It is not generally purported to have retrospective effect, but rather records in writing the contents of an actual decision made (e.g. by meeting) by the parties that was not recorded in writing at the time of that decision.

In this case the years in question were the 2015, 2016 and 2017 income years for the Goldenville Family Trust, which was established on 24 March 2009 and was a discretionary trust. It had a corporate trustee.

The Trust was originally controlled by Mr Harry Huang as sole director, company secretary, and shareholder of the corporate trustee.

In January 2013 Mr Huang’s wife, Mrs Li Fang Huang, became the sole director, company secretary, and shareholder of the corporate trustee.

Between July 2019 and May 2021, the Commissioner for Taxation conducted an audit of the affairs of the Trust. This resulted in income tax assessments or amended income tax assessments for the Trust and various beneficiaries of the Trust. These were objected to and the objections were not allowed. The application to the Tribunal was then filed.

The decision of the Tribunal concerned two issues, one being whether the trust distribution resolutions for each of the 2015, 2016 and 2017 income years were made before 30 June (or alternatively the default distribution had been made under the trust deed) and characterisation of certain income of the Trust.

The characterisation question will not be covered in detail in this case note. The Tribunal targeted eight broad issues with the evidence the parties had to conclude that, even if the trust distribution resolutions were valid, the income of the Trust in any of the relevant years would not have been established by the evidence as interest income. The parties sought beneficial tax treatment for interest income of the Trust distributed to Mr Huang’s sister in China as a non Australian resident.

Resolutions of the sole director Mrs Huang were dated 30 June 2015, 30 June 2016 and 30 June 2017, purporting to distribute the vast majority of the income of the Trust in each of the years in issue to Mr Huang’s sister in China, Ms Xiangming Huang, the First Applicant.

Through lengthy discussion of the evidence of Mr Huang and Mrs Huang, both given through an interpreter in Mandarin, it was found that Mrs Huang relied on Mr Huang to make her sole director decisions and so Mr Huang acted as the shadow director of the corporate trustee.

Mr Ming-Cheng Hung was the accountant for the Trust who also gave his evidence through an interpreter in Mandarin, but with some English.

Broadly, a pattern emerged from the evidence of Mr and Mrs Huang that they did not know the amounts to be distributed from the Trust until the accountant Mr Hung had prepared its financial statements. Mr Hung would notify Mr Huang of income of the Trust, which was in some cases evidenced to have been notified before 30 June for Mr Huang to decide on the distribution before 30 June.

However the Tribunal’s findings followed a pattern that considered the actual decision to distribute the amounts stated in the “memorialised” trust distribution resolutions dated 30 June 2015, 30 June 2016 and 30 June 2017 (i.e. they were likely signed after 30 June 2015, 30 June 2016 and 30 June 2017 respectively) to have been made once Mr Hung had provided financial statements for the Trust in the following March after 30 June.

The Tribunal also found in all cases that it was unlikely that Mr Hung conferred with Mrs Huang before 30 June in each relevant financial year to decide upon the distributions as stated in the memorialised trust distribution resolutions because Mrs Huang could not have instructed or agreed with Mr Huang to distribute the stated amount in the resolution without the actual income figures for the Trust provided by Mr Hung around March the following year.

Therefore all three trust distribution resolutions were found to be invalid and as a result all the income tax assessments would be set aside on the basis that the default beneficiaries had become presently entitled to the Trust income on 30 June 2015, 30 June 2016 and 30 June 2017 in accordance with the default annual income distribution clause in the trust deed.

This decision is useful in setting out the consideration of a chronology of events and how the Tribunal would conclude that Mrs Huang as sole director under Mr Huang’s direction as shadow director could not have come to such a decision before the financial statements were provided to them.

Much criticism of Mr and Mrs Huang’s witness evidence was given by the Tribunal including that Mr Huang could not recall if what he said in his witness statement was correct on important details and that Mrs Huang’s responses seemed to be subject to a great deal of pre-preparation which may have resulted in her evidence not being reflective of her own direct knowledge and recollections.

This case illustrates that a written resolution, especially if it is confirmatory, will not always be accepted on face value and must be backed up by evidence of the actual decision being made. Or more particularly, if the resolution can be inferred as being at odds with the factual circumstances, then it will likely be found as invalid if held to scrutiny. The ATO makes note of its approach here in QC 25912.