The Artful Aussie Tax Dodger - Lex Fullarton - ebook

The Artful Aussie Tax Dodger ebook

Lex Fullarton

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In The Artful Aussie Tax Dodger Lex Fullarton studies the impact of 100 years of taxation legislation in Australia 1915–2016. He finds that despite the lessons of a century of actions and reactions of taxpayers and administrators little changes—despite entering a new century old habits are hard to break. At Federation on January 1, 1901, the Commonwealth of Australia was empowered to impose income tax on its citizens. However, it was not until September 3, 1915 that it began a century of ‘tax reform’ when its first Income Tax Assessment Act was introduced. For 100 years, driven by the winds of various political and social interests, Australia ‘reviewed and reformed’ its tax legislation. Fullarton studies that transformation. Fullarton’s examination considers the oldest of tax planning entities—the British Trust (‘received‘ in Australia at colonisation)—, the introduction of Australia’s ‘reformed‘ consumption tax—its VAT, referred to as Goods and Services Tax (GST) in Australia—, an analysis of tax avoidance schemes, and finally government taxation reform activities over the century. Fullarton notes that, just one year into a new century of taxation, the Australian Federal Government put forward a proposal to go forward to the past by repealing certain sections of the Income Tax Assessment Act and transferring Income Taxing powers back to the Australian States, a position which existed prior to 1936. This book looks at how Australia’s tax legislation was grounded, added to, avoided, and evolved, until it went ‘Back to the Future’. It is a collection of studies compiled from a rich mosaic of experience and research conducted over 20 years of involvement in taxation law in rural and remote Australia.

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Table of Contents

The Cover Cartoon
Chapter One—Overview
1.1 Overview
1.2 Structure
1.3 Section Outlines
Chapter Two—Introduction
2.1 Overview
Chapter Three—The Purpose and History of Trusts
3.1 Introduction
3.2 The Purpose and History of Trusts
Chapter Four—Equity and Fiduciary Relationships
4.1 Introduction
4.2 Equity
4.3 Fiduciary Duty
Chapter Five—Types of Trusts and Their Methods of Creation
5.1 Introduction
5.2 Express or Declared Trusts
5.3 Presumed or Implied Trusts
5.4 Constructive Trusts
5.5 Unit Trusts
5.6 Discretionary Trusts
5.7 Bare Trusts
5.8 Trading Trusts
5.9 Blind Trusts
5.10 Service Trusts
5.11 Charitable Trusts
Chapter Six—Termination of Trusts
6.1 Introduction
6.2 Termination of Trusts
Chapter Seven—Trust Records and Trust Accounting
7.1 Introduction
7.2 Implied Trusts
7.3 Constructive Trusts
7.4 Trust Accounting
Chapter Eight—Taxation of Trust Distribution under Australian Income Taxation Law
8.1 Introduction
8.2 Taxation of Trust Income and Property
8.3 CGT Implications
8.4 Non-Resident Trusts
8.5 Stamp Duty and Land Tax Issues
8.6 Personal Exertion Trusts and Interposed Entities
Chapter Nine—Future Legislation and Suggested Outcomes
9.1 Introduction
9.2 Likely Trust Taxing Legislation
9.3 Political Influences
9.4 Historical Examples
9.5 Conclusion
Chapter Ten—Introduction
10.1 Overview
Chapter Eleven—The Australian GST System
11.1 How GST Functions
11.2 The Australian GST System
Chapter Twelve—The Reason the Howard Government Pursued the Policy Option of a GST for Australia
12.1 Introduction
12.2 Demand for the GST
12.3 Conclusion
Chapter Thirteen—The International Implications of the GST
13.1 Introduction
13.2 Australian GST—International Implications
13.3 Conclusion
Chapter Fourteen—An International Comparative: The Cook Islands
14.1 Introduction
14.2 Cook Islands’ Political, Social, and Economic Overview
14.3 Cook Islands’ Government Finances
14.4 The Australian GST Compared to the Cook Islands VAT
14.5 Likely Outcomes of Australia’s GST
Chapter Fifteen—A Better Plan: Alternatives and Solutions to the Problems of the Australian GST System
15.1 Introduction
15.2 Alternatives
15.3 Conclusion
Chapter Sixteen—Introduction
16.1 Overview
16.2 Australian Domestic Tax Avoidance Countermeasures (GAARS)
Chapter Seventeen—The Legislative Background to Tax Reducing Structures
17.1 Introduction
17.2 Taxation Relief Incentives—Acceptable Tax Avoidance
Chapter Eighteen—Tax Planning Structures and Tax Reducing Methods
18.1 Introduction
18.2 Public Opinion
18.3 Acceptable Tax Avoidance—Tax Planning
Chapter Nineteen—Tax Avoidance Schemes
19.1 Introduction
19.2 Australian MMTAS
Chapter Twenty—Promotion of Tax Avoidance Schemes
20.1 Introduction
20.2 MMTAS of the 1990s
20.3 Conclusion
Chapter Twenty-One—Anti-Avoidance Provisions—Part IVA and Personal Services Income Provisions
21.1 Introduction
21.2 Part IVA
21.3 Personal Services Income
21.4 Interposed Entities
Chapter Twenty-Two—Offshore Trading and Tax Havens
22.1 Introduction
22.2 Tax Havens of the South Pacific
22.3 Offshore Trading Trusts
22.4 Combating Trans-Jurisdictional Tax Acoidance
Chapter Twenty-Three—Suggested Australian Reforms
23.1 Introduction
23.2 Suggested Tax Reforms
Chapter Twenty-Four—Possible Motivations for Tax Reform
24.1 Introduction
24.2 Possible Motivations for Tax Reform
Chapter Twenty-Five—A Concise History of Tax Reform in Australia
25.1 Introduction
25.2 1975—The Asprey Report Defining a ‘Good Tax System’
25.3 1993—Tax Law Improvement Project: Capital Gains Tax
25.4 1999—The Review of Business Taxation (The ‘Ralph Report’)
25.5 2000—A New Tax System: Goods and Services Tax
25.6 Splendor/Squalor Ratio
25.7 2010—Australia’s Future Tax System Review (The Henry Review)
Objectives and scope:
Composition and consultation:
Structure and timing:
Chapter Twenty-Six—Part IV Conclusion: Are There Alternatives?
26.1 Summary
Chapter Twenty-Seven—The Bottom Line
27.1 Introduction
27.2 Review
27.3 Contribution to the Study of Tax Compliance Behavior
27.4 Research Limitations
27.5 Suggestions for Further Research
27.6 Conclusion
Appendix A
Tieleman: A Case Study of a Tax Practitioner 2001
Appendix B
ATO’s List of ‘Eligible’ Mass-marketed Tax Avoidance Schemes (2002)
Appendix C
Australian Governments since Federation
Case Law
Other Sources


This book is the product of research conductedtowardmymaster’s studies at Curtin University, Perth, Western Australia.ProfessorDale Pinto, my mentor,suggested substituting research papers for formal course work for mymaster’s degreeresearch.In the mid-1990s,external studies were not available for higher degreesat Curtin Business School,so a ‘work-around’ was required.This book is a result of that work.

Ultimately,the research on tax avoidance schemes became the seed of my PhD thesis, published in 2015 asHeat, Dust and Taxes.Without Dale’s suggestion,none of this would have happened.

Of course,it takes a village to raise a child,and there are many others who have influenced these writings.I extend many thanks to all of those people who have helpedmealong the way.

Special thanksgoto the people of the Cook Islands,who were very helpful and open to my research there; tomy wife Julie,whofulfilledthe roles of research assistant andorganizer; and to John Craig,who actedas my editor.

I am thankfulto Jakob Horstmannand Valerie Lange, my primary contacts atibidem-Verlag,fortheirpatience and cooperation in crossing not only the physical distance from theUnited Kingdom, Germany,and Outback Australia, but also across the nuances of British and American English, andtheirmother tongue—German.I extend my gratitudetoall ofthe people atibidem-Verlag who must find this crazycolonialan extremely curious beast indeed.


ABCAustralian Broadcasting Commission

ABNAustralian Business Number

ABSAustralian Bureau of Statistics

ACOSSAustralian Council of Social Services

ACTAustralian Capital Territory

ALPAustralian Labor Party

ASICAustralian SecuritiesandInvestments Commission

AtaxAustralian School of Taxation

ATOAustralian Taxation Office

ATTAAustralasian Tax Teachers’ Association

BADBank Account Deposits Tax

BISEPSBusiness Industry Sociology Economy PsychologySystems

BPSBudplan Company Syndicate

COAGCouncil ofAustralianGovernments

CRAConzinc Riotinto of Australia Limited

CSIROCommonwealth Scientific and IndustrialResearchOrganisation

CTSICentre for Tax System Integrity

DCSDeputy Crown Solicitor

ELSElectronic Lodgement System

FBTFringe Benefits Tax

FCAFederal Court of Australia (Single Judge)

FCAFCFederal Court of Australia Full Court (3 or moreJudges)

FIDFinancial Institutions’ Duty

FSDUFederated Ship Painters and Dockers Union

GAARsGeneral Anti-avoidance Rules

GSTGoods and Services Tax;see also VAT

HCAHigh Court of Australia

HWIsHigh Wealth Individuals

IGAIntergovernmental Agreement on the Reform ofCommonwealth—State Financial Relations1999

IRSInternal Revenue Service (USA)

ITAA 1915Income Tax Assessment Act 1915(Cth)

ITAA 1936Income Tax Assessment Act 1936(Cth)

ITAA 1997Income Tax Assessment Act 1997(Cth)

LPLiberal Party of Australia


OECDOrganisation for Economic Co-operation andDevelopment

PAYEPay-as-You-Earn (later part of PAYG below)


QCQueen’s Counsel


SPPSpecific Purpose Payment

The Cover Cartoon

The cartoon on the cover is more than it appears to be.There are numerous hidden messages as a commentary to Australian tax legislation in its first century of operation.

The caricature on the left is aneffigyof my uncle Merton Fitzpatrick.Merton was a pioneer of the pastoral industry in Western Australia from the 1880s to the 1930s.He lived at a time when not only did the Commonwealth of Australia come intoexistence,but he became a taxpayer under the ‘new taxing regime’ of theIncome Tax Assessment Act 1915(Cth)(ITAA 1915).

He began to face the problems of ‘minimizinghis taxation burden’ that would continue to concern taxpayers 100 yearslater.He is carrying the loads of documents not previously encountered by taxpayers of his class since colonization.

Time passes through the journey to the future, past the tax avoidance schemes of the second half of thetwentiethcentury, illustratedby the mass-marketed tax avoidance schemes(MMTAS)of the 1990s, being advertised by ‘dodgy promoters’ as we entered thetwenty-firstcentury.

The introduction of the Australian goods and services tax (GST), in July 2000, is another milestone of Australian taxation.

The young woman of thetwenty-firstcentury, depicted on the walkway of a modern Australian city andfocusedon hercellphone, carries the same load of tax compliance, though probably an electronic version in 2015.She shares the same attitudetowardthe payment of taxation imposts of the young pastoralist 100 years earlier.

As she headstowardthe future,she cannot see around the corner of what lies ahead, but clearly signposted is an indication that she will take with her the habits of the past.Tax administrators, depicted as the official from the Australian Taxation Office, are lurking around the corner trying to catch ‘the Artful Aussie Tax Dodger’.


OnMarch30,2016,the Australianprimeminister proposeda reformto Australia’s income tax legislation.The proposal,to return powers to tax income to thestates,wouldhaveeffectively returned Australia’s taxation systemtoits legislative position in1936.However,it is acknowledgedthattheexclusivepower to tax incomedid not become the province of the Commonwealthuntil 1942.Thisexclusive power has remainedin the handsof the Commonwealth ever since.

At Federation onJanuary1,1901, the Commonwealth of Australia was empowered to levy taxes on incomes.Despite that,thestates levied their own income taxes untilSeptember3,1915when the Commonwealthintroduced its firstincometaxassessmentact.

For 100 years Australia has ‘reviewed’ and ‘reformed’ its income tax legislation.It has come to a point where the,sixty-foursectioned,Income Tax Assessment Act of 1915(ITAA 1915)has evolved into two acts comprising nearly 1,000 sections.

Just one year into a new century of taxation, theAustralianfederalgovernment proposed to go forward to thepast,someseventyyears earlier when theIncome Tax Assessment Act of 1936(ITAA 1936) transferred all powers to tax income from the Australian states to the exclusive realm of the Commonwealth.Theprimeminister proposed to end the exclusive power of thefederalgovernment to empower the states to impose tax on incomes.This was something vigorously opposed by successivefederalgovernments since the introduction of theITAA 1936.

At the heart of the proposal was the states’prolonged argument that they werenot ‘getting their fair share’of taxes raised by the Commonwealth.TheAustralianfederalgovernment has consistently countered those arguments by suggesting tax revenues are a limited resource and the states are ineffective in controlling their expenditures.

A key factor often alluded to by taxing authorities is a shortfall in anticipated tax revenues as to actual revenues received.They point to ‘revenue leakages’ caused by taxpayers’resistance to pay tax,andtheevasion or avoidance measures,engagedinby taxpayers,to eliminate or reduce taxpaid by them.

Research hasindicated thatanoverarching factor that contributesto tax revenue leakages is the generalattitudetowardcompliance with the law andthe payment of tax.It is suggested that inAustralia,whichwas established as a British penal settlement in New South Wales in1788,the attitudetowardnoncompliancewith lawsandresistance to authority hasbecome embeddedin the population’s psyche.

This book looks at how Australia’s tax legislation was grounded, added to, avoided, and evolved, until it went ‘Back to the Future’.To do this,it first considers Australia’s ‘received law’ that the Britishcolonists brought with them from Great Britain when they established the settlement in Port Jackson on January26,1788.In particular it examines the British Common Law entity:thetrust.

Trusts have been used for centuries by British trading enterprises and large estates not only to preserve the estates but also as entities to avoid or mitigate tax burdens of the interested parties/beneficiaries/taxpayers.In thetwenty-firstcentury,trustsremained relevant corporate structures for tax planning purposes.

‘Offshore’ tradingtrustswere specifically operatedwhereby tax could beminimizedor avoided entirely through the transfer of income to low or non-taxing jurisdictions, namely‘tax havens’.This activity, once popular with corporate taxpayers, has become frowned upon, at least socially,and governments have been active in countering the use and availability of such jurisdictions.

A common thread throughout this book is the comparison of Australia’s taxation law with that of the South PacificState of the Cook Islands.Once a muchpublicized‘tax haven’, chiefly through the corporate structure of the ‘Offshore Trading Trust’, the Cook Islands and Australia terminated that avenue of tax avoidance through bilateral information and tax sharing agreements in 2009.

After examining the principles of Trust Law in Part I,in Part IIthe book then considers Australia’s consumption tax introduced in 2000.TheAustralian GSTis compared to the Cook Islands’Value Added Tax(VAT)legislation,introduced three years earlier,in 1997.Thecomparison isprovided toassess the likelysocial and economic impactsof Australia’s GSTfrom the perspective of its introduction in 2000.

The book finds that apart from a suggestion to increase the tax rate and to broaden its tax base in 2016, little changes were made to the operation of Australia’s GST in itssixteenyears of operation.The actual social and economicinfluences of the GST on taxpayer compliance, evidenced in 2016, arecompared to the anticipated impacts on businesses and taxpayerbehaviorpredicted in 2000.

It is suggested that ultimately little changed in overall revenues but compliance requirements caused a shift in how small business operates, as wells as a general movetowardunreported cash transactions by taxpayers.The key impact of the GST was that taxing powers and revenue controlled moved from the states to theAustralianfederal government.

The Cook Islandsisagainreferred to in Part IIIas one of Australia’s landmark tax avoidance scheme cases—Spotless Services Ltd v.Federal Commissioner of Taxation(Spotlesscase).[1]TheSpotlesscasecenteredon the use of anoffshoretrust located in the Cook Islandsto avoid the imposition of Australian income tax on interestcash deposits.

Finally,PartIVconsiders the bilateral treaties between Australia and the Cook Islands on information and tax sharing agreements in 2009,which effectively ended thestatus oftheCook Islands as a tax haven and closed that avenue of tax avoidance activity to Australian taxpayers as part of Australia’s taxation reforms.

Chapter One—Overview

What we are proposing to the states is that we should work together on this basis: that we, the federal government, will reduce our income tax by an agreed percentage and allow state governments to levy an income tax equal to that amount that we have withdrawn from. So, there would be no increase in income tax from a taxpayer's point of view. He or she would pay the same amount of income tax.

(Malcolm Bligh Turnbullon his proposal that thestates should reintroduce income tax legislation March 2016;Prime Minister ofAustralia, 2015–;1954–)


The purpose of this book is to follow the historyof100 years of taxation legislation in Australia.Itsprincipalfocus is on taxpayer compliancebehaviorin Australia,and revealsthat an attitude ofnoncomplianceis part of the psyche of Australians.

However,in 2016,Rozvany suggests,“[w]hat is perceived as ethical by one generation or indeed a different society in the same generation may not be perceived as ethical to the next.”[2]Hepoints to slavery, adult suffrage,and gender equality as examples of changing social values.He suggests that society now demands ethicalbehaviortowardtax compliance by corporations and high wealth individuals, and that the risk-taking tax avoidingbehaviorof the 1960sthrough the 1990sis no longer acceptable.

A reflection of those earlier attitudes of tax compliancebehaviormay be found in Clyne’s1969comment:

Paying taxes is rather like alcohol, tobacco, heroin or wild women. It is simply a habit…costly, addictive, soul-destroying and unnecessary. But in one way it does differ from alcohol, tobacco, heroin and wild women—It offers no compensating element of pleasure, satisfaction or tranquillity. So one ought to kick the habit of paying taxes and develop the anti-habit of tax avoidance.[3]

Rozvany may well be correct in his assertion that the economicbehaviorof ‘corporate citizens’,which was once tolerated,or even accepted by society,is no longer considered ethical.Previously, Fullarton has also suggested that changes in social attitudes apply to a great number of economic, social,and environmental influences on socialbehavior.[4]However,he further suggests that tax avoidance activity is not linear but rather it is cyclical,[5]and as far as society’s attitudetowardthe payment of tax isconcerned,old habits die hard.

As governments and multinational companies struggle with tax avoidance and anti-avoidance legislation and schemes,thefollowingquestion remains: Has society and commerce really changed its attitude topaying tax, and if so do Australians regard tax avoiders as heroes or villains?

This book suggests that, unlike human rights and equality for all people, an aversion to paying tax is deeply embedded in taxpayers’compliancebehavior.It suggests thatwhile legislators and administrators move to counter aggressive tax avoidance activity,tax dodging remains an acceptedbusiness practice and anart form in Australia.

Tosupportthat,thisbookexaminesAustraliantax lawbyconsideringfour basicaspects:

·An examination of the establishment and functions of the earliestEnglishincorporated trading entity—the British Trust,which wasbrought to Australia asreceivedlaw in 1788;[6]

·An examination of Australia’s consumption-based tax introduced in 2000—Goods and Services Tax (GST);

·An analysis of tax avoidance schemes in Australia by examining the mass-marketed tax avoidance schemes (MMTAS) of the 1990s; and

·Measures taken by Australian governments and tax administrators to counter tax avoidance activity from the review of taxation in 1975 (Asprey Report)[7]tothebilateraltax information sharing agreements with the Cook Islands in 2009.[8]

The four aspects of Australian tax law are chosen as they share a common thread.The trust, brought to Australian soil by the British settlers onJanuary26,1788, became a key entity by which trading organizations were and are structuredwith the principle objective of reducing the tax liability of estates and businesses.The trust was used extensively to avoid tax over 100 years not only by resident taxpayers but also through the use of ‘offshore trading trusts’ established solely for that purpose, by resident taxpayers, in ‘tax havens’ such as the Cook Islands in the latetwentiethcentury.

One of the reasons put forward by the Australian government in 2000 for the introduction of Australia’s GST was that some Australians were not paying their fair share.It was suggested that“ordinary Australians [were] facing the prospect of paying the highest possible income tax rate”and that the GST would“create a fair, simple and efficient system.”[9]

The Cook Islands introduced itsVATlegislation in 1997.As the Cook Islands was also a principaltax haven for Australian companies, as demonstrated by theSpotlesscase, it was considered a reasonable comparative as to what might be expected by the introduction of the, significantly more complex, Australian GST legislation in 2000.

Thehistory of the development of Australia’s tax avoidance schemes is analyzed through the use of tax avoidance schemesthatbecame mass-produced and marketed to ‘ordinary’ Australian taxpayers in the 1990s.The high level of acceptance of these schemes and participation in them by general wages and salaried taxpayers was unprecedented.

The history of theMMTASof the 1990s strongly supports the philosophy of this book—that an attitude ofnoncomplianceis part of the psyche of Australians.

Finally,the book considersantitaxavoidance measures taken by Australian governments over the century of tax reform 1915–2015 to“create a fair, simple and efficient system…that rewards hardworking families, promotes business and jobs and builds a better Australia.”[10]

This book considersAustralian tax law to have been established at Federation in 1901 when the separate Australian states,successorsof the British colonies established during the period 1788 (New South Wales) to 1834 (South Australia), formed the Commonwealth of Australia.[11]Along with many other powers and dutiestheCommonwealth of Australia Constitution Act1900(Australian Constitution)empowered theAustralianfederal government to make laws with respect to taxation.[12]

The,sixty-foursectioned,Income Tax Assessment Act 1915(Cth) (ITAA 1915) became part of Australia tax law on September13,1915.Therefore,2015 was the centenary of the introduction of the firstfederal income tax act.

In2016, Australian taxation law and compliance with its requirements have reached levels of confusion and complexity never imagined by the founding fathers of the Federation of the Commonwealth of Australia in 1901.

Of significance to this book is thatwhiletheAustralianfederal government was empowered to make laws with respect to taxation, many state taxes remained in place.Therefore,rather than distinct transfer of the powers of taxation from the states to the Commonwealth on the commencement oftheAustralianConstitutionat Federation on January1,1901, the transfer process was transitional over the entiretwentiethcentury.PartIVexamines the history of Commonwealth taxation andcontainsa table of significant events and dates.

Thebookfocusesona series of papers written as part of the author’s postgraduate studiesin the early 2000s.They point to topics of tax law that remain unresolved in 2016, such as the Turnbull LiberalGovernment’s proposal to increase goods and service tax to 15percent, and a suggestion that theAustralianfederal government return powers to tax income to the states.

Despite being written over a decade and a half ago,the papers remain relevant to taxpayers, tax administrators,and students of tax law,andfor that reason they are reexamined in this book.

At the timethese papers were written, predictions were made as to the outcomes of legislative changes adopted at the time.In particular,predictions were made with respect to Australia’sGSTlegislation, which was enacted in July 2000.In 2016,the outcomes ofsixteenyears of the legislationwerecompared with the predicted likely outcomes suggested in 2000.Itcan benoted that by and large those predictions have proved accurate.The GST never really achieved the promised outcomes.

Many state taxes were abolished to make way for the federally based GST.One of the principalfeatures of the GST is that the states would be no worse off under the central collection system than when they collected their own taxes.In 2016, the states, in particular Western Australia, continued to protest that they were not receiving their ‘fair share’of GST revenue.

Generally, this book does not consider the broad range of taxing actsthatexist in Australia,bothfederallyand at state level,butrather,focuses on income tax and Australia’s key indirect tax:its GST.

GST is referred to in many jurisdictions as VAT,and Australia hasmodeleditsGST legislationbasedon GST/VAT regimes found in other nations.Part II examines Australia’s proposed GST legislation as it was in 2000 and compares it to the then recently introduced VAT of the Cook Islands.

The Cook Islands jurisdiction is of significance to this book as it provides a common thread throughout the papers.Not only isthecountry’s VAT used for comparativeanalysis, butitsrather simple, but effective, income tax legislation is also compared to the extremely complex Australianincome tax acts.In addition, landmark court cases such as theSpotlesscasewerefocusedon the use of such trusts incorporated in the Cook Islands.

For many years in thetwentiethcentury,the Cook Islands was also used as a tax haven by Australian residents and corporations to reduce their taxation burden by way of offshore trading trusts, considered in Part I.

However, in 2009, the Cook Islands entered into information and tax sharing agreements[13]with Australia which effectively terminated the use of offshore trusts in the Cook Islands as a tax avoidance vehicle for Australian taxpayers.Therefore,the Cook Islandsisno longer a ‘tax haven’ for Australian taxpayers.

It is suggested that Australia may have moved to a new century in 2001, and celebrated, if anyone noticed, the centenary of income tax in Australia,in 2015,but old habits and attitudes of taxpayers and administrators remain entrenched.Taxpayers are as reluctant tocomply withthe concept of the compulsorypayment of monetary contributions to governments in thetwenty-firstcenturyas they ever were.


The bookconsists offourpartsas each paperis presented as a separate part.The papers are not in their original sequence.Rather they have been placed in a thematic sequence.The structure is designed to provide background and context from the earliest tax planning corporate structures of trusts to an examination of indirect sales taxes—Australia’s GST—which leads to the use of offshore trading trusts and other tax avoidance schemes used by Australian taxpayers up until the late 2000s.

Finally,the book considers measures taken by various Australian governments to reform taxation systems to reduce fiscal leakagesfromgovernment revenuethrough financial structures principally designed to reduce or avoid the imposition of tax.

PART IThe Common Law and Taxation of Trusts in Australia in the Twenty-First Century;

PART IIInternational Aspects of the Australian Goods and Services Tax (GST);

PART IIIA Critical Analysis of Tax Avoidance Schemes in Australia; and

PARTIVThe Apparition of Tax Reform:A PaperThatExamines theIssue ofTaxationReform in Australia.

Figure 1 illustrates how the papersinterrelateto develop the historical examination of tax planning in Australia.The problems of thepastcontinue to elude thefederal governments of thetwenty-firstcentury.Despite enteringintoa second century offederal tax in Australia,implementing a tax systemthatis fair, simple,and efficientappears to be out of the reach of governments.

Figure 1:The relationship of Parts I–IV


PART IThe Common Law and Taxation of Trusts in Australia in the Twenty-First Century

This partproposes that the concept of the ‘trust’ held for over a thousand years under the British legal system is drawing to a close.Education andlegislationareheralding the demise of that ancient and noble institution in the Australian context.It alsoputs forward various alternatesolutions to the identified problems.

By definition, the term ‘trust’ expresseshonor, reliance, justice,and friendship. It implies anhonorablerelationship under which the property of one, the beneficiary, is placed in the control of another, the trustee.Arising from the days of William the Conqueror, trusts have been established largely from the desire to preserve the title of the medieval baron.

Theknights andbarons ofmedieval England did not trust their descendants to manage their titles in afavorablefashion,but suspected they would slowly but surely allow the decay of property that the barons had fought long and hard to establish.They sought to prevent that by removing control from their descendants and placing it in the hands of ‘trusted’ persons. In doing so theknights andbarons hoped to retain their estates intact despite the vagaries of their children.

Various types of trust have come to berecognizedin modernBritish law, yet all have the same final purpose, that is,to allow theirbeneficiaries to enjoy and profit from the estatewhile the ‘trusted person’ retainscontrolof the trusts.In modern times the focus of trusts has shifted somewhat from the preservation of property to the alienation of income and hence taxation.

Australian taxation law has continued to attempt to tax the income and property of these trusts with varying degrees of success.A series of Australiangovernmentshasenacted and proposed legislation to pierce the trust structure and tax the income in the hands of the beneficiaries.Where the beneficiaries cannot bereadily identified or ascertained, and therefore taxed, legislation has been set in place to makethe trustee responsible for the taxburden.

It is a matter of conjecture as to whether or not parliamentarians are serious in their attempts to tax the income of trusts as they themselves are quite often the beneficiaries of such trusts. Trust income arising from personal exertion, whereby income earned by an individual is attempted to be transposed into earnings of a trust, has beenvigorously attacked in recent years.

The taxation of ‘interposedentities’ continues to be at the forefront of legislators’minds.The problem is that without dissolving the original intention of the trust, that is,to manage property, it is difficult, if not impossible, to distinguish between a ‘genuine purpose’ and a ‘tax avoidance scheme’.The concept of using trusts as tax avoidance schemes will be further examined in Part III.

A serious failure of the taxation of trusts is thatwhileincome must be distributed to the beneficiaries, losses cannot be.Trust losses serve only to diminish the corpus or capital of the trust.Therefore,there is little benefitfromloss-producing trusts to other taxpayers.

The complexities of administration and stewardship liabilities of the trustee to the beneficiaries have long been substituted by the modern corporate structure of registered companies.Corporate bodies arerecognizedbylaw as separate legal entities and are treated as such as taxpayers for taxation purposes.Examination of the taxation law applicable to companies is outside the scope of this book, but their existence as alternative trading structures isrecognized.

In addition,the previous taxation benefits of income splitting(and thereby reducing individual taxation burdens)are coming to an end.Therefore, for trading purposes, trusts are no longer considered the optimum business structure.

Furthermore, as beneficiaries are becoming more legally aware,theyrealizethe property of their parents has been transferred to them.There are many instances where children are insisting on their legal right to benefit from the use of trust property.Parents are being faced with either having to relinquish ownership and control of ‘their’ property or admit that the structure is simply a means of avoiding taxand pay the consequences.

Thisbookproposes to demonstrate that the concept of the ‘trust’, held for over a thousand years under the British legal system,is drawing to a close.Education and legislationareheralding the demise of that ancient and noble institution in the Australian context,and the paper concludes putting forward various alternate solutionsto the identified problems.

It is noted that O’Connor’s 2016 article considers most of the points raised in thisbook.[14]He considers the powers and duties of trustees:their appointment, removal,and death; their relationships with third parties;as well as their beneficiaries and their taxation liabilities.He concludes that there are a number of pitfalls for trusteesand tax practitioners and states:

The challenge for tax practitioners is that all this complicated [Australian]trust law is often relied on by the Commissioner [of Taxation] when push comes to shove.Cases likeClark[15]andKelly[16]clearly show that the [Australia Tax Office] ATO will apply the ‘blowtorch’ to test the legal effectiveness of transactions and explore issues such as a trustee’s right of indemnity where there are disputes about tax outcomes from particulararrangements.[17]

His examination and conclusions indicate that the taxation liabilities of trusts remain largely unaltered since this paper was written inJune 2001.

PART IIInternational Aspects of the Australian Goods and Services Tax (GST)

This book questions why the Australiangovernment has been so determined to establish a broad-basedGSTand what is the likely outcome given the experiences of other nations when they have implemented a GST/VAT system.

This partwasoriginallywritten in 2000, prior to the introduction of Australia’sGST.Therefore,generally this paper is written from the perspective of what might be expected to happen with the introduction of a GST.

In 2016,most of the predictionsmade in 2000 regardingthe impact of GST raised in this part remain relevant.Despite legal challenges, primarily as to the application of the tax, the legislation and its tax rates remain unchanged.Therefore,itis contended that the issues raised in this paper remain relevant,somesixteenyears on.

In the 1990s, when the GST wasproposed to beintroduced,it was considered,by some tax practitioners and academics,that the Australian GST would be an inefficient and inequitable tax and would ultimately fail tomeet the expectations of the Howard Liberal Government.[18]

Those concerns raised in the 1990s may have had merit.For example,it was suggested that ultimately the GST rate would rise.In 2016, in the face of falling taxation revenues and rising budget deficits, the Turnbull Liberal Party considered raising the Australian GST rate from 10 to 15percentand broadening its tax base to include previously exempt items such as basic foods.The proposal was raised during the 2016Australianfederalelection campaign.However,itwas withdrawn in the lightofa severe public pressure reflected in polling results conducted by political commentators and the party.

One of the influencing factors for the introduction of the GST was the growth of e-commerce.The growth of the ‘Internet market’ wasa major thrust for governmentsworldwideto align tax policies,andglobalGST/VATsystems wereseen as one of the tools by which this uniformity couldbe achieved.It is argued that the Australiangovernmentwastherefore being pressured by fellowOrganisation for Economic Co-Operation and Development (OECD)governments to conform toOECDtaxation policies.

Pressures of globalizationwereintensifying the need to conformto other taxing regimes,and itwas considered essentialto remain internationally competitive.Therefore,thisbookexaminesthe international aspects of Australia’s tax legislation, using the GST/VATsystemasa case study.In addition, the requirement fora GST/VATsystemand the Australiangovernment’sdesire toimplementitarealso analyzed.

An examination of the Cook Islands’VAT system, as enacted in 1997, is undertaken in the part to provide an international comparison of the Australian GST provisions.The purpose ofsuchcomparisonisto demonstratethe international ramifications of consumption-based taxation to the Australian taxpayer from a global point of view.In addition, the comparisonconsidersthe GST complianceposition of an Australian taxpayer comparedwith that oftaxpayers inother jurisdictions.

Given the major political, social,and economic differencesbetween thetax havensofthe South Pacific and the OECD conforming Australiangovernment, this examinationprovidesacomparisonbetween the two international extremes.Its purpose is tohighlightproblemspredictedtobe experiencedwith the implementation of GSTin the Australiain 2000.

The comparison also providesan insight into international taxing relations and their effectiveness in achieving their purpose,that is,tomaximizegovernment revenue with the minimum disruption to taxpayers.

As a result of the comparison andpredictedproblems thatwere expected tobe encountered in the Australian context, thepaper concludes by putting forward various alternatesolutions to the identified problems.In addition, the elapse offifteenyearsprovidesacomparative analysisofwhatwerepredictedasoutcomes in 2000,with theactualimpacts of the GST experiencedin 2016.

PART IIIA Critical Analysis of Tax Avoidance Schemes in Australia

Taxation, as defined for the purposes of this paper,is “the compulsory acquisition of goods and services, usually in the form of cash, by a government, from its people, for no return.”[19]It differs primarily from a gift in that it is taken by way of compulsion rather than being given voluntarily.

There is an expectation on the behalf of taxpayers that the government will provide security and social order as well as social, infrastructure,and welfare servicesand amenitiessuch as educationandhealthservices,schools,and hospitals.However,governments, faced by the eternal economic problem of boundless wants and limited resources,often fail to deliver to the satisfaction of all.Therefore, bythevery natureof compulsion to pay, a natural human aversion to the payment of taxesis created.

In modern democracies, which rely on the goodwill of the populace to retain office, the matter of government revenue is a heavily debated political issue.The emotional nature of the social issue often far outweighs the logical economic issue of government responsibility for the fair and equitable distribution of wants and needs of society.

In modern capitalist society,there remains a need for government intervention in the economy to ensure the populacehasa fair distribution of wealth and that the economy is serviced by the infrastructure essential to maintain and service the needs of industry and commerce.

Since the times of the Punic Wars when the site of Hannibal’s camp was auctioned in Rome, confidence tricksters have created fanciful schemes to encourage the unwary,or the naive,into giving them large sums of money or goods for worthless ornonexistent goods or services.No schemecaptures the imaginationwith greater efficiency than tax avoidance.

Entrepreneurs and confidence tricksters have exploited taxpayer’s natural aversion to paying income taxby designing andpromotingschemes to diverttaxation revenueintoalternateprojects, often for their own benefit.Australian commercial ventures and taxation legislation are influenced by the nation’s position as a sophisticated OECD nationcenteredamong the developing and third world nations of Southeast Asia and the South Pacific.

Schemes range from genuine attempts to promote and provide incentive to introduce innovations to commerce and industryto outright frauds such as the sale of contracts and investmentsthatare nominal or totallynonexistent.

Examples of tax incentivesthatare encouraged by the government through taxation incentivesare investments in feature films,underthe provisions ofPart10BA of theIncome Tax Assessment Act 1936(Cth),and afforestation project incentivesfor the planting oftrees for commercial use.A detailed examination ofMMTASin Australia in the 1990s can be found inHeat, Dust and Taxes.[20]

Part IIIexamines the impact of tax incentiveson the encouragement of tax avoidance and the international responses to Australia’s sophisticated OECD taxation environment by its nearneighbors.South Pacific Nations such as Vanuatu[21]and the Cook Islands openly promotedtheir tax haven status.

ThesecountriesencouragedAustralians to use their blatantly open tax avoidance legislation to bolster their own flagging economies at the expense of Australian taxation revenue.Antitaxavoidance legislation such asPart IVAof theITAAwasprovingto beineffective asthegovernment founditselflosing outright control in the political arena.

Reliance oncoalitionsand the support of minority parties,inparliament,resulted in a series of legislative compromises which placedAustralian taxation systems in real jeopardy.Poor government decisions over many generations have produced a social and political climate which has eroded taxpayer confidence in government and Australian politicians.

The modern Australian taxpayer now feels he or she is not getting value for money and is more willing than ever to avoid taxation liabilities. Taxpayers, as demonstrated by the proliferation of public scandals in recent times, are all too willing to join taxation beneficial schemes and projects that are nothing more than fraudulent shams.

Part IIIseeks an answer to effective and efficient taxation revenue systems while encouragingtheindustry and controlling the ever-present trickster, who is all too able to prey on the unknowing, unwary,or equally devious taxpayer.Australia mustrecognizenot only its political and social position but also its geographical position in determining its taxation policy for the future.

PART IVThe Apparition of Tax Reform:APaperThatExamines theIssue ofTaxationReform in Australia

TheMacquarie Dictionarydefines‘tax’as“amonetary contribution demanded by a government for its support and levied on incomes, property, goods purchased etc.”[22]In theory the collection of tax should be effective, simple,and easily collected.However,in the wordsofJeanColbert“The art of taxation consists in so plucking the goose as to obtain the largestquantityof feathers with the leastpossibleamount of hissing.”[23]The statement implies an element of deception and in a political system wheregovernments are elected by popular vote, the inherent unpopularity of taxation creates an ongoing dilemma.

Australia inherited a convoluted and complex taxation structure from its Britishcolonial past.Since 1901,successivegovernments have struggled to find the ‘perfect’ tax system.Serious attempts at providing Australia with a unified, efficient taxation system began with the Whitlam Labor Government and were outlined in theTaxation Review Committee Reportof 1975(Asprey Report).[24]

Subsequently, a series of tax reform attempts hasbeen made with the Keating Labor Government’s Tax Law Improvement Project (TLIP)[25]of 1993, which largely focused oncapitalgains andfringebenefittax(FBT)reforms, and the Howard Liberal Government’s Review of Business Taxation (Ralph Report) in 1999.

That Australia’staxationsystem and the search fora‘perfect’ tax system is inextricably linked and tainted with vested political, social,and corporate interests is obvious to the most casual observer.Thisbookprovides an analysis of the tax reform processes and the convoluted legislative outcomes they have produced.That vested interestshave introducedcomplexities to the Australiantaxationsystem is demonstrated by examining elements of the Asprey Report, the TLIP,and the Ralph Report.

That successive Australiangovernments have been obliged to introduce provisions whichfavortheir supporters in exchange for political support is demonstrated by the examples ofcapitalgainstax(CGT),which targets the wealthy, and theGST,which weighs heavily on lower-income earners.

Far from producing the desired result, the Australiantaxation systemhas become complex, inequitable, difficult to understand,and almost impossible to enforce.Rather than provide compliance, a tax avoidance industry has blossomed to unprecedented proportions.As political parties lose their historical stranglehold on parliament, tax reform sinks further into the mire of confusion, clouded by deception andself-interest.

Taxation reform can only be achieved through the application of independent analysis, free from political interference and aimed solely at the purpose of raising revenue forgovernment expenditure.Howgovernments distribute those funds should be a matter of separate public scrutiny and not entangled in a web of deceptionlabeled‘tax reform’.

The book now examines the papers in the above sequence.It is designed such that each part can be read as separate topics;however,the reader is encouraged to follow the sequence so that the impact of the historical evolution of taxation reforms in Australia is developed.


This partexamines the common law and taxation of trusts and the practical application of these principles in the use of trustsas a taxplanning vehicle


Behold men! I have England already in my grasp.

(Attributed toWilliam I (the Conqueror)1066 on falling from hisLong-ship onto the muddy flat, prior to the Battle of Hastings; King of England 1066–87;1027–87)


Thispartlooks at the law and operation of the ancient entity of the trust and how it functions in modern Australia as an estate planning and trading enterprise.

SuccessiveAustraliangovernments have enacted and proposed legislation to pierce the trust structure andtotax the incomeof trusts as it is distributed intothe hands of the beneficiaries.In situations where the beneficiaries cannot be readily identified or ascertained, legislation has been placed to make the trustee responsible for the tax burden.

It is a matter of conjecture as to whether or not parliamentarians are serious in their attempts to tax the income of trusts as they themselves are quite often the beneficiaries of such trusts. Trust income arising from personal exertion, whereby income earned by an individual is attempted to be transposed into earnings of a trust, has been vigorously attacked in recent years.

The taxation ofinterposedentities, wherein an unnecessary or contrived entity is placed between a taxpayer and her income with the sole purpose of avoiding tax,continues to be at the forefront oflegislators’minds.The problem is that without dissolving the original intention of the trust, that is,to manage property, it is difficult to distinguish between a genuine purpose and a tax avoidance one.

A serious failure of the taxation of trusts is thatwhileincome must be distributed to the beneficiaries of a trust, losses cannot be.Losses serve only to diminish the corpus or capital of the trust.There isnobenefitfromloss-producing trusts to any entity. For trading purposes, therefore, trusts are not the optimum business structure. The previous taxation benefits of income splitting(and thereby reducing individual taxation burdens)are coming to an end.

Furthermore, as beneficiaries are becoming more aware, they arerealizingthat the property has legally been divested by the original owner.Many instances where children are insisting on their legal right to the property exist.Parents are being faced with either having to relinquish ownership and control of ‘their’ property or admit that the structure is simply a means of avoiding tax and pay the consequences.

Thispartproposes to demonstrate that the concept of the trust held for over a thousand years under the British legal system is drawing to a close.Education and legislation is heralding the demise of that ancient and noble institution in the Australian context and the paper concludes by putting forward various alternatives and solutions to the identified problems.

The structure of thispartis as follows:

SectionA, which focuses on the history and common law issues relating to the components of trusts, the relationships between the parties involved,as well astypes of trusts and their termination;

SectionB, which examines the taxation implications and uses of trusts as tax planning vehicles; and

The conclusion,which argues that political forces, particularly those concerned with taxation, will eventually force people using trusts to adopt some other corporate structure and abandon the establishment of trusts as tax planning vehicles.

The objective of thispartis to examine the concept oftrusts as part of the legal framework of ownership of property in our society.Thetrust is a distinct British institution,although it has been adopted in other jurisdictions, chiefly the United Statesand parts of Latin America where the legal systems are based on civil law. The British Commonwealth of Nations, which essentially comprisesex-colonies or protectorates of Great Britain, has also adoptedtrusts as part of their legal framework.

From their medieval origins,trusts have developed into an extremely diverse and complex means of property ownership and management. The legislation enabling and controllingtrusts, their beneficiaries,and trustees is equally diverse and complex.

Atrust may be defined as a legal relationship created under the laws of equity wherebytheproperty (the corpus) is held by one party (the trustee) for the benefit of others (cestui que trustor beneficiaries).

Thetrust is a unique British institution, descriptive of a relationship of legal ownership and use of property.The uniqueness is that the legal owner of the property does not, norcannot, benefit from the use of the property.Contrary to legal logic, the owner of the property(the trustee)is under an obligation to deal with the property exclusively in the interest of the beneficiaries, in accordance with the terms of the trust.The trustee is therefore estopped from benefiting in any way from his position as trustee of the trust.Any benefit arising deliberately or inadvertently to the trustee becomes the property of the beneficiary and is termed a constructive trust.

The modern trust began its existence as the medieval Englishuse:

In medieval England a landholder sometimes transferred the title to his land to another person who held it‘to the use of’the transferor or of another.[26]

The duty was originally imposed as a moral obligation and was enforced as a matter of equity by the Court of Chancery which was a quasi-ecclesiastical court.

In 1536 the English parliament enacted theStatute of Usesto put an end to the separation of legal and equitable estates.

The statute ‘executed theuse’, that is, it turned the legal title over to the beneficiary(settled the trust).The courts held, however, that the statute applied only to certain interests in land, not to trusts of personal property, or to transfers in which the transferee was given duties to perform.[27]

Other deficiencies that caused the statute to be defeated were that if the owner(feoffee)“as acestui que usehas a beneficial interest in the land; and where there was a use on a use,…only the first use was executed by the statute.”[28]Thus the use evolved into the trust.[29]

The term ‘trust’ evolved to distinguish it from its predecessor the ‘use’. Although theStatute of Useswas never repealed, the uses gave way to trust and by the end of theseventeenthcentury trusts were an established part of asset protection and tax planning.

Just as the use gave way to the trust, the development oflegislation forcorporations’and companies in thenineteenthandtwentiethcenturies has heralded the demise of the trust.Trusts however continue to be used as asset protection and tax planning vehicles into thetwenty-firstcentury.However,it is doubtful that,with changes to legislation and education of commerce and industry,they will continue in thetwenty-secondcentury.Thetwenty-firstcentury will be for the trust,as theseventeenthcentury was for the‘use’.

SectionA—Common LawIssuesRelating toTrusts

Chapter Three—ThePurposeandHistory ofTrusts

Send in the archers!

Sire we have infantry in there!

Good point. Do we have reserves? Yes Sire. Good.Send in the Archers!

(Attributed toEdward I (Longshanks)1296 at the Battle of Falkirk;King of England1272–1307;1239–1307)


This chapter provides a brief historical narration of the conception and evolution of the modern trust.It looks at the basic elements of a trust and briefly examines how trusts can be established for the purposes of tax avoidance or tax planning.


The trust is embodied in Britishlaw and owes its genesis to themedievalknights and their codes of conduct.The codes of conduct of the medieval knights were such that the concepts of fairness, justice,and faith were ingrained into their learning, teaching,and culture.Interestingly these codes did not extend to thefavorsof ladies.The nobleness of theknight did not extend from the field of combat to the boudoir and many stories abound, fact or fiction, of the knights’ sexual conduct.

The famed King Arthur, Lancelot,and Genevieve may be fact or fable but the conduct was very real.The knights weredisfavoredby the Christianchurch and eventually persecuted by the same.One of the pretexts put forward by the Pope and his Cardinals for ‘dealing with’ the Knights Templar, was their lack of obedience to the sixth and ninth commandmentsof the Catholicchurch.

In truth it was the Knights Templar immense fortunes and debts owed to them through theirskillfuland successful banking ventures that brought about their demise.[30]The fortunes were too tempting for the evil King Philip(the fair)[31]who plotted with the weak and foolish Pope Clement V, to destroy the noble knights and take their wealth.

Though successful in persecuting the Knights Templar, the fortune was never procured by the conspirators.“When the King’s agents visited the Templar treasury immediately after the first arrests, their great treasure, the very cause and objective of[the]brutal enterprise, had vanished without trace, as had almost the entire Templar Fleet.The King had been foiled.French Masonic ritual indicates that Scotland was designated as the place of refuge or safe keeping for the Templar treasures.”[32]

Fact or fable, the codes ofknightly conduct of fairness and equity became embodied in Britishlaw and Britishlaw only.

As mentioned earlier the trust is a transfer of property from one party (settlor/testator,if by will) to the use of another (trustee) for the benefit of yet another (beneficiary).

Trusts consist of four essential elements:

1.Trust property—thecorpusor body;

2.Thetrustee—the person or entity in whom thecorpusis entrusted;

3.Beneficiaries—the persons on whose behalf the property is managed, the owners; and

4.Thedeed or instructions—the documentthatoutlines the manner in which the trust property is to be dealt with on behalf of the beneficiaries.[33]

These essential elements are required to carry out the purpose of the trust.The trust is not simply the transfer of property from one party to another in the legal sense as is a sale or a bequest.The transfer is subject to ongoing terms and conditions as to the administration of the property.

The ultimate transfer from the settlor to the beneficiaries cannot be prevented forever. The rule against perpetuities prevents indeterminable trusts.[34]Thematter ofultimate transfer was not alwaysso. Prior to 1536,theusewas indeed indeterminable;however,it“became so popular as a tax(avoidance)device that in 1535King Henry VIII passed theStatute of Uses[35]which executed the use by conferring legal ownership on the person the use was intended to benefit.”[36]

TheStatute of Useswas unfortunately readily circumvented.It only applied to real property.Furthermore,only passive uses were affected and active duties imposed on the owner of the property(feoffer)prevented theuse from being executed.Including the owner(feoffer)as abeneficiary (cestui que use)alsoprevented execution.If there was a use on the use, that is,asecond trust,onlythe firstuse (trust)could be executed.Therefore,by ensuring theStatute of Useswas negated,by including appropriate terms in the deed,the executionof the usecould be circumvented.

The term‘trust’came intoexistenceto distinguish it from its predecessor. By theseventeenthcentury,it was easy to ensure trusts became enforceable and through theStatute of Uses(never repealed), the trust remained in use as a tax planning vehicle.

Its secondary, and indeed its initial, purpose of protecting and distributing family assets remain in place today.The development of corporations and family companies under respective national company laws is taking the place of trusts in modern commerce.

The trust continues to be used for many reasons:protection of assets, charitable purposes, provision for family members, commercial ventures, for example Property Trusts, avoidance of certain statutes—Inheritance Acts, Family Law Act1957, Bankruptcy Act, and of course for tax planning.

Modernpracticesandantitaxavoidance legislation as outlined later will eventually foreshadow the ultimate demise of trusts in Australia.They may however continue in other jurisdictions, particularly the developing ex-British colonies for many years as a tax avoidance vehicle and to isolate assets from creditors, governments,and other parties interested in assets being the property of the settlor.

It must be noted thatwhilethe trustee holds the property of the trust for and on behalf of others, the beneficial ownership of a particular part of the trust is not necessarily that of specific beneficiaries.Several cases have rejected the concept that the beneficiaries have a distinct and identifiable ownership of trust assets.[37]

It was held inCharlesv.Federal Commissioner of Taxation[38]“that a unit holder in a unit trust had a‘proprietary in all the property which for the time being is subject to the trust’[39][and] led the Victorian Supreme Court to say that a holder of a unit‘in a unit trust’had‘a proprietary interest in each of the assets which comprise the entirety of the trust fund’.”[40]

The cases of Glennv.Federal Commissioner of Land Tax;[41]CPT Custodian Pty Ltdv.CSR(Vic)[42]and Halloranv.Minister Administering National Parks & Wildlife Act 1974(Hallorancase)[43]reject that precept and found that there in fact may“not be anyone who is the beneficial owner of the assets owned by the trustee.”[44]It is apparent that unless the trust is an extremely simple one, that is,one asset with one beneficiary the clear link between the asset and its beneficial ownership may be difficult if not impossible to establish.

Further,it appears that unlessit is the situationof a simple trustwhereonly one beneficiary exists,as in the case ofBakerv.Archer-Shee,[45]the dividends distributed by a trustee may not bear any relationship to the character of the profits to the trust.

The change in character is particularly important to the treatment of trust profits for income tax purposes.Capital gains, primary production profits, dividend,and foreign income are all treated differently to income according to ordinary concepts under the provisions of the Australian income tax assessment acts.The change in nature of the income may be critical to the treatment of the distribution in the hands of the benefici