The Commissioner has now finalise a tax determination on whether or not gains or losses made from an investment made by an entity in its capacity as trustee of a trust is conclusive as to whether the gain or loss is on revenue or capital account for tax purposes. The Commissioner’s view is that it is not.

While this is strictly true, the determination seems to ignore the fact that the High Court has held that there is an important distinction between investment activities carried on by an investment company and one carried on by a trust due to the fiduciary duties of that the trustee has to the beneficiaries.

It is a question of emphasis. Although, as a matter of practice, if the trust makes a loss it will probably be said by the Commissioner to be on capital account whereas there is a greater likelihood of the Commissioner being of the view that a gain being held on revenue account.

The High Court has held that gains made by a trust result not from transactions forming incidents in the conduct of a business or a profit-making scheme, but from “transactions effected in the course of performing a fiduciary duty to preserve for beneficiaries as far as practicable the assets comprising the trust fund and any increments in the value of those assets which might appear from time to time to be in jeopardy”.

Further it has also been held that while it could never be conclusive of the question whether a business is carried on by a taxpayer that the taxpayer is a trustee this does not mean that the fact that a taxpayer is a trustee with fiduciary duties to his beneficiaries is irrelevant to the process of characterisation involved in determining whether his or her activities involve a business.  

Some of the examples used by the Commissioner in the tax determination are not particularly helpful and are likely to further confuse.