Experienced Sydney tax lawyer loses out to the commissioner … Transactions were too ambiguous to be loans … Not enough detail to support the taxpayer’s claim … Nick Bonyhady reports from court-side
In the Federal Court, Justice Steven Rares upheld the decision of the Administrative Appeals Tribunal, which in turn had largely upheld the ruling of the Commissioner of Taxation.
Despite describing Rowntree as an “experienced lawyer with academic qualifications in law, finance and taxation”, Justice Rares found that the tribunal’s ultimate judgment properly “reflected [Rowntree’s] failure to attend to the detail of what, in fact, he had done to ensure that it accorded with his beliefs”.
At issue before Justice Rares was how Rowntree’s evidence of his subjective intention to loan the money should be weighed against the lack of any objective contemporaneous evidence that several of the payments were loans.
According to Rowntree, “the tribunal’s finding of his genuine belief, that all his relevant receipts were loans, was sufficient to establish that they actually were loans …”
However, this was a case where the beliefs had not been converted into loans “in fact or law”.
Rowntree’s financial arrangements were complex, but his dealings with one company, BR Redd Holdings Ltd, in the 2010 financial year are illustrative of his practices.
On August 12, 2009, Voluntary Credits Ltd, a Malaysian company, paid $500,000 to its sole shareholder, BR Redd, which was an Australian company limited by guarantee. On the same day, Redd transferred $500,000 to Rowntree himself, who was Redd’s main shareholder.
Justice Rares described Voluntary Credits’ business as “developing carbon emissions trading schemes and forward selling what were called ‘REDD credits’.”
Numerous similar sets of transactions involving several companies controlled by Rowntree took place across the next few years totalling almost $4 million.
Only two payments, worth a combined $1.08 million, were found to be genuine loans. That was because one was made after Rowntree had signed a loan agreement with one of his companies, Gallerius Holdings, and the other had been made very shortly before. The ADT found that the first payment had been “in such close temporal proximity that it is difficult to conclude that it was not made as part of the overall loan arrangement based simply on the timing”.
Justice Rares did not disturb that finding.
Rowntree also entered into prospective agreements with some of his other companies setting out that future payments from those companies to himself would be in the form of loans. However, these agreements were only entered into after the relevant payments had been made.
Consequently, Rares found that all of the other payments were not loans. He noted that the tribunal had correctly found that …
“there was no business record of any kind to suggest that a loan had occurred in respect of any of the challenged receipts. No interest was paid, nor was any entitlement to interest recorded in any of Mr Rowntree’s companies’ books or tax returns …”
While HH did not discard Rowntree’s evidence of his intentions, he found that it was not enough to show that the parties had entered into a loan agreement.
“While the Tribunal accepted that Mr Rowntree believed that he had contracted for a loan, what he did, on its analysis, was too ambiguous or uncertain to be viewed, in fact or law, as a legally binding contract for loan”.