Background
Mr Earl Howard Larmar, a tax agent and chartered accountant, established various property syndicates over the years including the Brisbane Prime Property Group, City Arcade, Bayswater, and Ashgrove. The Commissioner of Taxation audited Mr Larmar and his associated entities, issuing amended assessments for the financial years 2005 to 2014 that attributed approximately $29.8 million in property syndicate fees to Mr Larmar personally. These fees consisted of management fees ($6.1 million), brokerage fees ($5.2 million), success fees ($14.1 million), and project management consultancy fees ($4.4 million).
Mr Larmar objected, arguing that this income was derived by the Larmar Family Trust No. 2 (LFT2) and properly returned by its beneficiaries, not attributable to him personally. The Commissioner also issued alternative assessments to the trust as a secondary position. A critical issue was whether the Commissioner properly formed the opinion that evasion had occurred, which would permit amendment outside the normal 2-4 year period given the assessments concerned years dating back to 2005.
Two separate taxation appeals were heard together: one by Mr Larmar challenging the primary amended assessments (QUD 484/2022) and another by E H Larmar Services Pty Ltd (the trustee of LFT2) challenging the alternative assessments (QUD 167/2023). Justice Wheatley presided over both appeals.
The Court’s Holding
Justice Wheatley dismissed Mr Larmar’s appeal, holding that he failed to discharge his burden of proving the amended assessments were excessive. The court determined that the property syndicate fees constituted ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (Cth) properly attributable to Mr Larmar, not to the trust. The court found the Commissioner properly formed the necessary opinion that evasion had occurred, giving the Commissioner power to amend the assessments beyond the normal limitation period.
The court’s analysis examined Mr Larmar’s extensive personal control over the property syndicates. He personally selected investors (predominantly clients of his tax firm), unilaterally determined investment terms and property selection, decided when to change investment strategies (including shifting from commercial to residential property), set management fee amounts without disclosure to investors, and alone decided dividend payments. Critically, Mr Larmar received the various fees—management fees charged through his firm or Services, brokerage fees (2% of purchase price), success fees upon sale or revaluation, and project management consultancy fees—with the character and control of these receipts indicating personal income under ordinary concepts.
The court allowed the appeal by E H Larmar Services Pty Ltd as trustee of LFT2, but only because the alternative assessments to the trust were necessarily excessive once the primary assessments to Mr Larmar—representing the “true state of affairs”—were upheld. No further consideration of the alternative assessments was required.
Key Takeaways
- Property syndicate fees are properly characterized as personal income where the individual exercises substantial personal control over the syndicate structure, determines fees unilaterally, selects investors, and makes strategic investment decisions without consultation.
- The determination of whether a receipt constitutes ordinary income depends on the totality of circumstances, including the nature of the receipt, its periodicity, and whether it depends on the individual’s personal efforts and decision-making.
- Where an individual’s control and involvement in a syndicate structure is sufficiently extensive, income cannot be recharacterized as trust income merely because a trust entity was involved in the formal structure.
- The Commissioner may amend assessments beyond the normal limitation period when he forms the opinion that evasion has occurred, and such opinions may be upheld where the evidence demonstrates deliberate or reckless disregard of tax obligations.
Why It Matters
This decision provides important guidance on income characterization in multi-level trust and syndicate structures. It demonstrates that formality of trust documentation is secondary to the substance of control and decision-making. Practitioners structuring property syndicates must recognize that extensive personal involvement by the organizer—particularly unilateral control over fees, investor selection, investment decisions, and distributions—will result in the organizer being characterized as the true earner of the income, regardless of whether it nominally flows through a family trust. The decision also reinforces that the Commissioner’s evasion powers extend beyond fraud to include circumstances where taxpayers have engaged in arrangements that mischaracterize income to avoid taxation.
For advisors and taxpayers involved in property investment syndicates, this case underscores the importance of genuine arm’s-length structures with documented agreements, proper investor governance, and separation of personal management decisions from trust or corporate entity operations. Where such separation is not maintained, the ATO is likely to recharacterize income to the individual organizer, and the courts will support such recharacterization as representing the true state of affairs.