04 Feb 14 Sole director and shareholder of trustee company did not "control" trust - Gutteridge
The AAT has held, for the purposes of the CGT small business reliefs in ITAA 1997, that a trust was not controlled by Sarah McKenzie, the sole director and shareholder of company acting as trustee of the trust but, instead, was controlled by Timothy Gutteridge, Ms McKenzie's father.
In the income year in question, the trust sold 50% of its business to a third party and, consistently with what had occurred in previous years, distributed all of the trust's income, including in this case its capital gain on the sale of the business, to Mr Gutteridge and his wife. Mr and Mrs Gutteridge claimed the 50% small business reduction provided for by s 152-205, the small business retirement exemption provided for by s 152-305 and the small business roll-over provided for by s 152-410.
The Commissioner argued that Ms McKenzie, being the sole director and shareholder of the trustee company, was a controller of the trust and, therefore, the trust was connected with another entity owned and controlled by Ms McKenzie (Jigsaw), with the effect that the trust was not eligible for any of the Division 152 Small Business Relief. This was because, taken together, the aggregated turnover of Jigsaw and the trust exceeded $2 million and the asset values owned by them at the time of the CGT event in question exceeded $6 million. In contrast, if Ms McKenzie did not control the trust, neither of these thresholds was exceeded.
The evidence included the following:
- During the relevant period, Mr Gutteridge gave advice and support to Ms McKenzie on the running of the business of the trust and she did not act contrary to that advice.
- Notwithstanding that he was not a director (in terms of being “on the record” from an ASIC standpoint), Mr Gutteridge attended meetings of directors of the trustee company with the relevant parties accepting that he played a major role (particularly from a management and finance perspective) in ensuring the successful operation of the trust's business.
- At all material times, the trust was considered by those with relevant knowledge to be a “Tim Gutteridge entity” and, consistent with that, all non-bank funding was provided by Mr and Mrs Gutteridge.
- The appointor of the trust (Mr Coffey) had the power to remove the trustee company.
- Mr Coffey gave evidence to the effect that the trust was controlled by Mr Gutteridge from behind the scenes and that no action is to be taken in relation to the trust unless it is in accordance with Mr Gutteridge’s wishes and/or directions.
- In the event that there was a difference of opinion in the running of the trust (which had not happened) or there were steps to be taken in the running of the trust that were contrary to Mr Gutteridge’s wishes, Mr Coffey would act in accordance with any directions from Mr Gutteridge including, if necessary, removing a trustee from that role.
- Mr Coffey stated that he would disregard any instructions or entreaties from Ms McKenzie to the contrary.
In finding for the taxpayers, the AAT said at paras 23-24:
"The circumstances of the present case call for conclusions that the Trust was not accustomed to act in accordance with Ms McKenzie’s wishes independently of her father’s wishes in circumstances where her wishes and directions were her father’s. She was acting as the director of the trustee in circumstances where the trustee could be removed at the will of Mr Coffee [sic] and Mr Coffee [sic] regarded himself bound by the wishes and directions of Mr Gutteridge. Further, if it were necessary to find that Ms McKenzie was a puppet director, or that Mr Gutteridge was a shadow or de facto director, there is ample material on which to rest such a finding...
The facts as found above require a finding that Mr Gutteridge alone was the person who controlled the Trust within the meaning of s 328-125(3) of the 1997 Assessment Act. Accordingly, as that was the only matter in controversy, the Applicants have demonstrated that the Trust is entitled to the Small Business Relief as claimed."
Gutteridge and FCT  AATA 947 (AAT, O'Loughlin SM, 24 December 2013).