Tax Office tries to stop company transferring land after large tax assessment – which case won?
Tax assessment results in $7 million tax bill
Following a tax assessment, the corporate trustee of a family trust was found to owe $7 million to the Tax Office. The company held nine properties for the trust and, after receiving the tax bill, the company put into effect a complicated restructure to transfer ownership of those properties.
Nine new trusts created and ownership of properties transferred from family trust
Basically, the company became the trustee of nine new trusts (one for each property) and made declarations that each property was owned by these new trusts and not the original family trust. The nine new trusts paid the family trust for these properties and the family trust used this money to repay a loan owing to the owner of the company.
The practical effect was that the owner of the company was now a “preferred creditor” ahead of the Commissioner of Taxation and that the Tax Office would most likely not be paid.
Were the declarations an “alienation” of property?
The Commissioner brought proceedings alleging that the declarations amounted to an “alienation of property” – meaning the transfer of title to a property from one party to another – designed to defraud creditors, specifically the Tax Office. If the Commissioner was right, that would mean that the property transfers could be held void.
The Court of Appeal had to determine whether the restructure was legal.