On 19 March 2014, the ATO issued its decision impact statement (DIS) on the AAT decision in Gutteridge & Anor v FC of T 2013 ATC.
In that case, a trust made capital gains from the sale of business assets and the taxpayers, Mr and Mrs Gutteridge, sought to apply the small business capital gains tax concessions when taxed on the capital gain. The Commissioner, in applying the $6 million maximum net asset value ("MNAV") test held that the trust was controlled by the taxpayers’ daughter who was the sole director and shareholder of the corporate trustee, and included the values of the assets held by a company also controlled by her on the basis that it was “connected with” the trust. As a consequence, the trust failed to satisfy the MNAV. The AAT, in considering the control test in subsection 328-125(3) of the ITAA 1997, upheld the taxpayers’ argument that it was Mr Gutteridge, rather than his daughter who controlled the trust, and excluded the assets of the company from the MNAV test, stating that “.. a reasonable expectation to act in the prescribed way can be formed if a person is accustomed to act in that way… it is necessary to undertake a critical assessment of the way in which the Trust is managed. This is an enquiry into activities and decision making, and the circumstances in which they occur, not an enquiry into occupation of offices or terms of instruments per se...”
In the DIS, the ATO states that the Commissioner accepts that the decision was open to the AAT in view of the findings of fact made by the Tribunal, but notes: “.. the Commissioner does not accept that the 'reasonable expectation' test in subsection 328-125(3) of the ITAA 1997 can be substituted with an 'accustomed to act' test in all cases. It depends … on an examination of all the circumstances of a case..”
The DIS illustrates that the concept of control over a trust is complex and requires a careful examination of the facts and a substance over form approach in order to determine who really is in control - the outcome can have a profound impact on the consequent tax liability.
The DIS Can be accessed at: Decision Impact Statement - Gutteridge v. Commissioner of Taxation
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