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07 Aug 14 Taxpayers refused leave to appeal interlocutory judgment - Oswal

The Federal Court (Foster J) has refused the taxpayers (who were husband and wife) leave to appeal to the Full Court of the Federal Court from the judgment of Edmonds J in Oswal v FCT [2013] FCA 745.

Edmonds J answered two preliminary questions in proceedings brought by the taxpayers in respect of various objection decisions made by the Commissioner disallowing the taxpayers' objections to assessments. The taxpayers sought leave to appeal in respect of only one of the questions answered by Edmonds J adversely to the taxpayers. Leave was necessary because Edmonds J's judgment was an interlocutory judgment.

The two questions involved the taxation consequences of the following resolution made on or about 13 March 2007 by one of the taxpayers (Mr Pankaj Oswal) in his capacity of trustee of a trust known as the Burrup Trust:

"I, Pankaj Oswal, being the Trustee of the Burrup Trust and having obtained consent of the Guardian of the Burrup Trust, do hereby resolve pursuant to Clause 17.1 of the Deed of Trust, to appoint for the absolute benefit of the named beneficiaries below, a part of the corpus of the trust as detailed below. Henceforth the corpus so appointed and income or accretion of capital there from shall be held on separate trust and for the absolute benefit of the named beneficiaries in their own individual capacities.

Mr Pankaj Oswal - 574 shares in Burrup Holdings Pty Ltd
Mrs Radhika Oswal - 574 shares in Burrup Holdings Pty Ltd."

The first question considered by Edmonds J (and the one in respect of which leave to appeal was sought) was as follows:

"Whether either CGT event E1 or CGT event A1 happened in relation to any of the shares in Burrup Holdings Pty Ltd held by the trustee of the Burrup Trust at any time during the income year ended 30 June 2007, pursuant to either s 104-55 or s 104-10 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997)."

CGT event E1 happens "if you create a trust over a CGT asset by declaration or settlement".

Edmonds J answered this question as follows:

"Yes; CGT event E1 happened in relation to 902 shares in Burrup Holdings Pty Ltd during the income year ended 30 June 2007 pursuant to s 104-55 of the ITAA 1997."

Edmonds J did so on the basis that the resolution was both a declaration of trust and a settlement within the meaning of those words in s 104-55 (CGT event E1).

On the application for appeal, the taxpayers argued (amongst other things) that Edmonds J's decision in respect of this question was attended by sufficient doubt as to warrant a grant of leave to appeal.

In rejecting the taxpayers' submission, Foster J said, at paras 40-41:

"In the language of the resolution itself, the corpus so appointed and all income and accretion of capital thereafter achieved in respect of that corpus is to be held '... on separate trust and for the absolute benefit of [Mr and Mrs Oswal] in their own individual capacity'.

Thus, the resolution itself contemplates the creation of a separate trust, that is to say, a trust which is separate from the Burrup Trust..."

Leave to appeal was refused: Oswal v FCT [2014] FCA 812 (Federal Court, Foster J, 4 August 2014).

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