FEDERAL COURT OF AUSTRALIA

Larmar v Commissioner of Taxation [2026] FCA 826

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant’s taxation appeal be dismissed.

2.    The parties are to be heard on the question of costs.

3.    By 4pm, on 8 July 2026 the Applicant file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

4.    By 4pm, on 17 July 2026 the Respondent file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

5.    By 4pm, on 22 July 2026 the Applicant file and serve any affidavits and written reply submissions (of no more than 2 pages) on the question of costs.

6.    Upon receipt of the Applicant’s submissions in reply, the question of costs will be reserved for judgment on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant’s taxation appeal be allowed.

2.    The parties are to be heard on the question of costs.

3.    By 4pm, on 8 July 2026 the Applicant file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

4.    By 4pm, on 17 July 2026 the Respondent file and serve any affidavits and written submissions (of no more than 5 pages) on the question of costs.

5.    By 4pm, on 22 July 2026 the Applicant file and serve any affidavits and written reply submissions (of no more than 2 pages) on the question of costs.

6.    Upon receipt of the Applicant’s submissions in reply, the question of costs will be reserved for judgment on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHEATLEY J:

INTRODUCTORY OVERVIEW

1    Mr Larmar brings a taxation appeal (QUD 484/2022) against the objection decision of the Commissioner of Taxation dated 1 November 2022 in relation to the financial years ending 30 June 2005 to 2014 (the Relevant Years) (First Objection Decision). The First Objection Decision was as a result of Mr Larmar’s Objection dated 11 September 2017 to the notices of amended assessment for the Relevant Years dated 12 July 2017. The Commissioner determined that additional income, in the nature of fees associated with certain property syndicates was assessable as the ordinary income of Mr Larmar.

2    E H Larmar Services Pty Ltd as trustee of the Larmar Family Trust No 2 (Services) also brings a taxation appeal (QUD 167/2023) against an objection decision of the Commissioner regarding the alternative assessments issued by the Commissioner to the Larmar Family Trust No 2 (LFT2), for the Relevant Years dated 6 March 2024 (Second Objection Decision). Mr Larmar was the sole director and shareholder of Services for the Relevant Years. It is contended that Services only acted in a trustee capacity. The alternative assessments were issued on the basis that the Commissioner believed that an alternate position was correct and therefore the additional income was assessable to LFT2 and not to the beneficiaries of LFT2.

3    Both of these taxation appeals were heard together in the Court’s original jurisdiction.

4    Mr Larmar provided tax agent and chartered accountancy services as a sole trader, trading as EH Larmar & Co (Firm). Over the years, Mr Larmar established various property syndicates. Broadly, the Applicants (both Mr Larmar and Services) contend that income was derived by LFT2 from the property syndicates. That income was returned by the beneficiaries of LFT2. Central to the determination of these appeals is whether that additional income (variously described) was correctly returned or whether it is the assessable income of Mr Larmar as ordinary income or personal services income. Alternatively, whether that additional income, is part of the net income of LFT2 and then whether any of the beneficiaries are presently entitled to that income.

5    The Commissioner may amend an assessment, depending on the particular circumstances, within 2 or 4 years of the day on which notice of the assessment is given. However, the Commissioner may amend an assessment at any time, if he is of the opinion that there has been fraud or evasion. As the Relevant Years span from 2005, it is also necessary to consider whether the Commissioner properly formed the opinion that there had been evasion. In the absence of evasion, the Commissioner is unable to amend some of the earlier assessments.

6    The parties provided an agreed list of issues for determination. The third issue was whether the Commissioner had the necessary power to amend the assessments by forming the opinion that there had been evasion. The Commissioner did not base his opinion on fraud. Logically there is support for this being the first issue, as if the Commissioner did not have the necessary power to amend the assessments, other issues need not be determined. However, the parties agreed and submitted that to properly consider this issue, the context of the other issues was relevant. In these circumstances, this is an appropriate way to proceed.

7    The Applicants initially submitted that there were two aspects of the dispute regarding the evasion opinion. First, whether the relevant officer was authorised to form the opinion of evasion and second whether the decision that there was evasion was actually made or contained legal error. Ultimately, however, the first issue that the officer was not authorised, was withdrawn.

8    Therefore, having considered how the parties framed the issues, the matters to be decided can be stated as follows:

(1)    In relation to Mr Larmar, has he discharged his burden of proof:

(a)    that the amended assessments issue to him for the Relevant Years are excessive or otherwise incorrect and what the assessment should have been, because the additional income for the Relevant Years:

(i)    was not the ordinary income; or

(ii)    was not the personal services income,

of Mr Larmar.

(b)    that the Commissioner did not form the requisite opinion that there had been evasion or that the opinion was vitiated by an error of law, in the sense described in Avon Downs Pty Ltd v Commissioner of Taxation (Cth) (1949) 78 CLR 353; [1949] HCA 26 (Dixon J), such that the Commissioner did not have the required power to issue all of the amended assessments to Mr Larmar for the Relevant Years .

(2)    In the alternative, if Mr Larmar discharges his burden of proof such that the primary amended assessments are set aside, then in relation to LFT2, has it discharged its burden of proof:

(a)    that the alternative assessments issued to it for the Relevant Years are excessive or otherwise incorrect and what the assessment should have been, because:

(i)    the additional income should not be included in the calculation of the net income of LFT2, including whether there are any presently entitled beneficiaries;

(ii)    deductions for donations should have been allowed;

(iii)    there were valid distributions of net income to beneficiaries; or

(iv)    default beneficiaries were presently entitled to a share of the net income of LFT2.

(b)    that the Commissioner did not form the requisite opinion that there had been evasion or that the opinion was vitiated by an error of law, in the sense described in Avon Downs, such that the Commissioner did not have the required power to issue the alternative amended assessments for 2007 and 2008 income years.

9    For the following reasons Mr Larmar has failed to discharge his onus to establish that the primary assessments issued to him are excessive. Mr Larmar’s taxation appeal will be dismissed.

10    The primary amended assessments represent the “true state of the affairs” and the liability of Mr Larmar, as the correct taxpayer, has been established: B&F Investments Pty Ltd atf Illuka Park Trust v Commissioner of Taxation (2023) 298 FCR 449; [2023] FCAFC 89 (Moshinsky, Colvin and Hespe JJ) at [83]. As such, the alternative assessments are necessarily excessive and the appeal in relation to those assessments must be allowed. It is not necessary to consider those further.

ARE THE ASSESSMENTS TO MR LARMAR EXCESSIVE?

11    Since late 1989 Mr Larmar provided tax agent and chartered accountancy services, as a sole trader by way of the Firm. Mr Larmar qualified as an accountant in 1965 and became a registered tax agent in November 1989. Mr Larmar was the only registered tax agent of the Firm. Services was incorporated on 5 October 1989 and LFT2 was settled by way of a Trust Deed dated 1 November 1989. During the Relevant Years Mr Larmar was the sole director of Services and one of the primary beneficiaries of LFT2.

12    The parties predominantly referred to the entity, Services, although LFT2 is regarded as an entity under Income Tax Assessment Act 1997 (Cth) (the 1997 Act): s 960-100(f). Services only acted in a trustee capacity and as such a reference to Services is a reference to Services as trustee for the LFT2. Where it is necessary to refer the Trust, LFT2 of itself it will be referred to in this way. However, as LFT2 can only act by way of its trustee, generally Services is referred to in these reasons.

13    On 19 August 2014 the Commissioner gave notice to Mr Larmar that he would be commencing an audit of Mr Larmar and his associated entities.

14    The audit concluded on 12 July 2017. The Commissioner determined that Mr Larmar’s assessable income was to be increased by certain income associated with the various property syndicates and issued amended assessments to Mr Larmar. This was on the basis that the Commissioner determined that the Mr Larmar derived personally that additional income from the property syndicates, as ordinary income under s 6-5 of the 1997 Act.

15    Mr Larmar accepted that he established various property syndicates. The income earned from the various property syndicates falls into the following different categories:

(a)    fees charged for the creation and management of the property syndicates, described as property management fees (or simply management fees);

(b)    fees charged for particular events:

(i)    brokerage fees - charged for new capital introduced;

(ii)    success fees - if and when a property was sold or a significant revaluation occurred; and

(c)    project management consultancy fees.

16    Mr Larmar contends that he and LFT2 properly returned the income attributable to each of them, such that the amended assessments to him are excessive: s 14ZZO of the Taxation Administration Act 1953 (Cth) (TAA). Mr Larmar accepts that he bears the onus of proving that the amended assessments are excessive and what the assessments should be. Mr Larmar contends that the additional property syndicate income attributed to him, was properly returned by LFT2, it having derived that income and then returned by its beneficiaries. He contends that the evidence should be approached in accordance with the principles enunciated by Steward J (then of this Court) in Commissioner of Taxation v Cassaniti (2018) 266 FCR 385; [2018] FCAFC 212 at [88], with whom Greenwood and Logan JJ agreed. However, the observations of Logan J in Cassaniti at [3]-[6] must also be kept in mind. It was not in dispute that Mr Larmar and LFT2 bears the onus of establishing that the assessments are excessive or otherwise incorrect and what the assessments should have been or what is “more nearly right”: Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63; [1936] HCA 77 at 88 (Latham CJ); Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614; [1990] HCA 3 at 623–625 (Brennan J) and at 632–634 (Toohey J); s 14ZZO(b)(i) of the TAA.

17    The additional income which has been attributed to Mr Larmar, can be summarised over the Relevant Years as follows (Property Syndicate Fees):

[footnote references omitted]

What is Ordinary Income?

18    The Commissioner submits that the Property Syndicate Fees are the ordinary income of Mr Larmar under s 6-5 of the 1997 Act.

19    Relevantly s 6-5 provides as follows:

Operative provisions

6-5    Income according to ordinary concepts (ordinary income)

(1)    Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Note:    Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

(2)    If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3)     …

(4)    In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

20    Various factors may be relevant to determine whether the character of the receipt is income or capital: G. P. International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124; [1990] HCA 25 at 138 (Brennan, Dawson, Toohey, Gaudron and McHugh JJ). Characteristics such as periodicity, regularity, or recurrence are relevant and have been considered to be a hallmark character of income: Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199; 1987] HCA 18 at 215 (Mason ACJ, Wilson, Brennan, Deane and Dawson JJ). However, that a receipt is periodical of itself will not be determinative, it is necessary to consider the totality of the circumstances to determine the proper character of the receipt: Federal Commissioner of Taxation v Anstis (2010) 241 CLR 443; [1952] HCA 65 at [20] (Dixon CJ and Williams J).

21    Sometimes the character of the right or thing disposed of in exchange for the receipt or by the scope of the transaction or the reason by which money is received, will be relevant: Pipecoaters at 138. If the receipt was depended on for regular expenditure (by the taxpayer themself and family), then that has the character of income: Federal Commissioner of Taxation v Dixon (1952) 86 CLR 540 at 557.

22    It is an objective determination: Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47; [1956] HCA 21 at 55 (Fullagar J). The determination depends upon whether the particular receipt is income in the hands of the recipient: Scott v Federal Commissioner of Taxation (1966) 117 CLR 514; [1966] HCA 48 at 526 (Windeyer J); Hayes at 55; Pipecoaters at 136. Although the receipt must necessarily “come in”, it need not be paid over to the taxpayer, it is sufficient if it is applied or dealt with on behalf of the taxpayer or at the direction of the taxpayer: s 6-5(4) of the 1997 Act; Commissioner of Taxation v White [2010] FCA 730 at [25] (Gordon J); Haritos v Commissioner of Taxation (2015) 233 FCR 315; [2015] FCAFC 92 at [241]-[243] (Allsop CJ, Kenny, Besanko, Robertson and Mortimer JJ).

23    The essential nature of the inquiry is whether the receipt is properly regarded as income in accordance with “the ordinary concepts and usages of mankind”: Anstis at [13].

24    Generally, a taxpayer will prove an amount is not assessable as ordinary income, under ordinary concepts, by proving what the amount represents and demonstrating that the amount represented is not ordinary income, including to that particular taxpayer: Commissioner of Taxation v Liang (2025) 307 FCR 1; [2025] FCAFC 4 at [43] (Perram, Wheelahan and Hespe JJ).

The Property Syndicates

25    Mr Larmar accepted and the evidence established that 12 property syndicates were relevant and from which the Property Syndicate Fees were paid. These are described as follows.

31 Station Road

26    Around 6 December 2006, Cityview Properties Pty Ltd and Quinvalley Pty Ltd registered as a partnership trading under the name “31 Station Road Joint Venture”. There is no written partnership agreement or a written joint venture agreement in evidence for this property syndicate. There is also no evidence of any invitation or investment letter or any acceptance forms by investors, in relation to this property syndicate.

27    During the Relevant Years, Mr Larmar was a director and shareholder of each of Cityview and Quinvalley. This property syndicate was in relation to a property at 31 Station Road, Indooroopilly.

28    There was to be no brokerage fees charged on 31 Station Road.

29    The profit and loss statements for 31 Station Road relevantly records management fees as an expense for the years ending 30 June 2007 (with the earlier comparison year, 2006 recording nothing) to 2014.

Ashgrove

30    Around 1 September 2007, the Tribune Properties Investment Group (being Tribune Properties Pty Ltd) and the Ashgrove Trust entered into a joint venture to develop a property at Ashgrove. The written joint venture agreement is dated 8 January 2008 for the “Ashgrove joint venture”. It provides (clause 6.2) that “E.H. Larmar Services” (which is defined as E.H. Larmar Services Pty Ltd) will provide project management services, which for the second phase, is to be in accordance with a “property management agreement”. The fees to be charged are to be the subject of agreement. A property management agreement or other agreement recording the fees to be charged, is not in the evidence for Ashgrove.

31    The profit and loss statements for Ashgrove, relevantly records management fees as an expense for the years ending 30 June 2008 (with the earlier comparison year, 2007 recording nothing) to 2014.

Bayswater

32    Bayswater Road Properties Joint Venture was the registered trading name for a partnership formed between a number of entities. Bayswater registered for a tax file number around 12 May 2000. Bayswater developments occurred in Townsville and later Sarina. There was no written joint venture agreement for this property syndicate.

33    Initially Bayswater was targeting a property on which a BBC Hardware House was proposed on Compton Road, Underwood. However, that changed and the syndicate was to acquire a BBC Hardware House to be constructed in Townsville. Mr Larmar, due to a change circumstances decided to change the property, that was to be the subject of the investment. A notice was provided to investors on 22 March 2000 explaining this change. This notice was on the Firm letterhead and although unsigned it is apparent it is from Mr Larmar. In relation to this change of property in which the syndicate would invest in, Mr Larmar stated that this was a “rare happening”.

34    The profit and loss statements for Bayswater, relevantly records management fees as an expense for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014.

35    The balance sheets record a negative amount for brokerage fees, for the years ending 30 June 2007 (with the earlier comparison 2006 year also stated) to 2014, which amounts changed at various times throughout those years.

BPPG

36    The Brisbane Prime Property Group (BPPG) was established in 1991. This was the first larger property syndicate that Mr Larmar established. There was no evidence of a written joint venture agreement for this property syndicate. During the Relevant Years, Mr Larmar, Services and the trustee of the EH Larmar Superannuation Fund were “co-venturers” of BPPG.

37    Initially, Mr Larmar sent prospective investors a letter dated 1 February 1991, inviting investment into the BPPG syndicate. The letter is simply headed “Proposal” and the version in evidence is not on any letterhead. Mr Larmar personally “signed” the letter. Mr Larmar choose which potential investors to send the letter to, who were all clients of the Firm. The proposed investment, in terms of location (CBD or city fringe), price range ($3 million to $6 million) and the financing arrangements (1/3 capital contributions from investors and 2/3 borrowings from a financial institution, including the terms that would be agreed to with that financial institution) were all decisions made by Mr Larmar, without consultation or input by the investors.

38    The proposal letter dated 1 February 1991 (which is written in the first person) relevantly stated that:

(a)    the holding period for the property (yet to be determined) should be approximately five to seven years;

(b)    “(t)he management of the property will be undertaken by my firm, E. H. Larmar & Co, and a competitive fee will be charged on an annual basis for the management and oversight of the property concerned.”;

(c)    A fee will be charged “by me” for putting the group together of 2% of the purchase price of the property;

39    The amount that was to be charged for the management and oversight of the property was determined by Mr Larmar. The proposal letter described that the fee would “be in keeping with what is charged by real estate companies who manage similar sized properties….”. This was not brokerage fees it was a management fees. Mr Larmar said that the management fees were based on time, being the time spent by staff of the Firm and Mr Larmar on the management and oversight of the property. The hourly rate at which that time was charged was not disclosed to the investors, either before they invested or in the financial statements. The management fees were paid into the bank account of the Firm. The invoices which charged the management fees were not provided to the investors. These invoices were on the Firm’s letterhead.

40    Although the proposal letter identified that management fees would be charged by the Firm, Mr Larmar sought to explain that this was a “general statement”, but “in terms of the documentation” it was charged by Services.

41    The 2% fee calculated on the purchase price of the property was accepted by Mr Larmar as being brokerage fees for this particular syndicate and it was regarded as an appropriate amount for his own personal efforts for the establishment and organisation of this syndicate.

42    A further letter was sent to potential investors regarding this proposal dated 14 May 1991, which was on the letterhead of the Firm. Mr Larmar gave evidence that this was the only letterhead that he had and whether it was the Firm or Services, it all came under “that one umbrella”. This letter had attached to it a short form “application for investment in property group”. This application form was addressed to Mr Larmar, care of the Firm. Any person who wished to invest was required to complete the form by nominating an amount to be invested and enclose a cheque for that amount, payable to “E.H. Larmar & Co as the trustee company for this group has yet to be determined”. This application form was the only written document from the investors.

43    Hatham Holdings Pty Ltd was established shortly before the purchase of the syndicate property, so it could acquire that property. The property was a car park, at 53 Albert Street, Brisbane. During the Relevant Years, Mr Larmar was a director and a 50% shareholder of Hatham Holdings. Hatham Holdings operated out of the Firm’s premises and Mr Larmar as director of Hatham Holdings would authorise required payments.

44    The car park property initially purchased by Hatham Holdings for the BPPG, was subsequently re-developed into a 13 level commercial development on top of the car park. The decision to re-develop was made by Mr Larmar in conjunction with Mr Andrew King. Investors were told of the re-development once the decision was made. In undertaking the re-development Mr Larmar was seeking further investment, and he did so by offering a discount and a guaranteed return on the new funds invested. However, no written agreements were entered, again an application was submitted by investors. That application was attached to the letter describing the re-development which was on the letterhead of the Firm.

45    Although at times, Mr Larmar referred to a “dividend policy”, in relation to this property syndicate, there was no formal written dividend policy. Mr Larmar accepted that the decision regarding dividends was his and his alone to make. The investors were not consulted before any decision regarding dividends was made. Generally, on this syndicate, dividends were paid half yearly.

46    Subsequently Hatham Holdings also invested in City Arcade (another syndicate described below). This decision to cross-invest was made solely by Mr Larmar.

47    Later in 2007, Mr Larmar and his wife purchased a 50% share and Hatham Holdings purchased a 50% share in a unit in the Viridian Noosa Residences. Mr Larmar did not consult with investors before the Noosa property was bought.

48    Hatham Holdings acquired two units in Noosa, primarily for the purposes of obtaining rental income. Although this represented a change in investment strategy, moving from only investing in commercial property to also investing in residential property, Mr Larmar did not consult with the investors of Hatham Holdings prior to making these investments. Mr Larmar considered that this was a decision he could make unilaterally, without consulting or notifying any of the investors. Mr Larmar was of the view that the disclosure of such matters in the balance sheet was sufficient for investors. In Mr Larmar’s view, it was only a “very minor change”.

49    The Applicants submit that the objects for each of the syndicates, which permitted investments for “similar purposes” should not be narrowly construed. This, it was submitted, should be taken to mean so long as the investment with the same return (which would include loans or property), not the actual type or characterisation of the asset was the same or similar, that would be sufficient to be within the investment objects.

50    Ultimately, Mr Larmar attributed the success of the BPPG to a team, being himself and Mr Andrew King and Mr Tim Marney.

51    The profit and loss statements for BPPG, relevantly records management fees as an expense for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014. Brokerage fees (described as “brokers charge”) were also recorded as an expense in the year ending 30 June 2014.

City Arcade

52    In about June 1993 the City Arcade joint venture was established, by way of a written joint venture agreement between Hatham Holdings, Mr Douglas Salthouse and Mr Bruce Taylor as trustees of the Wapiti Family Trust (WFT) and Advertising Art Pty Ltd. This syndicate related to a property at 52 Queen Street, Brisbane.

53    Advertising Art was a company controlled by Mr Larmar, which he described as a trustee company, incorporated for investment purposes. Mr Peter Donnelly was the principal executive officer until 8 December 1995 and remained a director with Mr Larmar until Advertising Art was deregistered on 19 August 2009.

54    The written joint venture agreement provided that Quinvalley was the nominee for the City Arcade syndicate. The written joint venture further provided that the management of this joint venture was vested in “E. H. Larmar Services Pty Ltd” which was entitled to charge a reasonable remuneration for its services. Mr Larmar said that the determination of these management fees was based on the time spent and calculated by applying the usual hourly rates applicable.

55    Mr Larmar gave evidence that the invoices for those management fees were issued by Services to Quinvalley, which Mr Larmar, as a director of Quinvalley authorised to be paid. The invoices were not provided to the investors and copies of these invoices were not produced in the evidence.

56    The profit and loss statements for City Arcade relevantly records management fees as an expense for the years ending 30 June 2007 and the earlier comparison year, 2006. In the years ending 30 June 2008 to 2014 the managements fees were zero. There was no financial statement separately provided for the year ending 30 June 2013, however, that year was available as the earlier comparison year was stated on the financial statements for the year ending 30 June 2014.

57    The balance sheets for City Arcade record a negative amount for “brokers charges” for the years ending 30 June 2007 (with the comparison year, 2006 recording this amount at nil) to 2014, in the same amount each year. Again, there was no financial statements separately provided for the year ending 30 June 2013, however, that year was available as the earlier comparison year was stated on the financial statements for the year ending 30 June 2014.

Centrepoint

58    Centrepoint Properties joint venture was established around 1 August 1996, which is the date of a written joint venture agreement regarding this property syndicate. That written joint venture agreement is between E. H. Larmar Services Pty Ltd and Centrepoint Properties Pty Ltd. This syndicate related to a property located at 217 George Street, Brisbane. Mr Larmar gave evidence that there were two joint venture agreements regarding this syndicate, one dated 1 August 1996 and one undated.

59    Both written agreements are relevantly executed and:

(a)    are between the same parties;

(b)    relate to the same property (and provide the ability to purchase other properties recommended by the Manager for similar purposes (clause 5-Objects));

(c)    nominate and define E. H. Larmar Services Pty Ltd as the “Manager”;

(d)    appoint Centrepoint Properties as the agent of the joint venture;

(e)    require Centrepoint Properties to act strictly in accordance with the directions of the Manager;

(f)    has the place of business as the office of the Manager;

(g)    require the Manager to keep and maintain accounts which sufficiently explain the transactions and financial position of the joint venture;

(h)    vest management of the joint venture in the Manager; and

(i)    entitled the Manager to charge a reasonable remuneration for its services.

60    Neither written agreement had the schedule of investors completed. The difference between the two written agreements related to clause 11-Finance.

61    Mr Larmar, during the Relevant Years was a director and shareholder of Centrepoint Properties. Mr Brian Grant was also a director of Centrepoint Properties.

62    The decision as to the dividends to be paid and any redemption of investment in this syndicate, was a final decision solely of Mr Larmar.

63    The profit and loss statements for Centrepoint, relevantly records management fees as an expense, for different relevant properties for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014.

Cityview

64    Cityview Properties Investment Group joint venture was the subject of a written joint venture agreement dated 16 November 1994. This written agreement is between E.H. Larmar Services Pty Ltd and Cityview Properties Pty Ltd. During the Relevant Years, Mr Larmar was a director and shareholder of Cityview Properties. This syndicate related to a property located at 18 Tank Street, Brisbane.

65    The “Manager”, in the written agreement, was defined as E.H. Larmar Services Pty Ltd. Further, that agreement noted that the manager had agreed to act as manager for the Investors. By clause 7 of the written agreement, Cityview Properties was to be the agent of the joint venture and was to act in accordance with the directions of the Manager. Mr Larmar accepted that he controlled the Manager. By clause 15, the Manager was entitled to charge a reasonable remuneration for its services. Mr Larmar alone decided that reasonable remuneration. It was based on time spent, calculated by applying hourly rates. The hourly rates were set by Mr Larmar.

66    There are several completed applications forms by investors for the Cityview joint venture, whereby investors tendered a sum of money for an interest in the joint venture. That application form stated that the investors agreed to be bound by the terms of the written joint venture agreement. However, these investors were not provided with a copy of that written joint venture agreement.

67    This syndicate subsequently bought 62 Astor Terrace, Brisbane. Mr Larmar decided that the joint venture should undertake a major refurbishment of the building. That, together with building vacancies impacted upon the dividends which Mr Larmar decided should be paid to the investors. However, Mr Larmar regarded that there was a degree of flexibility, depending on cashflow constraints, in relation to the payment of dividends. For example, if a particular individual investor required a dividend for their daily needs, Mr Larmar could make a decision alone and pay that particular investor a dividend.

68    The profit and loss statements for Cityview, relevantly record for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2011, an amount for “management fees and commissions” as an expense. In the remaining years from 30 June 2012 to 2014 the expense is recorded as “management fees” (including in the comparison year for 2011, which records the same amount as was previously described as “management fees and commissions”).

69    The balance sheets for Cityview recorded a negative amount for brokerage fees for the years ending 30 June 2007 (with the comparison year, 2006 recording the same amount) to 2014. The amount recorded in the balance sheet for brokerage was the same for 2006-2010 inclusive. The amount changed for the 2011 and 2014 year, but was again consistent for the years 2012-2013.

Meridian

70    In 1999 a written joint venture agreement was entered into for the Meridian Properties joint venture. The agreement was between Meridian Properties No 2 Pty Ltd (MP2) (as Manager), Meridian Properties Pty Ltd (MP) (as Nominee) and the investors. During the Relevant Years Mr Larmar was a director and shareholder of both MP and MP2. The agreement is executed by Mr Larmar for MP2, MP and for himself. Mr Larmar controlled MP2. This syndicate related to a property located at 196 Wharf Street, Brisbane.

71    The Nominee, MP was the agent of the joint venture and was to act strictly in accordance with the directions of the Manager, being MP2 (clause 7). The management of the joint venture vested in the Manager, who was entitled to charge a reasonable remuneration for its services. The investors were named in the schedule as

(i)    Penyard Pty Ltd as trustee for the Meridian Properties Trust No 1;

(ii)    Penyard as trustee for the Meridian Properties Trust No 2;

(iii)    Penyard as trustee for the Meridian Properties Trust No 3;

(iv)    Penyard as trustee for the Meridian Properties Trust No 4;

(v)    Penyard as trustee for the Meridian Properties Trust No 5; and

(vi)    Penyard as trustee for the Meridian Properties Trust No 6.

72    Apart from the first few days of the company’s formation, Mr Larmar was the sole director of Penyard.

73    Despite the terms of this joint venture, Mr Larmar gave evidence that Services acted as Manager of this syndicate.

74    The profit and loss statements for Meridian, relevantly incorporates from the rental statement record for the years ending 30 June 2007 (with the earlier comparison year, 2006) management fees as an expense. The profit and loss statements for Meridian, relevantly records management fees as an expense for the years ending 30 June 2008 to 2014.

75    The balance sheets for Meridian record a negative amount for “brokerage” fees for the years ending 30 June 2007 (with the comparison year, 2006) to 2014.

Wickham

76    Around 20 October 2004, the Wickham Properties Investment Group was the registered trading name for this property syndicate. Relevantly the ‘co-venturers’ were the Larmar Family Trust No 3 (LFT3), BPPG, Monier Road Property Group and Cityview.

77    There is an unexecuted and undated written agreement which appears to relate to Wickham and has as one of the parties to it, Wickham Properties Pty Ltd. Mr Larmar, during the Relevant Years was a director and shareholder of Wickham Properties.

78    This syndicate related to a property located at 135 Wickham Terrace, Brisbane.

79    The investment invitation letter was dated 13 October 2004 and was on the letterhead of the Firm, signed by Mr Larmar. Attached to the invitation letter was an application form to participate in the syndicate. This invitation letter advised that there would be a brokerage cost of 6%, however that Mr Larmar would be re-investing that brokerage back into the syndicate. Mr Larmar gave evidence that he regarded these brokerage fees as his own money to do with as he pleased. The letter stated that there had been an over-subscription to the Monier syndicate which would be invested into Wickham. Mr Larmar alone, made the decision that those additional funds received for Monier, could be (and were) applied to Wickham. Mr Larmar regarded this as a decision he could make, without consulting those investors as he regarded it in their best interest.

80    The profit and loss statements for Wickham, relevantly records management fees as an expense for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014.

81    The balance sheets for Wickham recorded a negative amount for “brokerage” fees for the years ending 30 June 2007 (with the comparison year, 2006) to 2014. The amount remained constant for the years 2008 to 2011 inclusive, otherwise it varied.

Monier

82    The Monier Road Property Group operated under this trading name from about 1 July 2003. Eagle II Pty Ltd as trustee for LFT3 is a ‘partner’ of Monier. There was no written joint venture agreement for this property syndicate. This syndicate related to a retail shopping centre located at Monier Road, Darra.

83    During the Relevant Years, Mr Larmar was a director and shareholder of Monier Road Properties Pty Ltd, which was associated with this syndicate.

84    The investment invitation letter was dated 30 June 2003 and was on the letterhead of the Firm. Although this letter is unsigned it is apparent it is from Mr Larmar as it is on the letterhead of the Firm and has his initials as the “author” of the correspondence.

85    This syndicate was to acquire a 55% interest in the relevant property the remaining interest was to be held by Kilcor Commercial Pty Ltd. Kilcor was controlled by Mr Terry Kilmartin. The investment invitation letter advised that there would be a brokerage cost of 6%, however Mr Larmar would be re-investing that brokerage back in the syndicate. Mr Larmar gave evidence that he regarded these brokerage fees as his own money to do with as he pleased. Mr Larmar was the driving force and decision-maker of this syndicate, and Mr Kilmartin acted similarly for Kilcor.

86    Attached to the invitation letter dated 30 June 2003, was the relevant application form which referred to the terms and conditions of a joint venture agreement. However, Mr Larmar doubted whether a joint venture agreement existed for this syndicate. No written joint venture agreement is in evidence before the Court.

87    The profit and loss statements for Monier, relevantly records for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014 an expense described as “Accountancy & Management fees”.

88    The balance sheets for Monier record a negative amount for “brokerage” fees for the years ending 30 June 2007 (with the comparison year, 2006) to 2014.

Tribune

89    From 31 March 2006, Tribune Properties Investment Group operated under this registered trading name. There was no written joint venture agreement for this property syndicate. During the Relevant Years Mr Larmar was a director of Tribune Properties Pty Ltd. Initially this syndicate related to a mixed-use property at 421 Brunswick Street, Fortitude Valley, which was known as Central Brunswick.

90    The Tribune syndicate sold the Central Brunswick property and then purchased a property at 199 Grey Street, South Brisbane. An investment opportunity letter, on Firm letterhead, regarding the property at 199 Grey Street was sent to potential investors dated 28 March 2006. This letter advised that there would be a brokerage cost of 6%, however that Mr Larmar would be re-investing that brokerage back in the syndicate. Mr Larmar gave evidence that he regarded these brokerage fees as his own money to do with as he pleased. The application form referred to the terms and conditions of a joint venture agreement. However, Mr Larmar agreed that the application should not have referred to the joint venture agreement, as there was not such an agreement. There was no written joint venture agreement relating to Tribune in evidence before the Court.

91    In an invoice dated 4 December 2009, on the letterhead of the Firm addressed to Tribune, there are charges for management and administration fees and attending to matters associated with the Highpoint Ashgrove Joint Venture, amongst others. That work related to the redevelopment of the property at Ashgrove. Tribune provided funding to the Ashgrove syndicate. This related to the property at Highpoint Plaza, 240 Waterworks Road, Ashgrove. This was another example of cross-investments by one syndicate in another syndicate. This invoice was also said to be calculated on the basis of time spent, charged at the usual hourly rates.

92    The December invoice was (before GST and less out of pocket expenses of $750) for $102,500. This invoice charged for time spent by Mr Larmar himself and the staff of the Firm. Mr Larmar approved the invoice. The invoice was addressed to Tribune at the address of the Firm, as it also operated out of the same premises. Mr Larmar, in his capacity as director of Tribune approved payment of the invoice and arranged for it to be paid. Mr Larmar stated that the invoice would have been paid by cheque addressed to Services. Mr Larmar stated this was because that was his usual practice in respect of management fees. The total of this December invoice was $113,575. However, although the bank statement for Tribune records a transaction on 22 December 2009 for $113,575 as a withdrawal, there is no corresponding deposit in the bank account of Services.

93    The profit and loss statements for Tribune, which also incorporates rental statements prepared for various relevant properties, records management fees as an expense for the years ending 30 June 2006 (with the earlier comparison year, 2005, which records nothing) to 2014.

94    The balance sheets for Tribune record a negative amount for “brokers charges” for the years ending 30 June 2007 (with the comparison year, 2006 which recorded nil) to 2014. The amount stated changed every year.

Whites Hill

95    The Whites Hill Property Group joint venture was established around October/November 2001 by Mr Larmar. There was no written joint venture agreement for this syndicate. This syndicate related to a retail shopping centre located at Whites Hill, Coorparoo. The syndicate was to acquire a 60% interest in that property, the remaining interest was to be held by Kilcor.

96    The investment opportunity letter, on the Firm letterhead, was dated 6 September 2001. Relevantly, it stated that there will be a brokerage of 6%, however Mr Larmar would be re-investing that brokerage in the group. That is, the brokerage would not be withdrawn in cash. This letter called for expressions of interest by a particular date. That was to be followed by an application form. The application form referred to the terms and conditions of a joint venture agreement. However, Mr Larmar was unsure whether a joint venture agreement existed for this syndicate and no such document is in evidence before the Court.

97    Subsequently Whites Hill also invested in Tribune. This decision to cross-invest was made solely by Mr Larmar.

98    The profit and loss statements for White Hill, records management fees as an expense for the years ending 30 June 2007 (with the earlier comparison year, 2006) to 2014.

99    The balance sheets for Whites Hill recorded a negative amount for “brokerage” fees for the years ending 30 June 2007 (with the comparison year, 2006) to 2014, which remained the same, apart from the 2014 year wherein it reduced slightly.

All of the Property Syndicates

100    Collectively all of the above syndicates will be referred to as the Property Syndicates.

Property Syndicate Fees

101    Mr Larmar and Services submit that they have each properly returned the correct amount of Property Syndicate income and that the Property Syndicate Fees (being the additional amounts which the Commissioner has attributed and assessed primarily to Mr Larmar) is not to be brought to account in the hands of Mr Larmar. That is, that such amounts are not the ordinary income (or personal services income) of Mr Larmar.

102    Mr Larmar relies on the unaudited financial statements of LFT2 which were prepared by the Firm. The profit and loss statements for LFT2 record the following relevant descriptions of income (amongst others) for the years ending 30 June:

(a)    2007-2009: “Fee Property Group”, “Management Fees”, “Property Management Fees”;

(b)    2010: “Fee Property Group”, “Management Fees”, “Property Management Fees” and “Brokerage Received-Property Groups”;

(c)    2011-2013: “Management Fees”, “Property Management Fees” and “Brokerage Received-Property Groups”; and

(d)    2014: “Management Fees” (and a specific management fee for Limestone street), “Property management Fees” and “Commission/Brokerage Received-Property Groups”.

103    Furthermore, Mr Larmar and Services submitted that the determination of the proceedings does not turn significantly on questions of credit.

104    As becomes apparent on a consideration of the evidence, much of the evidence is documentary. There are some inconsistencies in the evidence. Some of Mr Larmar’s evidence offers his subjective belief or intention. However, where it is necessary to consider a contract, as the objective theory of contract is in command of the field, it is an outward objective manifestation which must be apparent: Commissioner of Taxation v S.N.A. Group Pty Ltd (2026) 314 FCR 504; [2026] FCAFC 10 at [19]-[21] (McElwaine, Feutrill and Wheatley JJ). As such, the proceedings do not turn significantly on questions of credit.

105    Mr Larmar submitted that there should be no adverse finding against him or the entities he controls, in respect of the informality by which the Property Syndicates have been conducted. The informality would not be unexpected in a closely-held family business: Melbourne Corporation of Australia Pty Ltd v Commissioner of Taxation [2022] FCA 972 at [41]-[44] (Logan J); Vodafone Hutchison Australia Pty Limited v Australian Competition and Consumer Commission [2020] FCA 117 at [17] and [357] (Middleton J).

106    Informality is one thing, however where a contract needs to be established it is still necessary for an outward objective manifestation of the relevant terms of the contract. This is so even where the contracting parties (who may be corporate entities, natural persons or corporate trustees) have a common or common directing minds: S.N.A. Group at [21].

107    Further the Applicants submitted that when Mr Larmar gave evidence and spoke in the first person of “I” or “we”, that needs to be seen in the context that the Mr Larmar is the guiding and directing mind of the relevant entities. He is the director of Services, he is operating the Firm in his own right (as a sole trader) and he is also a director of the nominee companies. In this context, the Applicants submitted, when Mr Larmar gave evidence in the first person, it should not be taken as him referring to himself in his personal capacity.

How was the income from the Property Syndicates generated?

Income earned by the Firm

108    The Firm was an accountancy practice. It was operated by Mr Larmar as a sole trader, which commenced on 1 November 1989. The Firm had and has always been operated by Mr Larmar as a sole-trader.

109    The LFT2 was also formed on 1 November 1989.

110    Shortly after the commencement of the Firm, Mr Larmar started to establish various property syndicates. Mr Larmar has been conducting and establishing property syndicates for over 30 years. Over that period Mr Larmar accepted that he has developed extensive expertise in the development of commercial property. Mr Larmar accepted that the success of these property syndicates was a source of personal pride, which had been substantially as a result of his own efforts, hard work, skill and expertise. Mr Larmar did also refer to the work of his staff and others outside the Firm. This evidence of Mr Larmar was in the first person. In context it was clear that Mr Larmar was referring to himself, in his personal capacity. Mr Larmar’s evidence, which I accept, was that the success of the Property Syndicates was substantially as a result of his own, personal hard work, skill and expertise.

111    Over the Relevant Years these Property Syndicates had, Mr Larmar accepted, achieved very good returns. Those good returns were as a result of his personal hard work, skill and expertise. The Firm carried out the accountancy work for each of the Property Syndicates and earned income from the Property Syndicates for this accountancy work. The Property Syndicates were generally charged separately for accountancy fees (except for Monier which was combined and Wickham which did not have a separate or combined accountancy expense recorded). The Firm recorded in its profit and loss for each of the Relevant Years income described as “Professional Fees”.

112    Mr Larmar gives evidence that it was his intention that Services would employ all of the staff for the Firm and would act as the “service entity” to provide management and administration services for the Firm.

113    Ms Margaret Ryan also gave evidence that she has been and is currently employed by Services. Ms Ryan relevantly states that she is the office manager of the Firm. Ms Suan Bosanko also gave evidence that for 33 years and up until she retired in December 2022, she previously worked as an accountant at the Firm and was employed by Services. Ms Bosanko relevantly stated that one of her responsibilities was for processing the payment of wages and other entitlements for the staff employed by Services. Ms Sharon Demarco also gave evidence that she commenced employment in January 1990 and is still currently employed by Services. Ms Demarco commenced her employment undertaking various administrative tasks and is now an account manager with the Firm. Ms Kerstine Haynes also gave evidence that she commenced employment with Services around September 2003. Ms Haynes is still employed by Services and works as an accountant.

114    Each of the unaudited financial statements of LFT2 for the year ending 30 June 2007 until 2014, record significant expenses for wages, PAYG withholding for wages, superannuation-staff and, for a lesser amount, but also, expenses for staff amenities and workcover. Consistent with this position, each of the unaudited financial statements for the Firm for the year ending 30 June 2007 until 2014 did not record any expenses for wages, PAYG withholding for wages, superannuation-staff or other matters such staff amenities or workcover.

115    The staff employed by Services, who were engaged in the work of the Firm were experienced in their roles. The staff who gave evidence had been employed by Services for a considerable period of time and Mr Larmar gave evidence that he trusted his staff and that he could rely on them to undertake their various tasks. I accept that. However, that does not mean the staff operated autonomously. Mr Larmar gave evidence that he would provide instructions to his staff. It was always Mr Larmar who made the final decisions, relevantly regarding the Firm, LFT2 and the Property Syndicates.

116    Staff who were engaged in the work of the Firm prepared drafts of the annual financial statements and the partnership tax returns, for each of the Property Syndicates. Mr Larmar personally reviewed and approved those financial statements and the partnership tax returns for each of the Property Syndicates. The evidence of Ms Besanko and Ms Haynes was consistent with the evidence of Mr Larmar, in this regard. Ms Besanko and Ms Haynes each prepared and amended the draft financial statements of all of the Property Syndicates except for City Arcade, Wickham and Whites Hill. The financial statements prepared by Ms Besanko and Ms Haynes were prepared in accordance with the instructions provided by Mr Larmar and it was Mr Larmar who had ultimate responsibility for the accuracy of those financial statements.

117    Although Mr Larmar gave evidence that some of the decisions in relation to the Property Syndicates were made by seeking the advice of the other director, he accepted that he took final responsibility for the financial statements and the partnership tax returns of the Property Syndicates. This is also apparent on two separate bases. First, because the Firm prepared these financial statements and tax returns, and the Firm was operated by Mr Larmar as a sole practitioner. Second, because Mr Larmar was the decision-maker and guiding mind of the Property Syndicates (as is considered further below).

118    In relation to the Firm, as it was operated as a sole practitioner, Mr Larmar was the decision-maker and guiding mind of the Firm.

119    In relation to providing management and administration services for the Firm, Mr Larmar accepted that there was no written contract for the service and administration arrangements performed by Services for the Firm. For Mr Larmar, this was not necessary as the contractual arrangements had always been clear in his own mind.

120    Considering whether there is an objective manifestation as between Services and the Firm for the provision of the management and administration services, it is relevant to objectively consider the surrounding circumstances, which would include financial statements.

121    On this basis, it is clear that Services employs all of the staff for the Firm and does provide management and administrative services to the Firm. Services would charge the Firm a fee (described as management fees) for the provision of management and administrative services. It is not contended by Mr Larmar that the Firm earns any of the Property Syndicate Fees. The financials for the Firm do not record any of the Property Syndicate Fees (as separately described) as income. It is not necessary to determine the precise terms of any agreement as between the Firm and Services, as the matters in dispute, being the Property Syndicate Fees, do not concern this arrangement. However, it is relevant to a consideration of the actual work undertaken by the staff employed by Services for the Firm, as relates to particularly the management fees, but more generally the Property Syndicate Fees.

122    Although Mr Larmar included brokerage fees in his personal income returns for 2007 and 2009, this is not recorded in the financials of the Firm as income. Mr Larmar gave evidence in cross-examination that he considered this was a mistake, he considered that the brokerage was the income of Services.

Property Syndicate Fees earned from the Property Syndicates

123    The Property Syndicate Fees comprise of management fees, brokerage fees, success fees and project management consultancy fees. Mr Larmar submits that Services earns the Property Syndicate Fees and has properly returned such amounts in its income tax returns for the Relevant Years. However, there is evidence that is inconsistent with that position, particularly as provided to external financiers.

124    Usually, the appropriate funding structure had been selected and the property which was to form part of the particular syndicate had already been identified by Mr Larmar and personally inspected by Mr Larmar before any invitation to investors was made about a particular syndicate. All of the Property Syndicates relied on some level of external funding. There were a number of the syndicates for which Mr Larmar provided a personal guarantee. Mr Larmar charged the particular syndicate a guarantee fee, where a guarantee was provided. Those guarantee fees were charged by Mr Larmar personally, and he regarded those fees as his own income. Those guarantee fees are not part of the Property Syndicate Fees.

125    In relation to Tribune, for the project at 199 Grey Street, South Brisbane, an increase in funding was sought from ING Direct in September 2008. The relevant ING Direct document dated September 2008 which is in evidence recorded that “(Mr) Larmar has excellent property skills…” and he “has a successful history in acquiring and managing property syndicates on behalf of sophisticated investors” and he “currently has assets under management in excess of $200M and will continue to add to this over time”. Mr Larmar gave evidence that he understood that one of the reasons that ING Direct was prepared to lend to him and his syndicates was on the basis of his personal reputation and experience. ING Direct recorded various matters in the loan documentation and Mr Larmar accepted that he would have been the source of that information. This ING Direct document recorded that Mr Larmar was hands on in the day-to-day activities of the group and had a “tight control” over all of the activities. Mr Larmar was also providing a limited guarantee to support the higher loan to value ratio which was proposed for this borrowing. This personal guarantee was supported by Mr Larmar’s personal assets.

126    The September 2008 ING Direct document recorded the following regarding Mr Larmar’s financial position as at May 2007 (which he accepted in his evidence in cross-examination, that he would have provided this information to ING Direct):

Assets        $36.426M

Liabilities    $10.676M

NET Worth    $25.750M (leverage 0.41:1)

127    Further, this ING Direct document recorded the following:

Investment in syndicates    $12.290M

Various Residential Units    $17.200M

Cash on deposit            $1.590 (Accounting Practice)

Cash on deposit – Super        $0.200M

Shares in listed companies    $0.470M

Management Fees Due        $1.410M (Property Syndicates)

Total                $33.160M

128    Mr Larmar gave evidence that he understood that the asset position that ING Direct sought information about, to support the personal guarantee, were his own personal assets. This was also while accepting that ING Direct could not proceed against Services, for the personal guarantee. This ING Direct document records that Mr Larmar had personally due to him management fees of $1.41 million.

129    However, Mr Larmar still suggested that the management fees (as recorded in the ING Direct document) were those of Services and he would have told the ING Direct that those management fees were Services. I do not accept that evidence. It is inconsistent with the written record of ING Direct and inconsistent with Mr Larmar’s evidence that he understood and provided the information to ING Direct of his own personal assets to support the personal guarantee. It would have been of no assistance to provide the assets (or outstanding earnings) of Services, in relation to a guarantee to be provided by Mr Larmar personally. The assets of Services would not be available to support his personal guarantee. Otherwise, the alternative is that Mr Larmar was prepared to provide false or misleading information to this bank. I do not accept that Mr Larmar gave ING Direct false or misleading information and neither party submitted that is how this evidence should be regarded. Mr Larmar had not previously seen this ING Direct document, and he did say that he did not recall advising ING Direct of the information regarding the management fees. In Mr Larmar’s affidavit, he stated that “to the best (he) can recall” he was not required to provide a breakdown of the extent of his personal interest or ownership in any particular asset. Mr Larmar stated he provided the statement of all assets in which he held any interest. As such, although he suggested that would have told ING Direct that the management fees were those of Services or by implication that he provided details of any asset held by his group, in which he may have held an interest, the better view is that he cannot recall. Mr Larmar accepted he would have been the source of the information recorded in this ING Direct document and that the information was necessary to support his offer of a personal guarantee. It was not submitted that the bank officer was mistaken. I accept that the matters recorded in the September 2008 ING Direct document in relation to the asset position of Mr Larmar personally were accurate (as at May 2007), including that management fees of more than $1.4 million were due to Mr Larmar personally. In this context, this evidence was regarding Mr Larmar in his personal capacity.

130    There is another ING Direct document dated November 2008 regarding Cityview, which is in evidence. Mr Larmar also gave a limited, in time, personal guarantee in relation to this borrowing. Mr Larmar accepted that the information recorded in this November 2008 ING Direct document would have been provided by him. The November 2008 ING Direct document recorded the following, regarding Mr Larmar’s financial position as at July 2008:

Assets        $63.493M

Liabilities    $14.856M

Net Worth    $48.637M (leverage 0.31:1)

131    Further, this November 2008 ING Direct document recorded the following:

Investment in syndicates    $16.490M

Various Residential Units    $24.870M

Cash on deposit            $2.467M (accounting Practice and super funds)

Fees Due            $16.230M (see comment below)

Total                $60.057M

Included in the fees due are success fees, brokerage and other fees to Larmar. The most significant being a $15M fee due upon the completion of a 14 level office tower in Brisbane. …

132    Mr Larmar gave evidence in cross-examination that he regarded the fees of $15 million as his own funds, to do with as he pleased. This is supported by the recording of this amount in the November 2008 ING Direct document, it being based on information provided by Mr Larmar. Further, Mr Larmar gave evidence in cross-examination that he would have told ING Direct about the $15 million fee, so the bank would take that into consideration when assessing his own personal asset position, to support a personal guarantee. In context, this evidence was regarding Mr Larmar in his personal capacity. Although Mr Larmar also stated that the success fees would have been payable to the Larmar Group or Larmar Family, I do not accept that he did tell ING Direct, at the time, that the success fees, were not his, personally. Again, in so far as Mr Larmar now suggests he “would” have stated a contrary position (as explained above [129]) the better view is that he cannot recall. This is because it is inconsistent with the position that Mr Larmar was giving ING Direct information of his own asset position to support a personal guarantee and it is that information which ING Direct recorded in its documentation. The alternative is that Mr Larmar was prepared to provide false or misleading information to this bank. I do not accept that Mr Larmar gave ING Direct false or misleading information and neither party submitted that is this how this evidence should be regarded. I accept that the matters recorded in the November 2008 ING Direct document in relation to the asset position of Mr Larmar personally were accurate (as at July 2008). That included that fees were due to him personally of more than $16.2 million, which included the success fee of $15 million.

133    There is another ING Direct document dated in March 2010 regarding Cityview, in evidence. Mr Larmar also gave a limited, personal guarantee in relation to this borrowing (for a maximum of 25% of the debt). I infer, given the previous acceptance by Mr Larmar that he would have provided ING Direct with the information recorded in its earlier documents, and because no alternate source of information was identified, that Mr Larmar did provide the information recorded by ING Direct in this document. The March 2010 ING Direct document recorded Mr Larmar’s financial position as at February 2010 that he had a personal net worth of $62.5 million and a debt/equity ratio of 0.22:1. The Annexure attached to this March 2010 ING Direct document were figures to support that position of the “Earl Larmar Group” as at 30 June 2009. Although this document was headed “Earl Larmar Group” this information, including this document were to satisfy ING Direct, the financier, that Mr Larmar personally had sufficient assets to support the personal guarantee being provided. It would not have assisted ING Direct’s understanding of Mr Larmar’s financial position to be given information regarding entities he may control. The assets of such entities would not have been available to ING Direct to support the personal guarantee given by Mr Larmar.

134    Therefore, on the basis of this evidence and the representations made by Mr Larmar to ING Direct, Mr Larmar did regard and represent to ING Direct that the management fees were his own personal earnings and money, for these financial years.

135    Mr Larmar also represented to ING Direct that the success fees in relation to the property syndicate concerning 53 Albert Street, being part of the BPPG syndicate, was his own personal earnings and money. Mr Larmar’s evidence in cross examination was that he regarded the $15 million success fee as his funds to do with as he pleased. This is consistent with the records made in the ING Direct documents, that the success fees were his own personal earnings and funds. Furthermore, there is no success fees recorded as income in the profit and loss for Services for the 2009 financial year.

136    Mr Larmar also provided an update each year on his financial position to various banks, to support each personal guarantee he had provided. Three such documents were in evidence which provided the net position of Mr Larmar and his wife as at February 2005, July 2008 and March 2015. Mr Larmar provided these documents to those various banks so that they could rely on the financial position stated. Those figures represented a source of funds that could be called upon to meet any of his personal guarantee obligations. Again, such documents provide an outward representation to third parties of Mr Larmar’s personal financial position. Although headed to be the position of himself and his wife, the banks would not have been able to proceed against the assets of his wife, and such assets would not have supported the personal guarantees. As such, I draw the inference that properly, these statements were representing Mr Larmar’s asset position personally.

137    The February 2005 document stated a net position of approximately $11.2 million. It recorded Mr Larmar’s interest in certain syndicates, at that time as well as “fees due from property groups” directly to Mr Larmar.

138    The July 2008 document stated a net position of approximately $54.6 million. Again, it recorded Mr Larmar’s interest in certain syndicates, at that time as well as “fees due from property groups” to Mr Larmar. Those fees included from Hatham Holdings “success fees” of $15 million, as well as other fees and brokerage. In his evidence Mr Larmar said that the description “success fee” was a misnomer. However, as he accepted, he had prepared these statements of assets and liabilities and had chosen the descriptor “success fee”. It was a fee which was payable on the successful delivery of the project. Mr Larmar was critical to the successful delivery of the project at 53 Albert Street, which included not only the re-development, but also locating and buying the particular asset. This document was provided to banks to provide assurance that the bank would be entitled to seek recovery against these assets if any call on the personal guarantee provided by Mr Larmar was required.

139    The March 2015 document stated a net position of approximately $76.4 million. It again recorded Mr Larmar’s interest in certain syndicates, at that time, as well as “fees due from property groups”.

140    The main reason for this growth in Mr Larmar’s net worth was the success of the Property Syndicates, including the fees income from the Property Syndicates. Through this same timeframe, the value of his interest in the accountancy practice remained relatively stable. However, he valued the property management division of the Firm separately from the accountancy practice. The value of the property management division of the Firm increased as the syndicates grew. Although Mr Larmar may have regarded these as separate divisions, it all relates to the Firm, that he operated as a sole trader.

141    Although there are not documents which were provided to the banks in evidence for each of the Relevant Years, I infer that similar documents would have been provided. Mr Larmar’s evidence was that he was required to provide an update each year to the banks to provide the necessary assurance and support for his personal guarantees. I also infer that those documents would have contained similar information regarding his financial position, including in relation to management fees or fees due from the property groups, being his assets personally.

142    In an affidavit sworn in Family Court proceedings in 2002, Mr Larmar swears to certain matters regarding employing staff, earning fees, including management fees and time spent on property management. However, as it is outside the Relevant Years, I have given it limited weight.

143    As is outlined above in relation to each of the Property Syndicates, each record in the relevant profit and loss statement, management fees or management fees and commissions or accountancy and management fees, as an expense. However, those financials do not record to who those management fees were paid.

144    The evidence was that the management fees from the Property Syndicates were always paid into the bank account of the Firm. This is consistent with the December 2009 invoice in relation to Tribune, not being deposited into the bank account of Services, at or around that time (see [92] above). Mr Larmar stated this was because initially, at least, there was only one bank account. In addition, it was said to be administratively easier. It is not clear and was not satisfactorily explained, how paying the suggested income of one entity (Services) into the bank account of another entity (himself, being the Firm) was administratively easier.

145    Mr Larmar stated that the Firm acted as agent for anything involved with Services. Of course, the Firm (operating as a sole trader) is Mr Larmar. Mr Larmar was the director and guiding mind for Services. It seems quite unnecessary for him to act as the agent of Services. Mr Larmar could have simply been acting for Services. However, given the close relationship, it was objectively important for the distinction to be maintained. It is apparent it was not.

146    In terms of the management fees to be charged, although the documentation was somewhat different the absence of a clear basis upon which the management fees would be charged was the same. Some of the syndicates did not have a written agreement or any initial investment letter (31 Station Road and Wickham (the agreement is unexecuted)). Some of the syndicates had a written agreement, but it did not record the management fees to be charged (Ashgrove, City Arcade, Centrepoint, Cityview and Meridian). Some of the syndicates only had an “invitation” letter (or notice), which did not state the management fees to be charged (Bayswater, BPPG, Monier, Tribune and Whites Hill). In any event, there was no disclosure to investors of the actual management fees to be charged or how such fees would be calculated. Further, how the management fees were charged was also not stated in the financial statements.

147    Mr Larmar gave evidence that the management fees to be charged, to a particular syndicate, were based on the hourly rates charged by the Firm. However, later in his evidence, Mr Larmar clarified that the management fees were not only calculated on the basis of the hourly rate but that Mr Larmar also applied a range of 1 to 4% of total funds under management. Mr Larmar stated that there was no rigid basis upon which he decided that a higher rate should be applied, however that there may be some special activities or circumstances which would warrant larger fees. An increase to the rate would include if the task or tasks involved greater personal effort or expertise of Mr Larmar himself, or of his staff. The decision as to what rate was to be applied, was a decision made solely by Mr Larmar.

148    To prepare an invoice for management fees to any of the Property Syndicates a billing request document was prepared. The billing request recorded the “costed fee” which was calculated by applying the relevant hourly rate to the time spent. This was generated by the system which produced a report which recorded the time spent by Mr Larmar and the other staff and each hourly rate. The billing request also recorded the “charged fee” which was the amount actually invoiced. Usually, the charged fee was higher than the costed fee. The billing request form also contained the costed fee and charged fee for the last period and the second last period. The billing request document was on the same kind of letterhead as that used by the Firm. The final amount to be charged as management fees to any of the Property Syndicates was always approved by Mr Larmar himself.

149    Mr Larmar personally decided who was going to be the investors in any of the Property Syndicates. This was important to Mr Larmar because he wanted people he knew and trusted as the investors. Mr Larmar does not advertise the Property Syndicates to the public at large. Mr Larmar is of the view that his reputation as a successful property developer attracted investors. That was a reputation which he had developed over a significant period of time. Most of the investors in the Property Syndicates were clients of the Firm (some originated from his Church). Mr Larmar generally did not have difficulty attracting investors for the Property Syndicates, the invitations were sent to those who knew his reputation and generally preferred commercial property as an investment.

150    Further, Mr Larmar stated it was his preference for the management of the Property Syndicates to be undertaken by the Firm. This was the Firm, operated by Mr Larmar as a sole trader. Mr Larmar clarified that it was his preference was that the management of the Property Syndicates would be undertaken either by the Firm or a nominee of the Firm, which ultimately “(he) chose” to be Services, as the management company for all of the Property Syndicates. The Applicants submit that the evidence of Mr Larmar and his staff was consistent in that it was always Services which was the entity that provided the management services. There was no resiling from that position. However, although that position was consistently maintained it was not consistent with the contemporaneous documents or with the objective position ascertained from the surrounding circumstances.

151    It was generally Mr Larmar who dealt with the banks of the Property Syndicates. There were some occasions where a co-director would also be involved, for example Mr Andrew King on the re-development of 53 Albert Street. However, Mr Larmar always took a close interest in the terms on which finance could be secured from external funders as that had a direct impact on the profitability of the Property Syndicates.

152    All of the joint ventures of the Property Syndicates were conducted from the office of the Firm. Services also operated from the office of the Firm.

153    It was Mr Larmar who always made the final decision on the selection of properties for the Property Syndicates.

154    It was Mr Larmar who decided whether any dividends would be paid, and how much, when or whether an investor could redeem their investment, which tenants would be granted leases (in which he was assisted with external advice). In making these decisions Mr Larmar relied on his own expertise and experience, as well as, when necessary external advisors. Mr Larmar likened his position to that of a “CEO”. He would only give investor general updates and information. This included when one property syndicate cross-invested in another property syndicate. Such a cross-investment decision was decided solely by Mr Larmar. Mr Larmar did not rely on any of the staff from the Firm to make any of the decisions in relation to any of the Property Syndicates. Further, investors were not invited to contact or discuss any of the Property Syndicates with anyone else at the Firm or from Services, only himself. Dividends and the amount of dividend that would be paid were always determined by Mr Larmar. This at times included that an individual investor may receive a dividend whereas others would not.

155    In Mr Larmar’s own words, he was “conducting the orchestra”.

156    Generally, Mr Larmar had determined and charged a brokerage of 6% of funds introduced into the Property Syndicates. However, the first syndicate charged brokerage (BPPG) was charged 2% of the purchase price, which Mr Larmar explained was approximately equivalent to 6% of the funds introduced, as that roughly equated to the ratio of funds introduced and borrowings, in that syndicate at that time.

157    Mr Larmar generally regarded the brokerage fees as his, personally. Mr Larmar could decide what was to happen with the brokerage fees. In most cases, the brokerage fees were re-invested into the particular syndicate (as outlined above from the initial investment letters). This increased Mr Larmar’s own personal investment in that syndicate. Mr Larmar always had a personal investment in each of the Property Syndicates. He regarded this as beneficial to himself by increasing his own personal wealth and beneficial to the Property Syndicates by not withdrawing those funds from the syndicate. In 2007 and 2009, Mr Larmar included brokerage fees as income in his personal income tax return. He denied however, that this was because he recognised it was his personal income, he sought to explain it was a mistake. Mr Larmar maintained that the brokerage fees were earned by Services. The evidence in this regard is inconsistent. Mr Larmar accepted the brokerage fees were deliberately not included in his own personal income tax return, because this was income of Services and he says it was returned in the income tax return of Services for at least some of the Relevant Years.

158    Mr Larmar gave evidence that he only had one letterhead, being the one for the Firm. He regarded another letterhead for Services as unnecessary. Mr Larmar understood that investors receiving correspondence on the Firm’s letterhead were dealing with the Firm, because those investors wanted to deal with Mr Larmar, knowing he was the principal of the Firm.

159    In relation to the dividends to be paid on the Property Syndicates, it was Mr Larmar who made the final decision as to when dividends would be paid. This was generally quarterly. It was also Mr Larmar who made the final decision as to the amount of any dividend. Further, it was Mr Larmar who made the final decision as to whether an investor could redeem their investment and if so, when this redemption could occur. The Property Syndicates were deliberately designed by Mr Larmar to accommodate a flexible arrangement in relation to paying dividends. Mr Larmar determined what dividends were to be paid and when. He did this having regard to the cash position of the relevant property group.

160    Ms Ryan has been a signatory on the bank accounts for the entities associated with each of the Property Syndicates (except for City Arcade). This allowed payments and transfers of amounts between the Property Syndicates and the Firm and Services. However, Ms Ryan would not make any of the decisions of amounts to be withdrawn without Mr Larmar’s express authority. To facilitate this, Ms Ryan gave evidence that she would meet with Mr Larmar each Thursday. Mr Larmar’s evidence was that he did not have a formal meeting with Ms Ryan each Thursday. However, whether a formal meeting took place each week or not, it is clear that Ms Ryan did not make any decisions in relation to the Property Syndicates, including any of the banking decisions, without Mr Larmar’s express authorisation to do so.

161    The investors in the Property Syndicates were never provided with copies of the invoices which charged for the management fees. The only information that investors would have regarding the management fees would be the line item in the annual financial statements. It was Mr Larmar’s practice to send annual, unaudited financial statements to investors. Those financial statements stated in a single line item, the total management fees charged and the total of any brokerage fees charged. Mr Larmar regarded this sufficient, considering that most of the investors were sophisticated investors (given their assets and income exceeded the relevant monetary threshold).

162    Mr Larmar accepted as accurate that the Firm transferred an arbitrary amount from the fees for the management of all property groups to Services. The Property Syndicates paid the management fees into the bank account of the Firm, which Mr Larmar stated was received as agent of Services. However, there was no written agency agreement or any other kind of document recording this agency relationship.

163    There were no written agreements relating to the circumstances when, how much would be paid or when payment would be required in relation to brokerage fees (other than the initial investment opportunity letters). This also applied in relation to any success fees.

164    In the Relevant Years, the only success fees charged were in relation to 53 Albert Street. The determination of the criteria for the level of the success fees to be charged was finally determined by Mr Larmar. The success fees charged in relation to the 53 Albert Street project was not based on a percentage, it was charged on an arbitrary basis. Mr Larmar stated it was based on a consideration of how successful the project had been and what was determined to be an appropriate amount. Mr Larmar determined that the amount of $30 million in total, seemed an appropriate and fair amount, in the circumstances. Mr Larmar’s share of that was $15 million. Mr Larmar had earlier informed the Commissioner that the success fees were calculated on the basis of it being approximately 20% of any profit above market value. It was Mr Larmar who determined what profit was considered to be above market value. These success fees were not notified to the investors, before it was charged or paid. It was reflected in the financial statements. However, at the time there was insufficient cash to pay the entirety of the success fee, which was described by Mr Larmar’s as his “family’s full amount”. As such $5 million was paid and the $10 million was included as an adjustment to the equity of the partnership, which occurred at Mr Larmar’s direction. Mr Larmar gave evidence in cross-examination that he regarded the success fee of $15 million as being a just reward for his personal efforts, in relation to the success of the project. Mr Larmar directed the credit adjustment of $10 million to his wealth creation entity, being Eagle II.

165    There were a limited number of Property Syndicates which were also charged project management consultancy fees. The earlier response to the Commissioner (dated 4 June 2015) by Mr Larmar stated that Hatham Holdings, in relation to 53 Albert Street was the only syndicate which was charged project management consultancy fees. That earlier response also stated that the project management consultancy fees were capitalised as part of the redevelopment costs of that project. However, in cross-examination Mr Larmar stated that these fees were assessable and were returned by either Eagle II or Services. Mr Larmar stated that these fees were for the oversight of the project. However, Ms Besanko’s evidence in cross-examination was that she was not aware of any entity controlled (owned) by Mr Larmar which was paid project management consultancy fees.

166    The only information that the investors received about the project management consultancy fees was in that same single line item in the financial statement, which recorded total management fees.

167    Mr Larmar gave evidence, in cross-examination that at the time of making transfers from the Firm bank account to that of the Services bank account (once it had its own account) these would be loans and not management fees. In context, this may have related to the management fees as between the Firm and Services.

168    However, Ms Ryan’s evidence differed from this. Ms Ryan was quite certain that the amounts to be transferred between the Firm and Services each week were to be described as management fees. This is what Mr Larmar had told her how to describe these transfers. Apart from the management fees for the Property Syndicates, Mr Larmar stated that there was not a regular process of management fees passing between the Firm and Services. Such amounts were determined at the end of the financial year, when the financial statements were prepared. Given the similar description of management fees, as between the Firm and Services and the Firm, and the management fees from the Property Syndicates, there may have been some confusion in relation to this evidence.

169    However, what is clear from this evidence was the Mr Larmar was in control of all of these transactions and sought to maintain flexibility.

170    Every week, funds would be transferred to Mr Larmar’s personal bank account. These were simply recorded as “deposits”. These were regular deposits from the bank account of the Firm into Mr Larmar’s personal bank account which were used for family living expenses. Mr Larmar gave evidence that the amount of these deposits were not declared as his taxable income as these amounts that were deposited were simply what he described as “drawings”. Mr Larmar would tell Ms Ryan the amount to transfer, when to transfer it and to describe the transaction as “drawings”.

171    Mr Larmar maintained his position that the amounts which were deposited into his bank account were not income. Mr Larmar accepted that the Firm was operated by him as a sole trader and that the Firm did not have a separate income tax return.

172    Funds were never paid out of the Firm’s bank account except by the direction or with the authority of Mr Larmar.

Is the Property Syndicate income – the Ordinary income of Mr Larmar?

173    Considering the position objectively, it is necessary to consider the position of Mr Larmar.

174    Mr Larmar will discharge his burden of proof and establish that the Property Syndicate Fees are not assessable as ordinary income to him, by establishing what the receipts do represent. Mr Larmar contends that the Property Syndicate Fees are the income of Services.

Management Fees

175    The management fees were charged to the Property Syndicates for the process of co-ordinating and overseeing the particular syndicate. This would include planning, reporting, organising, leading and controlling the particular syndicate.

176    The following matters are relevant to the earning of the management fees from the Property Syndicates:

(a)    Mr Larmar was instrumental in the management of the Property Syndicates. The Property Syndicates were a product of his skill, experience, expertise and hard work;

(b)    Mr Larmar made all of the strategic decisions for the Property Syndicates, including whether, and if so for how much, any cross-investment from one syndicate to another syndicate should occur, whether a particular property should be re-developed (53 Albert Street), whether the property the subject of the syndicate should change (Bayswater) and third party funding levels and the terms of such funding;

(c)    Mr Larmar determined when amounts should be paid and the amount to be paid as management fees;

(d)    The determination of the management fees, by way of a billing request was done on the letterhead for the Firm (which is operated by Mr Larmar as a sole trader);

(e)    Mr Larmar determined if and when a dividend would be paid, the amount of any dividends that would be paid, as well as whether any investor could redeem their investment;

(f)    All of the management fees from the Property Syndicates were paid into the bank account of the Firm. Funds were never transferred out of the bank account of the Firm except with the authority and direction of Mr Larmar;

(g)    Tenants for the properties of the Property Syndicates were decided by Mr Larmar;

(h)    It was generally Mr Larmar, usually on his own, who dealt with the banks, including by way of providing personal guarantees. Mr Larmar provided his financial position to ING Direct as at May 2007, July 2008 and February 2010, which included “management fees” as being his own source of funds;

(i)    There are also documents which were provided to third party banks, by way of updates as to Mr Larmar’s financial position in February 2005, July 2008 and March 2015, which recorded “fees due from property groups”; and

(j)    The financial statements which were prepared for the Property Syndicates, were approved by Mr Larmar and he decided which reports were provided to investors.

177    Those observations do not support the submission that Services was providing the management services and hence was deriving the management fees. However, Mr Larmar maintained his submission that the management fees was the income of Services. The written agreement for Meridian did not identify Services as the manager. Whereas the written agreements for Ashgrove, City Arcade, Centrepoint and Cityview nominated Services as providing project management services. The written agreement for Ashgrove required the separate entry into a “Property Management Agreement” or at least, for the first phase, the fees to be agreed. There is no evidence of any such a written agreements before the Court. Whereas the City Arcade, Centrepoint and Cityview permitted Services to charge a reasonable remuneration for its services. Only the minority of the Property Syndicates have written agreements. The written agreements were not completed with the information regarding the investors and the agreements were not provided to the investors. Mr Larmar’s evidence was that he was in control. These three written agreements, of themselves, support Mr Larmar’s submission that the management fees were the income of Services. Mr Larmar did not seek in his submissions to identify which, if any management fees was relevant to any particular Property Syndicate. However, it is also clear that the written agreement were not complied with. As such, I have given these written agreement, in so far as they support Mr Larmar’s contention, little weight.

178    From the billing request documents, it is apparent that the management fees were charged and paid on a regular periodic basis. The management fees had a relationship with the time spent on tasks undertaken (being the costed fee), however the amount actually charged (the charged fee) was determined by Mr Larmar on the basis of what he determined was an appropriate amount for the work undertaken. The management fees were paid for the management work undertaken in relation to each of the Property Syndicates. Mr Larmar was critical and instrumental to that management work, it involved him personally using his skill, experience, expertise and hard work.

179    Mr Larmar made outward representations to third parties (being banks) that the management fees were his own personal funds. These representations were provided for the purpose of supporting the personal guarantees which Mr Larmar was giving for the borrowings of particular syndicates. This position represented by Mr Larmar, does not support a finding that the management fees were the income of Services: see, by analogy Hart v Federal Commissioner of Taxation (No 4) [2017] FCA 572 at [111]-[128] (Bromwich J), upheld on appeal Hart v Commissioner of Taxation (2018) 261 FCR 406; [2018] FCAFC 61 at [25]-[32] (Robertson, Wigney and Steward JJ).

180    In so far as the management fees also included time spent and work done by members of the staff employed by Services undertaking the work of the Firm, Mr Larmar provided no analysis or breakdown of those management fees to try and identify which amounts might not be attributable to him. In any event, the role of Mr Larmar was more than to simply undertake tasks himself. It was also to oversee, plan, co-ordinate and otherwise manage the necessary work to be undertaken, which was then representative of those management fees. All of the necessary decisions were made by Mr Larmar, not by his staff who assisted him.

181    There are inconsistencies in the evidence. However, considering all of the facts and circumstances and for the above reasons, I am not satisfied that Mr Larmar has discharged his onus and proved that the management fees were properly the income of Services.

Brokerage Fees

182    Brokerage was charged on the initial investment made by investors (except on 31 Station Road). The amount of the brokerage was determined by Mr Larmar. Often it was not paid in cash but allocated to Mr Larmar by way of increasing his personal share in the particular syndicate. The brokerage charge was akin to a commission paid for negotiating, that is, brokering the particular investment in the syndicate.

183    The following matters are relevant to the earning of the brokerage fees from the Property Syndicates:

(a)    Mr Larmar was the creator of the Property Syndicates. He was instrumental in the formation;

(b)    Mr Larmar would identify, locate and inspect the property to then be the subject of a particular syndicate. He always made the final decision on the property;

(c)    Mr Larmar determined who would be invited to be an investor in each particular syndicate, he did not advertise to the public. The initial investment letters were often on the letterhead of the Firm and usually signed by Mr Larmar; and

(d)    The initial investment letter would often advise investors of the brokerage fees to be charged on a particular syndicate.

184    The amount of the brokerage fees were a decision personally made by Mr Larmar and which he considered to be an appropriate fee or reward for his personal efforts in the formation of the syndicate. Mr Larmar regarded the brokerage fees were his, personally and he could decide whether to keep it or reinvest it.

185    Mr Larmar gives evidence that brokerage fees were not applicable to all of the Property Syndicates and identifies 31 Station Road, City Arcade and Meridian as examples where brokerage was not applicable. However, in relation to City Arcade and Meridian, brokerage is recorded in the financial statement for those entities. On the documentary evidence, it is only 31 Station Road which was not charged brokerage fees.

186    Mr Larmar submits that any brokerage fees allegedly omitted by Mr Larmar on the 2009 years or earlier was purely a mistake, not entitling the Commissioner to re-assess. This submission appears to be targeted at the contentions relevant to the fraud or evasion consideration.

187    Mr Larmar makes submissions regarding the particular brokerage for 2005 to 2009 inclusive, accepting some mistakes and seeking to maintain his submission that such income was the income of Services. These submissions do not grapple with Mr Larmar’s evidence given in cross-examination, that he regarded the brokerage fees as an appropriate fee or reward for his personal efforts in the formation of the syndicate.

188    Further, although the brokerage may not have been paid to Mr Larmar in cash and although the receipt must “come in” it need not be paid over to Mr Larmar. It is sufficient if Mr Larmar had the receipt applied or directed to how the receipt was to be applied. As such, where the brokerage fees were applied (as directed by Mr Larmar) to be invested in that particular syndicate, that is sufficient for such amounts to “come in” to Mr Larmar. That was the evidence, that Mr Larmar directed that the amounts would be applied to increase his share or holding the particular syndicate. Those amounts increased Mr Larmar’s personal investment in that syndicate, by the amount of the brokerage.

189    There are inconsistencies in the evidence. However, considering all of the facts and circumstances and for the above reasons, I am not satisfied that Mr Larmar has discharged his onus and proved that the brokerage fees were properly the income of Services.

Success Fees

190    The only relevant success fees were those charged on the BPPG syndicate, in relation to the 53 Albert Street project. The success fees were not returned by Services as income. Earlier, Mr Larmar had explained to the Commissioner that the success fees were capitalised as it formed part of the redevelopment of the property.

191    However, Mr Larmar’s evidence was that the income derived by Services included success fees. Those success fees only applied following a significant increase in the value of the property or following the sale. The amounts were determined on an agreed percentage basis, for the relevant syndicate.

192    In his submissions, Mr Larmar maintained that the “success fee” was a misnomer, as what was actually involved was a capital adjustment. It is contended that there was no entitlement to income, but an entitlement to a capital gain, which it is submitted was accounted for and returned by Eagle II in its 2015 income tax return.

193    However, this is contrary to what Mr Larmar represented to ING Direct. In the November 2008 ING Direct document it is recorded that “Fees Due” were part of Mr Larmar’s personal wealth. Those amounts were identified to include a $15 million fee due upon the completion of a 13 level (although described as 14 levels) office tower in Brisbane. In cross-examination Mr Larmar accepted that this was a reference to 53 Albert Street. This amount was not stated as being part of the “investment in syndicates”, being a capital amount. Mr Larmar gave evidence in cross-examination that he regarded the fees of $15 million as his own funds, to do with as he pleased. Further, Mr Larmar gave evidence that the success fees were fees for the successful delivery of the project at 53 Albert Street and that it was a just reward for his personal efforts, which included buying the asset which proved to be good. Mr Larmar directed that $5 million be paid and the remaining $10 million be included as an adjustment to Eagle II (his personal wealth creation entity). This was reflected in an investment certificate in Hatham Holdings for Eagle II.

194    Further, although the success fees may not have been paid to Mr Larmar in cash (although it is unclear on the basis of the ING Direct document and the representation made therein) and the receipt, being the success fees, must “come in”, it need not be paid directly to Mr Larmar. It is sufficient that Mr Larmar had the success fees applied or directed in a way he required. This is what occurred. It appears (again being inconsistent with the relevant ING Direct document) that Mr Larmar directed that at least in part, the success fees should be applied to the investment of Eagle II. In the circumstances, including that he represented to ING Direct, that the success fees were his own personal funds, that is sufficient for such amounts to have “come in” to Mr Larmar.

195    There are inconsistencies in the evidence regarding the success fees. However, considering all of the facts and circumstances and for all of the above reasons, I am not satisfied that Mr Larmar has discharged his onus and proved that the success fees were properly the income of Services.

Property Management Consultancy Fees

196    The evidence and submissions in relation to the project management consultancy fees was not as detailed as other aspects of the case.

197    Earlier, Mr Larmar had advised the Commissioner that the only syndicate which had project management consultancy fees was BPPG, in relation to 53 Albert Street. The fee was earlier said to be capitalised as part of the redevelopment costs of the project. The investors were not advised that these fees were being charged.

198    Mr Larmar gave evidence in cross examination that the fees were for overseeing the project, like any other project manager. Further, that the fees were not capitalised, it was returned as income by either Services or Eagle II. However, the profit and loss for Services (and the income tax returns for LFT2, which are in evidence, record the same income) for the years 2007-2009 (although the 2008 tax return is not in evidence), do not record an amount of income as project management consultancy fees.

199    The unaudited profit and loss statements for Eagle II for the 2009 financial year is the only year in evidence. It does not record an amount of income described as project management consultancy fees.

200    Mr Larmar recognised, correctly that project management consultancy fees would be income. On his evidence, these were payment for project management and oversight. That is payment for a service and would be income. However, considering all of the facts and circumstances and for the above reasons, I am not satisfied that Mr Larmar has discharged his onus and proved that the project management consultancy fees/income were properly the income of Services.

Conclusion – Property Syndicate Fees

201    As is considered above, in relation to each of the component parts of the Property Syndicate Fees, Mr Larmar has not discharged his onus and established that such income should properly be regarded income of Services.

202    Separately and in addition to those reasons, on a cumulative basis, Mr Larmar has not discharged his onus and established that the Property Syndicate Fees should properly be regarded income of Services. Mr Larmar’s evidence was that his position was akin to that of a CEO and furthermore he was “conducting the orchestra”. Mr Larmar was driving operations, he was making the relevant decisions and approvals. He was integral to the success of the Property Syndicates. That success was as a direct result of Mr Larmar’s skill, experience, expertise and hard work, personally. The Property Syndicates were very successful. From 2005 to 2015, Mr Larmar’s net wealth increased from approximately $11 million to approximately $75 million. The main reason for this growth was the success of the Property Syndicates, including the fees income from the Property Syndicates. Mr Larmar’s actual financial resources have been increased by the accrual of income: Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 at 12 (Rich J) (as well as the increase in value of the assets, on capital account).

203    Every week regular deposits were made from the bank account of the Firm to Mr Larmar’s own bank account for his and family living expenses. The Property Syndicate Fees, together with other amounts, were banked into the bank account of the Firm. Mr Larmar did not return these amounts transferred from the Firm bank account to his own, as income, but he did use such amounts to meet his living expense. He simply described such amounts as “drawings”. There was no reconciliation of these drawings, compared to the income he did return or to the Property Syndicate Fees. It is apparent that the drawings were in excess of the amount of income returned by Mr Larmar (see for example, “MFI-B”) this is a further reason why Mr Larmar has not discharged his onus.

Alternatively, are the Property Syndicate Fees personal services income?

204    The Commissioner also argues, on the primary assessments, that the Property Syndicate Fees may constitute ordinary income or statutory income derived by a personal services entity, being Services as it includes the personal services income of Mr Larmar.

205    The Applicants submit that the management fees could not be personal services income as that work was mainly produced by the work of Ms Ryan and other staff members employed by Services. Furthermore, the other income being brokerage fees, project management consultancy fees and “success” fees, were also submitted to have no correlation with the labour or services of Mr Larmar or a reward for his skills, experience or expertise. In addition to this, the Applicants submit that other third parties were relied on, further supporting that the Property Syndicate Fees could not be the personal services income of Mr Larmar.

206    The Commissioner submits that the Applicants’ approach of seeking to divide up the different categories of the Property Syndicate Fees is quite artificial, in the context of this case and the evidence given by Mr Larmar.

207    Although not expressly advanced in this way, these submissions by the Applicants raise two issues, first whether the Property Syndicate Fees fall within the meaning of personal services income and secondly, whether Services meets the requirements of a personal services business. If Services is a personal services business, then these provisions will not apply to Mr Larmar to include the Property Syndicate Fees as his income. If the Property Syndicate Fees are not personal services income, then again, the operation of these provisions will not apply.

208    If the Property Syndicate Fees are personal services income and Services is not a personal services business, Mr Larmar’s assessable income, as an alternative basis, should include that amount of ordinary income or statutory income of Services: s 86-15 and s 84-5 of the 1997 Act.

What is Personal Services Income?

209    Part 2-42 of the 1997 Act relates to personal services income. The Guide to Part 2-42 in s 84-1 provides that the Part relates to two issues relating to personal services income. Those being Division 85 which limits the entitlements of individuals to deductions relating to their personal services income and Division 86 which sets out the tax consequences of individual’s personal services income being diverted to other entities. These Divisions do not affect the conduct of personal services business, which are defined in Division 87. Guides are in the nature of intrinsic explanatory material and cannot be used to contradict or confine the language of an operative provision: Federal Commissioner of Taxation v Resource Capital Fund IV LP (2019) 266 FCR 1; [2019] FCAFC 51 at [12] (Besanko, Middleton, Steward and Thawley JJ). The guide can only be used in the ways provided for in s 950-150(2)(a)-(d) of the 1997 Act.

210    Division 86 is headed alienation of personal services income. The guide in s 86-1 provides that the Division is about income from the rendering of an individual’s personal services which is to be treated as the individual’s assessable income if it is income of another entity and is not promptly paid as a salary to that individual. However, this does not apply if the other entity is conducting a personal services business. The object of Division 86 is to ensure that individuals cannot reduce or defer their income tax by alienating their personal services income through companies, partnerships or trusts that are not conducting personal services businesses: s 86-10 of the 1997 Act.

211    The object of Division 87 is to define the term personal services business in a way that ensures that it covers genuine businesses but not situations that are merely arrangements for dealing with the personal services income of individuals: s 87-10 and Cameron v Commissioner of Taxation (2012) 202 FCR 301; [2012] FCAFC 76 (Emmett, Middleton and Robertson JJ) at [3].

212    The introduction of these amendments to the 1997 Act by the New Business Tax System (Alienation of Personal Services Income) Bill 2000 (Cth) was to improve the integrity of the tax system and to achieve a consistent tax treatment for personal services income, irrespective of the structures in place to receive that income: IRG Technical Services Pty Ltd v Federal Commissioner of Taxation (2007) 165 FCR 57; [2007] FCA 1867 at [29]-[30] (Allsop J).

213    Section 84-5 of the 1997 Act defines the term, personal services income as follows:

84-5 Meaning of personal services income

(1)    Your *ordinary income or *statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).

Example 1:

NewIT Pty. Ltd. provides computer programming services, but Ron does all the work involved in providing those services. Ron uses the clients’ equipment and software to do the work. NewIT’s ordinary income from providing the services is Ron’s personal services income because it is a reward for his personal efforts or skills.

Example 2:

Trux Pty. Ltd. owns one semi-trailer, and Tom is the only person who drives it. Trux’s ordinary income from transporting goods is not Tom’s personal services income because it is produced mainly by use of the semi-trailer, and not mainly as a reward for Tom’s personal efforts or skills.

Example 3:

Jim works as an accountant for a large accounting firm that employs many accountants. None of the firm’s ordinary income or statutory income is Jim’s personal services income because it is produced mainly by the firm’s business structure, and not mainly as a reward for Jim’s personal efforts or skills.

214    Only individuals can have personal services income: s 84-5(2) of the 1997 Act. Further, the section applies whether the income is for doing work or producing a result: s 84-5(3) of the 1997 Act.

215    Income is personal services income if it is mainly a reward for personal efforts or skills. By use of the word “mainly” it not necessary that such income be exclusively or solely attributable to the personal efforts or skills of the individual. However, the income must be predominantly a reward for the individual’s personal efforts or skills. It must be more than ancillary. The personal effort would include both physical matters, such as labour, undertaking tasks and work, as well as the application of the individual’s mind to those tasks or work. The skills would include the application or engagement of the individual’s knowledge, competence, expertise and experience. The reward must be mainly for that personal undertaking of the individual rather than the use of income producing assets, say by way of plant and/or equipment (whether for long-term or short-term use).

216    In this sense, the provision requires both a qualitative and quantitative assessment of the basis for which the income is recompense to make a determination of whether the income is a reward mainly for the person’s personal efforts or skills: see Cameron at [114] whereby the term “mainly” in s 87-30 was being considered. In this context and for statutory consistency, a similar approach is applicable.

217    Division 87 provides for personal services businesses and is defined in s 87-15: see 995-1. Generally, the definition for a personal services business is met in one of two ways. First, an individual or a personal services entity has and there is in force, a personal services business determination: s 87-15(1)(a) and (b) and subdivision 87-B. Second, in any case, the individual or personal services entity meets at least one of the four personal services business tests, in the year of income in question: s 87-15(1)(c).

218    The four personal services business tests are (s 87-15(2)):

(a)    the results test – s 87-18;

(b)    the unrelated clients test – s 87-20;

(c)    the employment test – s 87-25; and

(d)    the business premises test – s 87-30.

219    However, there are two situations which must be distinguished. Where (not including certain other specified types of income) either more or less than 80% of an individual’s personal services income is income from the same entity. If it is less than 80% from the same entity, then if any one of the four personal services business tests are satisfied, the personal services income is taken to be from a personal services business, and it is not necessary to apply for a personal services determination. However, if it is more than 80% from the same entity and if the results tests is satisfied then the personal services income is taken to be from a personal services business. Otherwise, it is necessary for a personal services determination to be in force: s 87-15(3), s 87-1 and Commissioner of Taxation v Metaskills (2003) 130 FCR 248; [2003] FCA 766 at [26] (Lindgren J).

Are the Property Syndicate Fees personal services income?

220    To be personal services income the relevant income must be mainly a reward for the personal efforts or skills of the individual or would be such a reward if it was that the individual’s income. The income under consideration is the Property Syndicate Fees, which comprises of management fees, brokerage fees, success fees and project management consultancy fees.

221    Mr Larmar contends that the Property Syndicate Fees are the income of Services. Although I am not satisfied that Mr Larmar has discharged his onus in relation to that contention, I will also consider this aspect of the argument and consider whether Mr Lamar has discharged his onus to establish that the Property Syndicate Fees were not personal services income, or that Services is a personal services business as this is relevant to whether the primary assessments are excessive.

222    In considering whether Mr Larmar had discharged his onus to establish that the Property Syndicate Fees was the income of Services, contrary to the basis upon which the Commissioner assessed Mr Larmar (that being it was his ordinary income), consideration was given to the involvement, engagement and undertakings of Mr Larmar in relation to the Property Syndicate Fees, first separately, and then cumulatively (see above at [1763]-[203]). That reasoning is also applicable in considering whether the Property Syndicate Fees are personal services income. I do not propose to repeat those matters; however, they should be regarded as incorporated into this part of these reasons.

223    However, some additional observations will be made as follows.

(a)    The Property Syndicates were created by Mr Larmar personally. Over the years, Mr Larmar had personally developed excellent property investment skills, including syndicate management and he had a successful history in acquiring and managing various property syndicates.

(b)    It was Mr Larmar’s personal reputation in having excellent property investment skills, a successful syndicate history and syndicate management, which meant he was able to attract investors to the Property Syndicates.

(c)    Mr Larmar personally identified and inspected each property to be the subject of a particular syndicate and determined the appropriate funding arrangements (by way of investors and financing).

(d)    The final decision and approval of matters in relation to the Property Syndicates was a decision of Mr Larmar personally. These decisions relied on Mr Larmar’s skill, expertise and experience. These decisions included (without being exhaustive) matters of cross-investment, changing the character of the investments (from commercial to include residential), changing the property, re-development, tenants, dividends, redemption of an investment and approval of expenses to be paid, financial statements and tax returns.

224    I accept that some of the staff employed by Services who were engaged in the work of the Firm, also undertook various subordinate administrative, drafting and preparatory tasks for the Property Syndicates. Banking transfers and transactions all occurred at the direction of Mr Larmar. The ultimate approval and any changes required to the financial statements of the Property Syndicates was given by Mr Larmar. The determination of the management fees to be charged was ultimately decided by Mr Larmar. He was assisted by the staff of the Firm in undertaking many of the necessary tasks to manage and operate the Property Syndicates. However, none of those staff members had any decision-making roles, none attracted investors, none identified properties, organised finance or any of the other critical matters involved in the Property Syndicates.

225    Mr Larmar personally managed, supervised, organised and controlled the Property Syndicates. He did so with some assistance. However, the payment of the management fees was predominantly attributable to Mr Larmar, and was a reward for his personal efforts and skills.

226    Mr Larmar was personally instrumental in the formation of the Property Syndicates, which included attracting investors. Mr Larmar determined who would be invited to join a particular syndicate and ultimately would be accepted as an investor. Again, he had some administrative assistance. However, the payment of the brokerage fees was predominantly a reward for the personal efforts and skills of Mr Larmar, for brokering the initial investment by investors.

227    The success fees (53 Albert Street) were a reward for the successful outcome of the 53 Albert Street project. That success was based on the identification and acquisition of the asset initially and the undertaking and management of the re-development. Mr Larmar accepted the success fees were a (just) reward (mainly) for his personal efforts. To that can be added Mr Larmar’s skills in being instrumental throughout this project.

228    Finally, the project management consultancy fees were paid in relation to the project management of the re-development of 53 Albert Street. Mr Larmar was critical to the delivery of that project at 53 Albert Street. The evidence was unclear about whether he had assistance in undertaking this project management. However, even if he did, I infer consistent with the assistance given to Mr Larmar in relation to other aspects of the Property Syndicates, it would have only been ancillary. The payment of the project management consultancy fees was predominantly a reward for the personal efforts and skills of Mr Larmar, in relation to the project management undertaken at 53 Albert Street.

229    The Property Syndicates Fees were mainly a reward for the personal efforts and skills of Mr Larmar and as such are personal services income.

230    Therefore, it is necessary to consider whether Services was a personal services business.

Is Services a personal services business?

231    The Applicants did not have any evidence or submit that Services held a personal services business determination by the Commissioner for the Relevant Years.

Results Test

232    Satisfaction of the results test will be met by an individual or a personal services entity, if in relation to at least 75% of the relevant personal services income:

(a)    the income is for producing a result;

(b)    the individual or personal services entity (whichever is relevant) is required to supply the plant and equipment, or tools of trade needed to perform the work from the result is produced; and

(c)    the individual or personal services entity (whichever is relevant) is or would be liable for the cost of rectifying any defect in the work performed.

See s 87-18(1) and (3) and Metaskills at [28].

233    For the purposes of considering whether each of the above matters of the results test has been satisfied, regard is to be had to whether it is the custom or practice, when work of this kind is performed by an entity other than an employee: s 87-18(4) of the 1997 Act. While the results test is based on the common law criteria for characterising an independent contractor from an employee/employer relationship, the results test is satisfied by meeting the three criteria, as outlined above (in s 87-18(1) and (3)). It is not necessary to that all of the recognised criteria of an independent contractor be present: IRG Contractor at [37].

234    The Applicants did not submit or rely on any particular evidence to submit that there was satisfaction of the results test. The Applicants did not seek to identify what was the “result” being achieved by the management fees, brokerage fees, success fees or project management consultancy fees. None of the Property Syndicate Fees (together or separately) constitute income for producing a result.

235    As such, the results test is not satisfied.

Unrelated Clients Test

236    Satisfaction of the unrelated clients test will be met by an individual or personal services entity where:

(a)    income is gained or produced from providing services to two or more entities that are not associates of each other or the individual or the personal services entity; and

(b)    the services are provided as a direct result of the individual or personal services entity making offers or invitations (say, by advertising) to the public at large or to a section of the public, to provide the services.

See s 87-20(1), Metaskills at [29] and Cameron at [54].

237    However, the services are not to be treated as being the subject of offers or invitations within the meaning of s 87-20(1)(b) merely by being available to provide the services: s 87-20(2) of the 1997 Act.

238    The Full Court in Cameron held that common characteristics to determine a group is a section of the public, identified in Corporate Affairs Commissioner (SA) v Australian Central Credit Union (1985) 157 CLR 201; [1985] HCA 64 at 208 (Mason ACJ, Wilson, Deane and Dawson JJ) were not mandatory relevant considerations, for the purposes of s 87-20(1)(b): Cameron at [41] and [67]. In Cameron the nature or character of the invitations was held to be self-evident (at [66]). The invitations did not extend beyond a limited number and there was also no practical possibility of the offer or invitation being taken up by any member of the public or section of the public: Cameron at [60]. It is a question of fact whether the offer or invitation is made to the public at large or to a section of the public: Cameron at [61]. This is in a context where it is possible for an offer or invitation to be made to the public at large or a section of the public even though it is only made to one person. Further, that the offer or invitation can at first instance be made to those with a pre-existing relationship, however if on its terms it was open to members of the public, not as friends or associates to those with the pre-existing relationship, then that would amount to an offer or invitation to the public at large or a section of the public: Hurst v Vestcorp Ltd (1988) 12 NSWLR 394 at 408-409 (Kirby P), also see McHugh JA at 440.

239    The investment opportunity letters were provided to clients or investors in another property syndicate. In this way there was a pre-existing relationship which defined those who received the investment opportunity letter. There was some evidence that on occasion the investment opportunity letter might be provided to another person, being a friend or associate of a pre-existing client or investor. However, the evidence was such that those people only received the investment opportunity letter because they were friends or associate of the pre-existing group members. It was not then an offer to the public at large or a section of the public.

240    Further, the Applicants did not submit that the invitations were made to the public at large, or seek to identify how the invitations were said to be made to the public at large.

241    As such, the unrelated clients test is not satisfied.

Employment Test

242    Relevantly, satisfaction of the employment test will be met by an individual or personal services entity, if:

(a)    the individual or personal services entity engages one or more other entities (other than for a personal services entity, particular individuals whose personal services income is included or associates of the individual or entity that are not individuals) to perform work; and

(b)    that other entity performs at least 20% of the principal work for the year, by market value.

See s 87-25 of the 1997 Act.

243    Mr Larmar makes the broad submission that the personal services in relation to the management fees was produced mainly by the work of Ms Ryan and other members of the staff who worked in the Firm (employed by Services). The evidence relied on to support that submission was at a high level of generality. The evidence is also incomplete, much of it being by way of “examples”. No submission was made by the Applicants that the examples sought to be relied on were representative of the totality of the evidence, in this respect.

244    The evidence in relation to the management fees was that management fees were generally charged in the range of 1-4%, which was dependent on the amount of effort or expertise required. Examples of the tax invoices, billing requests, WIP reports were in evidence. These documents did not comprise a complete set for all of the management fees charged. There was also the inconsistent earlier evidence of Mr Larmar under cross-examination regarding property management being undertaken by the Firm and charged on a time basis. Ms Ryan was more involved in the day-to-day management arrangements with tenants.

245    Mr Larmar has not provided any analysis of the time spent by himself or his staff, the amount charged by himself or his staff, regarding the work done, to discharge his onus in relation to at least 20% (by market values) of the individual or personal services entity is performed by one or more entities.

246    The Applicants seek to distinguish between the other income, being the brokerage fees income, project consultancy fees and success fees, which was wholly or principally for the labour or services of Mr Larmar or a reward for his skills (in his personal capacity). However, in the absence of any analysis (supported by the evidence) it is simply not possible to accept the Applicants’ submission.

247    As such, the employment test is not satisfied.

Business Premises Test

248    Finally, satisfaction of the business premises test will be met by an individual or personal services entity if the individual or personal services entity, at all times during the relevant income year, maintains and used a business premises:

(a)    at which the individual or personal services entity mainly conducts activities from which personal services income is gained or produced; and

(b)    of which the individual or personal services entity has exclusive use; and

(c)    that are physically separate from any premises that the individual or personal services entity or any associate of them, uses for private purposes; and

(d)    that are physically separate from the premises of the entity to which the individual or personal services entity provides services and from the premises of any associate of the entity to which the individual or personal services entity provides services.

See s 87-30 and Metaskills at [32].

249    The assessment of whether the individual or personal services entity maintained and used the business premises at which it mainly conducted activities, involves both a qualitative and quantitative assessment: Cameron at [114].

250    Each of the Property Syndicates, Services and the Firm all operated out of the same premises. There was no evidence as to any separation and there was no evidence as to the physical use of those premises.

251    As such, the business premises test is not satisfied.

Alternative conclusion - the Property Syndicate Fees are personal services income

252    Therefore, if I am wrong on the first basis which is said to support the primary assessments, this would also provide an alternative basis to find that the Property Syndicate Fees should be attributed to Mr Larmar as personal services income.

253    Mr Larmar has not discharged his onus, in this regard, to establish that the assessments to him are excessive.

IS THE EVASION OPINION (MR LARMAR) VIATED BY AN ERROR OF LAW?

What is required to form an opinion of Evasion?

254    In certain circumstances the Commissioner may amend a taxpayer’s assessment at any time. Relevantly, if the Commissioner formed the opinion that there was an avoidance of tax as a result of evasion, this would permit the Commissioner to amend the assessments at any time: Item 5 of s 170(1) of the Income Tax Assessment Act 1936 (Cth) (1936 Act). In this context “evasion” involves some blameworthy act or omission on the part of the taxpayer: Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 79 CLR 296; [1949] HCA 25 at 313 (Dixon J, with whom McTiernan and Webb JJ agreed). Dixon J observed that it is unwise to attempt to define “evasion”, however it means more than avoid and more than a mere withholding of information or the mere furnishing of misleading information, but an intention to withhold information for fear that the Commissioner should consider the taxpayer liable to a greater extent than the taxpayer is prepared to concede, is conduct which if the result is to avoid tax would justify evasion. In Denver Chemical Dixon J concluded that the taxpayer intentionally omitted the income from the return and there was no credible explanation why that was done. This answered the description of avoidance of tax by evasion.

255    Jordan CJ earlier observed in Denver Chemical Manufacturing Co v Commissioner of Taxation (1949) 49 SR (NSW) 195 at 199 (upheld on the appeal, in Denver Chemicals) that where a taxpayer intentionally keeps the Commissioner uninformed by seeking to prevent the Commissioner from applying his mind to some debatable question, being whether particular income should be assessed, that can amount to evasion.

256    The evasion consists of the attempt to preclude, to shut out the presentation of any opposing view, to that of the taxpayer, even where the taxpayer is firmly of the opinion that his view is correct. It is the conduct which amounts to prevention which can amount to evasion. The Commissioner is a stranger to the taxpayer’s affairs and it is incumbent upon the taxpayer to furnish all relevant information. If the taxpayer’s view is correct, that will be borne-out.

257    In Barripp v Commissioner of Taxation (NSW) (1941) 6 ATD 69 at 71 McTiernan J expressed it in the following way (endorsed by Dixon J in Denver Chemicals at 313):

The facts proved come down to these. The appellant received the omitted income in that year. He knew that he received it in that year. He omitted it from his return. He knew or the knowledge ought to be imputed to him that it was omitted. He gave as an explanation that he believed it was not taxable in that year. But the question whether the excuse offered could change the complexion of the facts proved is only an abstract one because the reality of the excuse was not established. The case therefore stands in this situation. The appellant intentionally omitted the income from the return and there is no credible explanation before the court why he did so. His conduct in my opinion answers to the description of an avoidance of taxation at any rate by evasion.

The Applicants’ Submissions - evasion

258    The Applicants accept that they must establish (as they bear the onus) an Avon Downs type of error, being that the Commissioner did not form the requisite opinion or that the Commissioner’s opinion that there was evasion is vitiated by some error law: Binetter v Commissioner of Taxation (2016) 249 FCR 534; [2016] FCAFC 163 at [93] (Perram and Davies JJ); Avon Downs.

259    The Applicants submit that the Commissioner has applied the wrong test, in reaching the opinion on evasion and, in any event, he did not form the required opinion.

260    In submitting that the Commissioner applied the wrong test, the Applicants submit that the test is not a “blameworthy act”. A blameworthy act of itself, it is submitted means no more than doing something wrong, which would not fall within the ambit of evasion. There has to be, in the Applicants’ submission, something more in respect of the conduct of the taxpayer, it is not sufficient to omit income. The Applicants submit that the authorities do not use the term, “blameworthy act”.

261    However, the Applicants accept that Denver Chemicals uses the term “blameworthy”. In the context of the paragraph as a whole (Denver Chemicals at 313) it is submitted it means more than doing something wrong as the mere withholding and mere furnishing of misleading is insufficient. The Applicants submitted (using the language in Barripp) that it must be a wilful omission.

262    Although the Applicants initially advanced a submission regarding a submitted error by the Commissioner suggesting that the two opinions against the different taxpayers (Mr Larmar and Services) could not be formed, regarding evasion, this was not ultimately pressed. The Applicants maintained the submission that the Commissioner applied the incorrect test.

263    This concession was properly and appropriately made as the guiding and controlling mind of each taxpayer is the same and the assessments and hence the opinions as to evasion are issued in the alternative.

Was the Commissioner’s Opinion lawfully formed?

264    There are two opinions of a delegate on behalf of the Commissioner (and no issue was pressed as to the delegate's authority to make these decisions and hence these will be referred to as decisions of the Commissioner). The first is dated 7 July 2017, with the decision date stated as being 4 July 2017 (First Opinion) and the second is dated 10 July 2017 (Second Opinion).

265    Each of the First Opinion and the Second Opinion are contained in a template style document.

266    In the First Opinion, under the section headed “Evasion – elements”, after setting out the shortfall amounts for the financial years 2005 to 2014, the Commissioner observes:

The avoidance of tax (an additional requirement in ATO process and procedure) has been identified in the submission in the table at paragraph 14. There has been an avoidance of tax as a result of the under reporting of assessable income in the income years ended 30 June 2005 to 2014. The amount is significant, some $28m compared to some $2.3m returned over the same period.

The table in paragraph 36 of the submission details income that has been returned by LFT No.2 and which should have been returned by Mr Larmar. This table also details income that has not been returned by any individual or entity associated with Mr Larmar.

…

267    The First Opinion recorded “Yes” to the question, “was there a blameworthy act or omission?” The blameworthy act or omission is then said to be:

The blameworthy acts are the non-reporting and the non-disclosure of income properly assessable to Mr Larmar, being:

2005: the omission of brokerage fee income (unreturned by any individual or entity)

2006: property management fee income

2007: property management fee income, brokerage fee income, success fee income, project management consultancy income and omission of brokerage income (unreturned by any individual or entity).

2008: property management fee income, brokerage fee income, success fee income, project management consultancy income and omission of brokerage income (unreturned by any individual or entity).

2009: property management fee income, success fee income, project management consultancy income, the omission of brokerage income (unreturned by any individual or entity), and the omission of success fee income (unreturned by any individual or entity).

2010: property management fee income, brokerage fee income, and the omission of brokerage income (unreturned by any individual or entity).

2011: property management fee income, and brokerage fee income.

2012: property management fee income, and brokerage fee income.

2013: property management fee income, brokerage fee income and the omission of brokerage fee income (unreturned by any individual or entity).

2014: property management fee income, and brokerage fee income.

268    In the First Opinion the facts and evidence relied upon to establish that there was a blameworthy act or omission are said to be contained in the Submission (being the Fraud and Evasion Submission dated 31 August 2016) and the Position Paper (being the position paper dated 5 October 2016 in relation to Mr Larmar). The Commissioner has also referred to the level of sophistication of Mr Larmar and that the record keeping was generally inadequate and incomplete and the number of years over which the behaviour has occurred. The Submission and the Position Paper was again referenced, towards the end of the First Opinion.

269    The Second Opinion is in very similar terms, although the amounts (and total) of the shortfall for the relevant years are different. The facts and evidence relied upon to establish that there was a blameworthy act or omission are said to be contained in the Submission and the Position Paper. There are also differences and similarities as between the break-down of property management fees, brokerage fees (both in respect of those returned by LFT2 and those omitted), success fees and project management consultancy fees, detailed in each opinion. The Second Opinion also referred to the level of sophistication of Mr Larmar, that the record keeping was generally inadequate and incomplete and the number of years over which the behaviour has occurred. Finally, the Second Opinion also considers and adopts the positions stated in certain documents including the Submission and the Position Paper (including the papers dated 14 October and 16 November 2016, as well as the 5 October 2016).

270    As such, each of the First Opinion and the Second Opinion will hereinafter be referred to as the Opinion. The Applicants submitted that although in reading the Opinion the documents incorporated by reference are taken into account, the proper way to analysis the Opinion is to focus on the primary matters relied on in the Opinion. It is those matters which are encapsulated in the Opinion and the focus of attention should be on these primary matters relied on in forming the opinion. As such, so the Applicants submitted, it is those matters which should be considered as to whether there has been legal error.

271    It is not uncommon for a decision-maker to incorporate, by reference matters from other documents or matters: Craig v South Australia (1994) 184 CLR 163; [1995] HCA 58 at 181-182 (Brennan, Deane, Toohey Gaudron and McHugh JJ). It is a question of whether the Opinion produces the consequence that the way the Submission and Position Paper are referenced brings about its incorporation as an integral part of the reasons forming the decision made in the Opinion.

272    The Opinion refers to specific paragraphs and tables from the Submission, when stating the amount of the shortfall. Observations are made regarding the “significant” amount of the shortfall being over $28 million and express mention is made of the amounts of income detailed in the second table that have not been returned by any individual or entity associated with Mr Larmar. The blameworthy acts are the non-reporting and the non-disclosure of income “properly” assessable to Mr Larmar. Further the Opinion relies on the facts and evidence to establish the blameworthy act or omission contained in the Submission and Position Paper. The Opinion refers to amounts which should have been included in the income tax returns for Mr Larmar in relation to property management fees received, brokerage fees received and brokerage fees omitted and not returned by any entity, success fees received and success fees omitted and project management consultancy fees received.

273    The detail and level of engagement with the Submission and the Position Paper is clear from the terms of the Opinion. The Opinion incorporates and adopts the findings in the Submission and Position paper, by the references made to those documents. The language used is not a mere introductory remark but is a consideration of the substance of the Submission and Position Paper.

274    The language in the Opinion commences with a consideration of the shortfall of the tax, being an avoidance of tax as a result of the under reporting of assessable income which should have been returned Mr Larmar. The blameworthy acts are the non-reporting and non-disclosure of income “properly” assessable to Mr Larmar. The reference to both non-reporting and non-disclosure brings with it a deliberate intention to keep information to oneself or a deliberate intention to not reveal information, even though there is an obligation to do so. The reference to “properly” brings with it that the income deliberately not revealed which was correctly or appropriately assessable to Mr Larmar.

275    The Opinion makes a distinction between fees (brokerage and success fees) which were received and amounts which were not returned by any entity associated with Mr Larmar, in a context where Mr Larmar, as is referred to (all within this aspect of the Opinion) as being a chartered accountant and tax agent. Therefore, the Opinion records that Mr Larmar knew he had received certain amounts, he had omitted these amounts from his return intentionally and the explanations were inadequate, incomplete and on occasion inconsistent, such that those explanations did not provide a credible explanation. Applying the above paragraph from Barripp this answers the description of avoidance of tax by evasion. This is apparent on the face of the Opinion.

276    In addition, the Submission (which was dated August 2016) commenced under the heading “Issue 2: Is the avoidance of tax a result of fraud or evasion” by setting out the relevant authorities and elements upon which the opinion of evasion may be formed. Then a discussion of the relevant facts and evidence, under the headings of “avoidance of tax” and “blameworthy act” takes place.

277    In further addition to this, the Position Paper (which was dated October 2016) under the heading “Issue 2: Period of Review” described Evasion as:

… Evasion may exist where there is:

•    some blameworthy act or omission, such as the knowing or intentional omission of income from an income tax return lodged with the Commissioner;

•    some active or passive fault of the taxpayer, for example knowingly omitting income from a return without credible explanation;

•    non-payment of tax through some ploy or artifice.

278    This is a statement of the test being applied in the Position Paper. It is based on the correct principles, including from Denver Chemicals and Barripp. Then applying these matters (Position Paper at [141]-[149]) consideration is given to:

(a)    the significant income received during the 2005 to 2014 income years, that was subsequently used for personal expenditure;

(b)    that Mr Larmar made a decision to report the majority of that income by LFT2;

(c)    Mr Larmar’s knowledge that the amount of income declared was not an accurate representation of his income, but lodged his tax returns without a credible explanation as to the omitted income;

(d)    The number of years and quantum involved meant it was not an isolated event or mistake but a pattern of non-compliant behaviour and an act of concealment of income which is a blameworthy act;

(e)    therefore, the Commissioner has made a finding of evasion.

279    The test stated and applied in each of Opinion, the Submission and the Position Paper does not contain an Avon Downs error. The Commissioner stated and applied the correct test. The Commissioner did not state or apply the test as being that the mere withholding or the mere furnishing of misleading information was sufficient.

280    Finally, the Commissioner did actually form the requisite opinion that Mr Larmar had engaged in evasion.

281    The Applicants’ submissions in this regard must be rejected.

282    As such, the Commissioner is able to amend the assessments of Mr Larmar at any time.

CONCLUSION ON THE PRIMARY ASSESSMENT TO MR LARMAR

283    Mr Larmar has failed to discharge his onus on the primary assessments to establish that those assessments are excessive. He has failed to prove that the Property Syndicate Fees was properly the income of the Services or that those fees were not his ordinary income or personal services income. The taxation appeal must be dismissed.

284    I will hear from the parties on the question of costs.

Associate:    

Dated:    26 June 2026