hassaid so by deed. However an undelivered deed poll is no more in law than asoliloquy under seal. Although the deeds here were sent to the lessee, I thinkthe facts I have earlier narrated show that delivery was not accomplished inthe sense that they were accepted by the lessee as documents either havingany legal effect or upon which the lessee would act. I am not aware of any case in which it has been necessary to consider themeaning of 'delivery' in regard to a deed from precisely this point of view.The fact however that delivery is necessary for the effectiveness of a deedshows that something more is necessary for the effectiveness of a deed pollthan its execution; the present case requires identification of what thatsomething more is when it is not only effectiveness, but irrevocableeffectiveness that is claimed for the deed. I think it must be something morethan mere notification but acceptance or reliance of some kind of or upon itby the person to whom it is delivered. One short reason for this conclusion isthat before acceptance or reliance of or upon the deed by some person, thereseems to me no way in which the maker of the deed could be prevented fromrevoking it, notwithstanding its terms. This reason for my conclusionhowever may be no more than a restatement, at an earlier stage in thereasoning, of the conclusion I have already formed regarding what ought tobe regarded as 'delivery' in such circumstances as the present. If the foregoing does involve circularity, a further, independent reason fortaking the view that I do is that if the respondent's contention is correct, thenthe lessor succeeded by its unilateral decision in consenting in advance tosomething which the lessee did not intend to ask for; if this could be done,then equally the lessee could by the same form of 'delivery' hand to the lessor a counter-deed by which it irrevocably bound itself never to ask forconsent to use the premises for any purpose other than that of a hardwarestore. Another version of this idea was suggested in argument, basedessentially on the proposition that if A can give X to B against B's will, thenequally B can give X back again to A, leaving the parties in the position inwhich they started. The current law of contract and estoppel seems to me tomake it much more appropriate to adopt the view of 'delivery' I havesuggested. To adopt the respondent's view would be to depart from thosecurrent ideas not only for no particular purpose but would also lead to therather futile situations I have above described. The result is that to my mind the sending of the deeds to the lessee was nomore than an offer of consent to the lessee, which the lessor was and is in aposition to withdraw at any time before either its acceptance or being actedon by the lessee in a way which would estop the lessor from denying its beingstill on foot. …" 1. The second reason suggested by Priestley JA, as I understand it, is that the lessee was entitled to disclaim the benefits purportedly conferred by the deeds poll, as Mahoney JA held. The former reason was that in the circumstances of that case there was no effective delivery and that effective delivery would require acceptance of the deed or reliance of some kind upon it by the lessee to whom it was delivered. 2. In the present case the deeds poll have been accepted by the trustees of the Smeaton Trust and the Gerace Family Trust. The Chief Commissioner did not argue that there had not been effective delivery of the deeds. In my view, although the Court of Appeal took a different view from the primary judge as to the effectiveness of the deeds poll, the Court of Appeal did not contradict Young J's conclusion that if a deed poll has been delivered (and the benefit of it not disclaimed) then it is irrevocable unless the power of revocation has been expressly reserved. 3. In Seddon on Deeds the learned author noted (at [7.6]) that Mirzikinian v Tom & Bill Waterhouse Pty Ltd [2009] NSWCA 296 is an illustration of the point that a deed once delivered is irrevocable. 4. Because the disclaimer was by deed, no separate consideration was required for its enforceability (Howard F Hudson Pty Ltd v Ronayne (1972) 126 CLR 449 at 463; Rann v Hughes (1778) 7 Term Rep 350n; 101 ER 1014n). 5. Re Cranstoun is not on point. No question there arose as to the finality of a disclaimer effected by a deed. The proposition in Re Cranstoun that a disclaimer of a testamentary gift may be retracted if the retraction would not cause prejudice to third parties has been criticised (Crago, "Principles of Disclaimer of Gifts" (1999) 28 Western Australian Law Review 65 at 78-79). The authorities were considered by Ward J in Tantau v MacFarlane [2010] NSWSC 224 at [83]-[107]. Her Honour accepted the force of Associate Professor Crago's criticism of Re Cranstoun and similar cases (including Lewis v Lohse [2003] QCA 199 at [99]) insofar as they suggested that a disclaimer could be retracted simply by reason that no third party's interests were prejudiced by the retraction. It is unnecessary for me to consider the force of that criticism. 6. In the present case I consider the disclaimers by deed to be effective and irrevocable. The trustees would be in breach of their duty to the remaining discretionary objects if they appointed income or capital to Michael Gerace notwithstanding his disclaimers. 7. But even if that conclusion is wrong and the disclaimers could be revoked, it does not follow that prior to revocation the disclaimers are ineffective merely because revocation in the future could be possible. 8. For these reasons I do not accept the Chief Commissioner's submission that the disclaimers are ineffective because they were given without consideration, or that they could be ignored. Was it too late to disclaim? 1. Once a person has accepted a gift of property with full knowledge and intention of the nature and any conditions attached to the gift, it is too late for the person to disclaim. This is subject to a possible qualification alluded to at para [59] above, that a person may be able to disclaim a gift notwithstanding prior acceptance of it if to do so would not cause prejudice to a third party. Subject to that possible qualification, the principle that once a gift has been accepted, it cannot be disclaimed is well established (Hardoon v Belilios [1901] AC 118 at 123; JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd [1985] VR 891 at 930-931; Federal Commissioner of Taxation v Ramsden at [52]; Lady Naas v Westminster Bank Limited [1940] AC 366 at 401). In Ramsden the Full Court said (at [52]) that whether or not it is the law that a bequest may be disclaimed after initial acceptance if no prejudice would be occasioned to another, that is not so with respect to an inter vivos gift. 2. In JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd McGarvie J said (at 930-931): "Positive acceptance by the words or conduct of a donee is not necessary to complete a gift. Acceptance may be presumed unless the donee disclaims the gift. The strength of the presumption is illustrated by Demar v Demar (1975) 1 WLR 1532 and Federal Commission of Taxation v Clendon Investments Pty. Ltd. (1977) 7 ATR 493, at pp. 500-1. Knowing of the gift, the donee, unless he disclaims it, is ordinarily treated as tacitly accepting it: Standing v Bowring (1885) 31 Ch D 282. During the period that the donee remains entitled to disclaim, the gift is treated as vested in the donee subject to repudiation: Standing v Bowring. See generally Halsbury's Laws of England, 4th ed., vol. 20, pp. 28-9, paras 47-8 and the note by MC Cullity in (1978) 56 Canadian Bar Review 317. … Inactivity over time operates in a similar evidentiary way to establish acceptance by a beneficiary. It is not simply whether a reasonable time has elapsed. This distinction was recognized in Morrison v Universal Marine Insurance Co. (1873) LR 8 Ex 197, at pp. 202-5. The test for whether a beneficiary is entitled to disclaim is whether in the circumstances he has accepted by words or other conduct or has remained silent for so long that the proper inference is that he has determined to accept the interest." 1. In Ramsden the Full Court of the Federal Court cited this passage with approval. The Full Court held that in that case the relevant gift was not the gift of net income in each accounting period, but the appointment of the taxpayers as takers in default of appointment of income that was conferred by the trust deed. The Full Court held that on the balance of probabilities the taxpayers, if only by their advisers, became aware of that gift from sometime between September 2000 and April 2001 and had to determine within a reasonable time thereafter whether they would renounce the vested interest as takers of income in default of appointment for the duration of the trust. They had a reasonable time within which to renounce that gift but did not do so until the day before the trial. The limited disclaimers that they made in 2002 of an entitlement to income in the year ended 30 June 1996 were consistent with an intention not to disclaim their entire interests in the trust income and were consistent with a tacit acceptance of those interests (at [62]). 2. A disclaimer is only effective if made with full knowledge and full intention (Lady Naas v Westminster Bank Limited at 400). In the same way, before a person is precluded from disclaiming a gift on the ground that he or she has already accepted it, the acceptance must be with full knowledge and full intention of accepting the gift (Tantau v MacFarlane at [108]-[109], [116]-[117]). Both a disclaimer and an acceptance must be unequivocal (In re Stratton's Disclaimer [1958] Ch 42 at 54). 3. On 10 June 2014 the Office of State Revenue wrote to Tri-City Trucks and other related entities care of GDC Chartered Accountants advising that the Office of State Revenue had identified various entities as constituting different groups for the purposes of payroll tax, including the groupings in question. Michael Gerace deposed that he was aware of the existence of Smeaton Grange Holdings, although he was not a director or shareholder of it. He always regarded it as his brother's company. He deposed that after receiving correspondence from the Office of State Revenue dated 10 June 2014, he received legal advice and it was explained to him that the Office of State Revenue had grouped Tri-City Trucks with Ifould Pty Ltd as trustee of the Gerace Family Trust and with Smeaton Grange Holdings as trustee of the Smeaton Trust on the ground that he was considered to be a discretionary beneficiary of both trusts. He deposed that as at 15 June 2014 he was aware of the existence of Smeaton Grange Holdings but did not recall having any actual knowledge of the existence of the Smeaton Trust. His brother Ralph Gerace did not tell him of the existence of the trust. He deposed that he had no knowledge that he was a potential beneficiary of the Smeaton Trust. 4. I accept that evidence. 5. Ralph Gerace, in cross-examination, gave the following evidence: "Q. You knew from the time the Smeaton Family Trust was established that it was a family trust, is that right? A. Yeah, but it's - that's my family trust. Q. Yes, and it has a range of beneficiaries? A. Only my children. Q. I've taken you to that, Mr Gerace, at page 28 of your affidavit, it includes your brother? 28, item 2A(iv) includes your brother? A. I believe he disclaimed from that. Q. We're not talking about what happened recently, we're talking about-- A. At the time, yes. Q. Yes, at the time. You had discussions with your brother about his role as a beneficiary in that trust at some point, did you? A. Yeah, must've, yeah. HIS HONOUR Q. Why do you say that? A. Sorry? Q. Why do you say you must have had a discussion with your brother in relation to …? A. I, I really can't - your Honour, I can't remember really, I mean, my - unlike my brother I actually work for a living and, and do a lot of labour, I haven't - I really haven't got the, the, the memory that I should have concerning this. NEEDHAM Q. But it's logical to think, is it not, that if you and your brother were involved in determining where distributions from Ifould and the Gerace Family Trust would go, you may also discuss with your brother where distributions from Smeaton would've gone? A. Possibly, yes. Q. It's logical to think, is it not, that if you had a reasonable familiarity with discretionary trusts that you might've discussed that with your brother? A. Possibly, yes." 1. Ralph Gerace did not give any evidence as to what discussions he might have had with Michael Gerace about Michael Gerace's role as a discretionary object of the Smeaton Trust. He was not asked about the content of the discussions that he said must have occurred. There is no obvious reason why he must have had discussions with his brother about his brother's role as a beneficiary in the Smeaton Family Trust, given that he understood that that was a trust established for his own family. Contrary to his acceptance of what was put to him in cross-examination, it was not logical that Ralph Gerace would have discussed with Michael Gerace where distributions from the Smeaton Trust would have gone. Although Michael Gerace was included within the class of discretionary objects, the Smeaton Trust was established for the purposes of Ralph Gerace's own family, not for Michael Gerace or his family. 2. Moreover, according to its tax returns, the business of Smeaton Grange Holdings as trustee of the Smeaton Trust was the renting or leasing of non-residential buildings and in each year up to the year ended 30 June 2013 the business of the trust was conducted at a loss after taking into account expenses that included interest and depreciation. The only year in which, according to its tax returns, there was net income from the operations of the trust was in the year ended 30 June 2014 that was after the making of the disclaimer. This is a further reason why it was not logical to think that Ralph Gerace would have discussed with Michael Gerace where distributions from the Smeaton Trust would have gone. I do not accept the concessions made by Ralph Gerace in cross-examination accurately reflect the position. It was not suggested to Michael Gerace that Ralph Gerace discussed with him that he was a beneficiary of the Smeaton Trust or that Ralph Gerace discussed with him where distributions from the Smeaton Trust would go. 3. Michael Gerace did not accept that he should have the right to be considered as a discretionary object of the Smeaton Trust. There was nothing to preclude his disclaiming such a right. 4. The position with the Gerace Family Trust is less clear. This trust was established by the parents of Michael and Ralph Gerace. It is not disputed that the trust was established for the benefit of the Gerace family, including Michael and Ralph Gerace. The trust deed for the Gerace Family Trust could not be located, but the plaintiffs did not dispute that it is probable that the trust was a discretionary trust under which the trustee had a discretion to appoint income or capital to discretionary objects that would have included Michael and Ralph Gerace as the children of Mr and Mrs Gerace senior. Michael Gerace deposed that it was his understanding that Ifould Holdings and the Gerace Family Trust belonged to his parents. He meant that he considered it was their property to do with as they wished. He and Ralph Gerace were appointed as directors of Ifould Holdings on 1 July 1997. Their father, Francesco Gerace, ceased to be a director on 7 November 2002 and their mother, Maria Gerace, ceased to be a director on 2 March 2001. It was Michael Gerace's understanding that the trust may have been established as long as 30 years ago. It appears that Ifould Holdings was incorporated on 26 June 1981. Francesco Gerace, the father of Michael and Ralph, died on 28 June 2009. Michael Gerace understood that he and Ralph became directors to assist their parents with reading and writing difficulties, particularly in the latter years when their health declined. That was particularly so in the case of Francesco. 5. There was another trust established called the Gerace Investment Trust that Michael Gerace understood belonged to his parents. Michael Gerace deposed that prior to 15 June 2014 he had no understanding of the concept of being a mere potential beneficiary under a standard form discretionary trust. He was not cross-examined on that evidence and I accept it. He understood that the Gerace Family Trust and the Gerace Investment Trusts were things that his parents could control and do with them what they wanted, including giving the income and property of the trusts away. It was Michael Gerace's understanding, confirmed by his accountant, that he had not ever received or become entitled to receive any distribution of income or capital from any of the Smeaton trusts, the Gerace Family Trust or the Gerace Investment Trust. 6. Michael Gerace said in cross-examination that when he and Ralph Gerace were appointed directors of Ifould Holdings in 1997 his father's health was declining. His mother did not play a role in the company. Their father ceased to be a director in 2001 and Michael and Ralph Gerace thereafter were the sole directors of Ifould Holdings and had the running of it. 7. As directors of Ifould Holdings Michael and Ralph Gerace resolved each year for at least the financial years ended 30 June 2006, and I infer also for the previous financial years, to adopt financial statements prepared by the companies' accountants. Michael Gerace deposed that in relation to the Gerace Family Trust he and his brother did as their parents directed. He agreed that he understood that his parents could distribute property of the Gerace Family Trust to him if they so wished. 8. The tax returns for the Gerace Family Trust disclosed that in the financial year ended 30 June 2009 the trust had a total net taxable income of $371,540 after realising a profit on sale of a capital asset. The tax return produced by Ralph Gerace disclosed that that income was distributed to Rosemeadow Investments Pty Ltd. This was a company of which Michael Gerace was the sole beneficial shareholder. In the following year ended 30 June 2010 income of $32,510 was distributed to Rosemeadow Investments Pty Ltd (according to the tax return that Ralph Gerace deposed was lodged with the Australian Taxation Office). 9. There is no evidence, and the Chief Commissioner does not contend, that there has been any distribution of income or capital of the Gerace Family Trust to Michael Gerace himself, as distinct from Rosemeadow Investments Pty Ltd. 10. Although Michael Gerace deposed that as at 15 June 2014 he had no knowledge that he was a potential beneficiary of the trusts, including the Gerace Family Trust, he accepted in cross-examination that he understood that property of that trust could be distributed to him as a member of the Gerace family if that was what his parents wanted. He was a director of Ifould Holdings. He and Ralph Gerace were both directors of Rosemeadow Investments Pty Ltd, although Michael Gerace was the shareholder of that company. Michael Gerace gave evidence that he and his brother did not discuss any prospective distribution to Rosemeadow Investments from the Gerace Family Trust and that Rosemeadow Investments appeared on the distribution statement recorded in the tax returns without any consultation from him. He gave the following evidence in cross-examination: "Q. I put it to you that you knew that Rosemeadow was a potential object of the Gerace Family Trust. A. I'm not sure. Q. You also understood that you, as a member of the Gerace Family, were a potential object of the Gerace Family Trust? A. I'm not sure. Q. You knew that from at least 2007 when the Gerace Family Trust appeared on the minutes of the meetings of Ifould Pty Ltd? A. Yes. Q. So you did know that you were a beneficiary of the trust from that point? A. Well, the ‑ I believe so." 1. Notwithstanding Michael Gerace's concession, there is in fact nothing in the minutes of the meeting of Ifould Holdings held on 14 June 2007 (nor subsequent minutes) that indicates who were the discretionary objects of the Gerace Family Trust. When it was put to Michael Gerace again that he had known since at least 2007 that he was a beneficiary of the Gerace Family Trust, he again said that he was not sure, but he agreed that his parents could deal with their property held by Ifould Holdings as they wished, including by appointing property or income to him. 2. Ralph Gerace knew that he and his brother were potential beneficial objects of the Gerace Family Trust. Ralph Gerace said that he had never seen a copy of the trust deed for the Gerace Family Trust, but because of his familiarity with the operation of family discretionary trusts he assumed that the Gerace Family Trust was discretionary in nature. He said that because of his familiarity with discretionary trusts he was more involved than Michael Gerace with the operation of the Gerace Family Trust. Ralph Gerace was responsible for the preparation of financial statements, tax returns and the trust books and accounts, but he explained that that meant that he made sure that his parents' instructions were given to the accountants. His parents only used Italian-speaking accountants. 3. So far as Michael Gerace's understanding is concerned, he understood for years that he, or a company of which he was the shareholder, could benefit from that trust. He did not personally receive any benefit as a discretionary object, although Rosemeadow Investments did. 4. The Chief Commissioner grouped the businesses of the Smeaton Trust and the Gerace Family Trust with the other entities controlled by Michael Gerace on the basis that the trusts were discretionary trusts and Michael Gerace was one of the discretionary beneficiaries of the trusts and was deemed to be a beneficiary in respect of more than 50 per cent of the value of the interests in the trusts and therefore was deemed to have a controlling interest in the businesses of the trusts. The position of Rosemeadow Investments is not directly relevant to the position of Michael Gerace. That is to say, the present question is the effect of Michael Gerace's disclaimer of his rights as a discretionary object. The position of Rosemeadow Investments is not directly relevant to that question. It may well be that Rosemeadow Investments could not disclaim its position as a discretionary object because income has been distributed to it. That does not of itself preclude Michael Gerace from disclaiming his rights as a discretionary object. 5. The question rather is whether the delay by Michael Gerace in disclaiming his rights as a discretionary object over many years when he knew that he was a potential object of the trust in that he understood that his parents could distribute income or capital to him and that Ifould as trustee of the trust could do so, precludes his disclaiming his rights as a discretionary object of the Gerace Family Trust. 6. To put it another way, the question is whether Michael Gerace had tacitly accepted the presumed conferral on him of the rights of a discretionary object of the Gerace Family Trust so that it was too late for him to disclaim. In Lady Naas v Westminster Bank Limited Lord Wright described a disclaimer of a deed as being a solemn irrevocable act to be fully proved by the party alleging it who must establish that the disclaimer was made with full knowledge and with full intention (at 400). In Tantau v MacFarlane Ward J said that the same principle applied in deciding whether a gift had been accepted so as to preclude a subsequent disclaimer. Her Honour said (at [108] and [109]): "[108] Nevertheless, there are circumstances where it seems clear that a disclaimer (and, hence by analogy an acceptance) may be retracted, those being where the disclaimer was made without full knowledge and full intention, as appears from the decisions in Lady Naas v Westminster Bank Ltd [1940] AC 366 and Re Paradise Motor Co. It would seem that this is because in such a case (ie where there is insufficient knowledge or appreciation of the terms of the gift) there was no effective disclaimer in the first place. It is thus not inconsistent with the fundamental principle outlined above (that a disclaimer once made cannot be retracted) to find that a donee is not bound by a disclaimer if it is shown that the disclaimer was made without full knowledge and thus was ineffective, there having been no effective disclaimer to retract. Associate Professor Crago appears to support the reasoning in Lady Naas and Re Paradise Motor Co on that basis and goes on to accept that such reasoning, by analogy, should apply to allow retraction of ineffective acceptances, ie acceptances made without full knowledge and intention (at p 82). It seems to me that this is correct. [109] If what is required for an effective disclaimer or acceptance, amongst other things, is that such disclaimer or acceptance is made with full knowledge of (and, in the case of acceptance, intention to accept) the terms of the gift (relying on Lady Naas and Re Paradise Motor Co), then logically (at least in the absence of third party rights being affected) there would seem to be no reason in principle not to permit the retraction of a disclaimer or acceptance made without full knowledge of (and, in the case of acceptance, an intention to accept) all the circumstances, terms and conditions of the gift." 1. I agree with this reasoning. In this case, as distinct from Tantau v MacFarlane, the donee had full knowledge of the relevant circumstances of the gift. But I cannot infer from Michael Gerace's failure to disclaim his position as a discretionary object that he thereby intended to accept his rights as a discretionary object. I do not think he turned his mind to that question. There is no evidence that Ifould Holdings ever made a decision to distribute income or capital of the Gerace Family Trust to Michael Gerace. He did not have to turn his mind as to whether or not he would accept or reject a gift of income or capital. Even more so, there was no occasion for him to consider whether he should or should not agree to being a discretionary object of the Gerace Family Trust. 2. In Hardoon v Belilios partly paid shares were held by the plaintiff as trustee and the defendant acquired beneficial ownership of the shares from the previous beneficial owner by taking that beneficial owner's interest as security and thereafter acquiring absolute beneficial ownership. There was a clear intention to accept the ownership of the shares. 3. Likewise, in JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd the defendants who were found liable to indemnify the trustee had procured the creation of the trust and had requested the trustee to declare beneficial interests in their favour (at 923). In Federal Commissioner of Taxation v Ramsden the Full Court held that the respondents became aware by July or September 2000 that by the trust deed they were given the net income for each accounting period which was not the subject of an effective appointment, that is, by July or September 2000 the respondents were aware that they had been appointed as takers in default of appointment. The Full Court said (at [60]) that from that point the respondents had to determine within a reasonable time whether they would renounce the vested interests they had in the annual income of the trust for the duration of the trust, they could not stand by for a period of about three years before purporting to disclaim those interests (at [60] and [61]). The Full Court also held (at [62]): "[62] The period between September 2000, or April 2001 and 8 October 2003 was well in excess of a reasonable period. The failure of the respondents to disclaim their entitlements under cl 3(e) until the day before the trial justifies an inference that they were reluctant to disclaim those entitlements. The limited and ineffectual disclaimers which the respondents assert that they made in April 2002, and again on 2 October 2003 (with the possible exception of Philip Hart) are consistent with an intention not to disclaim their entire interests in the Trust income and, therefore, are also consistent with tacit acceptance of those interests." 1. Thus in Federal Commissioner of Taxation v Ramsden there was not only delay in disclaiming the interests of which the respondents had knowledge, but also evidence of their intention to accept the gift. 2. The significance of delay depends on the circumstances of the case. In JW Broomhead (Vic) Pty Ltd (in liq) v JW Broomhead Pty Ltd McGarvie J said (at 931) that it is not simply a question of whether a reasonable time to reject a gift has elapsed, but whether inactivity over time furnishes evidence that the donee has determined to accept the gift. McGarvie J said (at 931): "The test for whether a beneficiary is entitled to disclaim is whether in the circumstances he has accepted by words or other conduct or has remained silent for so long that the proper inference is that he has determined to accept the interest." 1. Although Michael Gerace was a director of Ifould Holdings, it does not appear that he paid any active role in that capacity. He did not obtain a copy of the trust deed. He regarded the assets of the Gerace Family Trust as his parents' property, and assumed that they could dispose of it to whomever they wished, including himself, but that does not mean that he expressly turned his mind to his rights as a discretionary object of the trust. I do not draw the inference from the long delay that Michael Gerace had determined to accept the position of discretionary object of the Gerace Family Trust. 2. For these reasons I reject the grounds upon which the Chief Commissioner contended that the disclaimers were not effective. Retrospective Operation of the Disclaimers 1. In his article "Principles of Disclaimer of Gifts" (1999) 20 Western Australian Law Review 65 Associate Professor Crago said that in the civil law a donee's assent, either expressly or by implication, is generally a necessary pre-condition of a gift and that ownership of the subject matter of the gift does not pass unless the donee has assented (at 67). 2. In English and Australian law assent by the donee is not necessary for ownership of the subject matter of the gift to pass to the donee. But the donee can avoid the gift by disclaiming it. By a valid disclaimer the gift is avoided rather than the property being retransferred. 3. In Townson v Tickell (1819) 3 B & Ald 31; 106 ER 575 Holroyd J said (at 38, 577): "I think that an estate cannot be forced on a man. A devise, however, being prima facie for the devisee's benefit, he is supposed to assent to it, until he does some act to shew his dissent. The law presumes that he will assent until the contrary be proved; when the contrary, however, is proved, it shews that he never did assent to the devise, and consequently, that the estate never was in him." 1. The other judges were of the same opinion. Abbott CJ said that the effect of the renunciation was to make the devise to the devisee null and void (at 37, 577). Bailey J said that the effect of the renunciation was "that the estate never was in him at all" (at 38, 577). Best J agreed. 2. In Mallott v Wilson [1903] 2 Ch 494 a settlor executed a settlement by which he purported to convey certain lands unto trustees on certain trusts without power of revocation. The trustee disclaimed the conveyance, but that disclaimer did not affect the rights of the beneficiary and it was held that following the disclaimer, the legal estate was held by the settlor on trust for the beneficiary. After referring to texts that stated the effect of a disclaimer is to avoid the gift ab initio, Byrne J said (at 501): "I felt somewhat embarrassed by the use of the expression 'void ab initio'; but I am satisfied now that the true meaning is that, not in regard to all persons and for all purposes is the case to be treated as though the legal estate had never passed, but that as regards the trustee and the person to whom the grant was made, he is, in respect of his liabilities, his burdens, and his rights, in exactly the same position as though no conveyance had ever been made to him." 1. In In re Stratton's Disclaimer estate duty was payable on certain dispositions of a deceased. Section 45(2) of the Finance Act 1940 (UK) provided that: "The extinguishment at the expense of the deceased of a debt or other right shall be deemed for the purposes of the said enactments to have been a disposition made by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the expression 'property' in the said enactments shall include the benefit conferred by the extinguishment of the debt or right." 1. A man left freehold property and policies of insurance to his wife. She executed a deed of disclaimer with the result that the property passed under her late husband's will to their son. She died two years later. The question was whether estate duty on her estate included the property the subject of the disclaimer. It was unsuccessfully argued that the effect of the disclaimer meant that the presumption of assent was negatived ab initio and not from the date of disclaimer. 2. Jenkins LJ held that the effect of the disclaimer "… plainly was to bring about a total failure ab initio of the gifts to her of these assets contained in the will, with the result that they fell into residue for the benefit of the three sons as residuary legatees and devisees" (at 49), but that did not mean that the disclaiming party was retrospectively placed in the same position for all purposes throughout the period from the date of gift to the date of disclaimer as if the gift had never been made so that the disclaiming party was to be looked upon as having never had any right in respect of the gift disclaimed (at 52). His Lordship said (at 54): "I think it is clear from that case that a disclaiming legatee or devisee has between the testator's death and the moment of disclaimer a right in respect of the legacy or devise, in that he is, during that period, entitled to call upon the executors to pay or transfer to him the subject matter of the bequest or devise in due course of administration. It is none the less a right because it is defeasible by the beneficiary's own act of disclaimer. That merely means that he is free to choose whether to avail himself of it or not until such time as he has either unequivocally disclaimed or unequivocally accepted the gift. If he disclaims, then he avoids the gift, and with it the concomitant right, but that does not alter the fact that down to the moment of disclaimer he did have the right and would still have had it if he had not disclaimed." 1. Hence, it was held that the disclaimer operated as an extinguishment of the widow's right to receive the insurance policies and the freehold property left to her under her husband's will within the meaning of s 45(2) of the Finance Act. This does not affect the proposition, however, that once the disclaimer is made it has effect at general law from the time the gift was made. That is, it operates retrospectively. 2. The question then is how this principle applies in the application of the statute which imposed a liability on Tri-City Trucks each month to pay payroll tax and imposed a like liability on each group member if Tri-City Trucks defaulted. The Chief Commissioner submitted that the Payroll Tax Act 2007 required that the inquiry directed by s 72(6) of the Payroll Tax Act 2007 (or s 106I(6) of the Taxation Administration Act as it applied before 1 July 2007) be as to the facts as they existed at each particular time, citing Federal Commissioner of Taxation v Word Investments Ltd (2008) 236 CLR 204; [2008] HCA 55 at [34]; Cronulla Sutherland Leagues Club Ltd v Federal Commissioner of Taxation (1990) 23 FCR 82 at 89. 3. The general principle is not in doubt. But the general principle does not address the question of how the relevant statutory provisions apply where under the general law a transaction operates retrospectively, not merely because parties may have agreed to their arrangements having a retrospective effect, but because the general law so provides. As a matter of general principle, revenue statutes are to be construed having regard to the principles of general law. 4. In Federal Commissioner of Taxation v Cornell (1946) 73 CLR 394 the question was whether the taxpayer was liable to pay income tax in the years ended 30 June 1941 and 30 June 1942 on dividends that the taxpayer claimed were held on trust for his former wife. Following a divorce in 1936 the taxpayer was required to pay an annuity to the wife. The taxpayer sought to establish a trust over certain shares so that the dividends on the shares could be applied to meet his obligation to pay the annuity and be relieved of liability to income tax on the dividends. The trust was never fully established, but in any event on 27 November 1941 the former wife objected. Latham CJ held that even if the trust had been created, the solicitor's letter of November 1941 was a clear disclaimer, such that the income for both financial years would have been derived by the taxpayer. 5. In Federal Commissioner of Taxation v Ramsden the Full Court of the Federal Court said (at [30]): "Until disclaimer, a beneficiary's entitlement to income under a trust is operative for the purposes of s 97 of the ITAA 1936 from the moment it arises notwithstanding that the beneficiary has no knowledge of it: Federal Commissioner of Taxation v Vegners (1989) 89 ATC 5274; 91 ATC 4213 at 4215. A beneficiary may disclaim an entitlement on its coming to his or her knowledge. At law an effective disclaimer operates retrospectively, and not merely from the time of disclaimer." 1. Had the disclaimer in Ramsden's case been effective, it seems clear, as the primary judge held, that the respondents would not have been liable to pay income tax on the income they were entitled to as takers in default of appointment where the trustee had no power to appoint the income as it did, notwithstanding that if the question had been considered at the end of that financial year, that is, before the disclaimer was made but when the liability for income tax arose, they would have been so liable. 2. For present purposes it can be assumed that if the disclaimers were not effective, group members would have incurred a liability for the payroll tax for which Tri-City Trucks was liable on Tri-City Trucks' failing to meet that liability as it arose. The Chief Commissioner contends that the liability of Smeaton Grange and Tri-City Smash Repairs then arose only because Michael Gerace was, at those times, a person who could benefit from the trusts as a result of the trustees' exercising a power or discretion, and hence, he was taken to be a beneficiary in respect of more than 50 per cent of the value of the interests in the trust. As a matter of general law, it was open to Michael Gerace to disclaim the right whereby he could so benefit from the discretionary trusts and such a disclaimer would operate retrospectively. I see no reason that the general law principle as to the retrospective effect of a disclaimer cannot apply. That would be consistent with authority. 3. Moreover, persons may be discretionary objects of discretionary trusts without their knowledge. There may be many discretionary trust deeds under which the whole world other than specifically excluded individuals are potential discretionary objects (see for example Re Manisty's Settlement [1974] Ch 17; Re Hayes Settlement Trusts [1982] 1 WLR 202; and Marshin Holdings Pty Ltd v Attorney-General of New South Wales [2013] NSWSC 326). The grouping provisions could operate oppressively if the general law principles in relation to disclaimer did not have their full operation. 4. For these reasons I answer the separate question as follows: Q. Did the disclaimer signed by Michael Gerace dated 27 June 2015 in respect of the Smeaton Trust and the Gerace Family Trust mean that subs 106I(6) of the Taxation Administration Act 1996 and s 72(6)of the Payroll Tax Act 2007 have no application for the tax years in question? A. Yes. 1. It follows that the notices of assessment addressed to the first and second plaintiffs should be revoked. I will stand the matter down to a convenient time. I direct that counsel for the plaintiff bring in short minutes of order in accordance with these reasons. Prima facie the defendant should pay the plaintiffs' costs. If there is any argument on the question of costs I will hear the parties on the adjourned date. ********** Amendments 16 November 2016 - His Honour, Justice White, made the following order on 16 November 2016: Order pursuant to rule 36.17 of the Uniform Civil Procedure Rules that order 1 made on 5 August 2015 be corrected by substituting the date 27 June 2014 for the date 27 June 2015. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 November 2016