Peter Sleiman Investments Pty Ltd as trustee for the Sleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81
The case represents a willingness of judges (at least in the Supreme Court of New South Wales) to allow taxpayers the necessary time to pursue their rights under Part IVC of the Taxation Administration Act 1953 even in situation where the winding up of a taxpayer is justified.
It should be noted that a limited stay of the winding up order was granted on the condition that outstanding Goods and Services Tax be paid.
Facts
The Taxpayer was the trustee of a family trust. The trust assets consisted of nine real properties.
The Taxpayer was issued with assessments for income tax liabilities by the Commissioner of Taxation. The assessments eventually supported a judgment made against the Taxpayer. If the assessments were to stand the Taxpayer was plainly insolvent.
Shortly after receiving the assessments the Taxpayer restructured its affairs as follows:
- the Taxpayer established a separate unit trust for each of the properties it held;
- the Taxpayer then declared that it held each of the properties for each of the respective unit trusts (subject to a mortgage in favour of the NAB);
- the Taxpayer then applied for units in each of the respective unit trusts equal to the value of each of the properties;
- the Taxpayer (in its capacity of trustee of the newly created unit trusts) resolved to issue itself with the units that it had applied for;
- the Taxpayer then applied to redeem all of the units it held in each of the newly created units trusts for an amount equal to their value; and
- the Taxpayer (in its capacity of trustee of the newly created unit trusts) resolved to redeem all of the units held by the Applicant for the amount equal to the estimated value of the properties.
The assessments which supported the judgment debt were being contested before the Administrative Appeals Tribunal (“AAT”).
The issue in the proceedings before the AAT were whether large payments received by the Taxpayer were property characterised as rent (income) or as repayments of loans (not income).
The proceedings before the AAT were to be heard imminently, being some three months after the hearing of the appeal.
The Proceeding Below
The Deputy Commissioner applied for orders setting aside the above transactions on the basis that they were an alienation of property made with an intention to defraud creditors and for orders winding up the Taxpayer.
The Primary Judge made an order winding up the Taxpayer but did not make an order setting aside the transactions detailed above on the basis that there was no intention to defraud the creditors of the Taxpayer.
Both parties appealed elements of the decision at first instance.
The Court’s decision on Appeal
The Court held that the transactions detailed above were not embarked upon with an intention to defraud creditors as there was no diminishment in the trust estate. It was found to be immaterial that the assets that the trustee was entitled to be indemnified from were in essence transformed from real property assets to amounts that it was able to call upon in respect of the units it held in other trusts. The Taxpayer was able to call upon the units to satisfy any claims made against it. There was no alienation of the Taxpayer’s right of indemnity against the trust assets. Leeming JA found the following:
There was no alienation because the effect of the restructure on 25 November 2013 was only that the property to which the trustee might have recourse in support of its right of indemnity altered so that it became first an equitable interest (the units) in property held on a separate unit trust, and then a debt (reflecting the value of the units once a redemption notice was issued), in each case, without diminution in value. It is not necessary to address the position which would obtain had the properties been transferred for an undervalue or in breach of trust.
The Court confirmed the winding up order made by the primary judge but stayed the execution of the winding up order pending the hearing of the proceedings before the AAT (with liberty for the Taxpayer to apply for an extension).
Author
Matthew Sunits