Wikiversity Law Reports/Charles v Commissioner of Taxation

This is a Wikiversity Law Report.

High Court of Australia

TL;DR: Monies received by a trustee and distributed to a beneficiary have the same character, for income tax purposes, in the beneficiary's hands as they had in the trustee's hands. Capital gains do not become ordinary income just because they flow through a trust.

Facts

• The Income Tax Assessment Act 1936 (Cth) imposed tax on ordinary income but not on capital gains. In relation to amounts received by trustees, the Act imposed tax on the beneficiaries of the trust.
• The taxpayer held a unit in a unit trust which had been set up to hold investments in certain companies and securities. The trust deed required the trustee to pay out the 'cash produce' of the trust fund every six months.
• The trustee of the unit trust derived dividends and interest as well as proceeds from the sale of investments, and distributed this to the taxpayer.

Held

• A unit holder's interest in a unit trust is distinct from a shareholder's interest in a company. A unit holder in a unit trust has a proprietary interest in the assets of the trust: 90 CLR 598, 609. [Note, this finding was read down in CPT Custodian v Commissioner of State Revenue (2005) 224 CLR 98.]
• Monies received by a trustee and distributed to a beneficiary have the same character, for income tax purposes, in the beneficiary's hands as they had in the trustee's hands. Capital gains do not become ordinary income just because they flow through a trust.

Other publishers' references

• [1954] HCA 16
• (1954) 90 CLR 598