Le Sueur Investments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 151

CITATION: Le Sueur Investments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 151

DIVISION: Revenue Division

APPLICANT PARTIES: Le Sueur Investments Pty Ltd RESPONDENT Chief Commissioner of State Revenue

FILE NUMBER: 076022

HEARING DATES: 29 June 2007

SUBMISSIONS CLOSED: 29 June 2007

DATE OF DECISION: 24 July 2007

BEFORE: Block J - ADCJ (Judicial Member)

CATCHWORDS: Land tax exemption - principal place of residence

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Land Tax Management Act 1956 Taxation Administration Act 1996

O'Neill trading as Guardian Angel Pty Ltd v Chief Commissioner of State Revenue [2006] NSWADT 133 CASES CITED: Sevad Nominees Pty Ltd as trustee for Pammjet Family Trust v Chief Commissioner of State Revenue [2004] NSWADT 31 Stature Pty Limited v Chief Commissioner of State Revenue [2002] NSWADT 271

APPLICANT P Le Sueur and Y Wong REPRESENTATION: RESPONDENT S Benjamin, agent

ORDERS: Excepting only that interest is confined to interest at the market rate the decision under review is affirmed.

REASONS FOR DECISION A. Introduction and background. 1 The decision under review relates to the disallowance of an objection to the imposition of land tax for the 2004, 2005 and 2006 land tax years in respect of the property situated at 14 Violet Town Road, Mount Hutton ("the Property"). The land tax years referred to in the preceding sentence are collectively referred to as "the relevant years"; any individual relevant year is referred to by reference to its actual year. 2 The Tribunal had before it certain documents lodged pursuant to the Administrative Decisions Tribunal Act 1997 and in addition written submissions by the Respondent. 3 At the commencement of the hearing Mr Benjamin made application for the substitution of Le Sueur Investments Pty Limited (which is referred to as "the Company") as the Applicant in place of Mr Peter Raymond Lesueur. That application was, with the consent of Mr Lesueur and his wife, Yuman Wong, granted. The application for review was (erroneously) made by Mr Lesueur alone. I intend, henceforth in these reasons, to refer to Mr Lesueur as "the Husband" and to Yuman Wong as "the Wife". 4 The facts fall within a very narrow compass. The Husband produced the contract of sale pursuant to which the Property was purchased; (it may be noted that the contract of sale was not included in the section 58 documents and it was not tendered as an exhibit.) It indicates that it was executed on 17 June 2003. The names in respect of the purchaser as the contract was originally drawn were those of the Husband and Wife. However and prior to execution the Company as Trustee of the Lesueur Family Trust ("the Trust") was substituted as purchaser in place of the Husband and Wife. The contract was completed in July 2003 and the Company became and remained the registered owner of the Property until in November 2006 it was transferred to the Husband and Wife. 5 The Husband also produced the Trust Deed in respect of the Trust. It too did not form part of the section 58 documents and it too was not tendered. It indicates that it was executed on 17 February 2003 between Dino Di Guilio as settlor and the Company as Trustee; the Specified Beneficiaries are the Husband and the Wife and their children and grandchildren are Additional Beneficiaries. The provisions of the Deed make it clear that distributions can be made in favour of a wider class of persons. There can be no doubt that the Trust is a special trust as defined in section 3A of the Land Tax Management Act 1958 ("the Act") since it is not a fixed trust. On the contrary it is clear that it is a standard form discretionary trust. 6 The section 58 documents do not include any document of title in respect of the Property. It may be accepted however that the Company became and remain the registered owner of the Property and (given that a trust is not a legal entity) presumably without reference to the fact that the Company acquired the Property as Trustee of and on the terms contained in the Trust Deed. 7 On 17 September 2005 the Respondent issued an assessment to land tax in respect of the 2005 year in an amount of $1200. 8 The Wife informed the Tribunal that subsequently to the date referred to in the preceding clause, she sent a form to the Respondent in which she indicated that the Company owned the Property in its capacity as Trustee of the Trust. A copy of that form was not available for production to the Tribunal. That notification resulted in an assessment dated 17 March 2006 and referable to all three relevant years, and in which the tax assessed was $4658 for the 2004 year, $4200 for 2005 year, and $5,100 for the 2006. 9 On 20 May 2007 the Company wrote a letter to the Tribunal Board; it is unnecessary to quote the whole of that later; suffice it to say that the fourth fifth and sixth paragraphs of that letter read as follows: We received a land tax assessment in the sum of $1,200.00 for the year of 2005 issued in September 2005 from Office of State Revenue, under the title of Le Sueur Investments Pty Ltd, due to new land tax law in 2004(a copy of which is attached). We filled in the form for an exemption for this tax as principle residential, in the name of Le Sueur Investments Pty Ltd ATF Le Sueur Family Trust, which we have never received the reply. If OSR had any queries about the title they should have contacted us, knowing we had concerns about land tax. We then received another land tax of assessment for the year of 2004, 2005 and 2006 issued on 17 March 2006 in the sum of $ 13,958 from Office of State Revenue, under the amended title of Le Sueur Investments Pty Ltd ATF Le Sueur Family Trust, when OSR had recognised their mistake (a copy of which is attached). And yet, they still want us to pay the maximum taxable amount they can get, without any apology - only threats. The amended land tax of assessment for the year 2005 was $4,200(a copy of which is attached). In accordance with Section 25A(3) of the Act the 2005 land tax assessment cannot be amended as: The classification of a trust as a special trust has effect in respect of any assessment of land tax liability (being an initial assessment of land tax liability) that is made on or after the date on which the trust is classified as a special trust, and does not affect any assessment of land tax liability made before that classification. 10 It will be noted that the Applicant in effect complained firstly let the assessment in respect of the 2005 year was amended, secondly that the Respondent did not make contact with the Applicant (or the Husband and the Wife), and thirdly that the Trust became a special trust only from the date on which it was classified as such. Part B. The law, cases and related matters. 11 In respect of all of the relevant years schedule 1A to the Act contained most of the relevant statutory provisions in respect of the principal place of residence ("PPR") exemption. 12 Section 11 of schedule 1A to the Act reads as follows: 11 Exemption does not apply to land owned by companies and trustees (1) Land is not exempt from taxation under the principal place of residence exemption if (a) the land is owned, or jointly owned, by a company, unless the land is owned or jointly owned by a trustee company acting in its representative capacity or a company acting in its capacity as trustee of a concessional trust, or (b) the owner of the land, or each of the joint owners, who use and occupy the land as a principal place of residence is an owner only by reason of being a trustee, or (c) the land is owned, or jointly owned, by a person who is a trustee acting in the person's capacity as trustee of a special trust. 13 It will be clear then that in respect of the relevant years the Property fell within clause 11(1)(c) of schedule 1A and in consequence of which it did not in respect of any of the relevant years qualify for the PPR exemption. 14 If the Husband and Wife had been the owners of the Property from the time of its acquisition, and given that they resided in it, the PPR exemption would have been available to them. The fact that the Husband and Wife own shares in the Company does not have the effect that they are owners for the purposes of section 7 of the Act. 15 The Respondent has the power under section 9 of the Taxation Administration Act 1996 to amend assessments within the period of 5 years specified in that section. In this case the Respondent amended his assessment in respect of the 2005 year after he became aware of the existence of the Trust. He became so aware of its existence after he received the form sent to him by the Wife. The effect of the Company owning the Property in its capacity as Trustee of a special trust was that the Company did not in respect of any of the relevant years have an entitlement to the tax-free threshold. The Respondent could not in the absence of advice to that effect from the Wife know of the existence of the Trust and more particularly the fact that it is and always was a special trust. It is in these circumstances that the Respondent amended his assessment for the 2005 year. 16 The complaints by the Applicant as to non-notification by the Respondent are without foundation. The Act is framed on the basis of owners of land or obliged to furnish returns; the Tribunal refers in particular but not only to section 12 of the Act. 17 The point made in the Company's letter as to section 25A(3) of the Act is without foundation. The documentation in question indicates in clear terms that the Trust was always a special trust and so that there was no requirement that it be classified as such. (This aspect was not in any event mentioned during the hearing) 18 Mr Benjamin referred the Tribunal to Stature Pty Limited v Chief Commissioner of State Revenue [2002] NSWADT 271; clauses 10, 11 and 12 of the decision by Judicial Member Verick read as follows: 10 It is fairly basic to say that "moral and ethical grounds" have very little role in construing revenue statutory provisions. As submitted by the Chief Commissioner, there is a clear statutory duty on persons who fall within the Chief Commissioner's Gazette notification published under the provisions of s 12(1) of the LTM Act to lodge land tax returns by virtue of the provisions found in ss 12(1A) of the LTM Act. In the present matter the applicant failed to lodge the land tax returns for the relevant years. The assessments were made pursuant to information obtained by the Chief Commissioner through his compliance activity. The Chief Commissioner acted quite properly within the statutory framework of the law. Accordingly, it cannot be said that there was any denial of natural justice in this matter. 11 I also agree with the Chief Commissioner's submission that the doctrine of estoppel does not apply to prevent the Chief Commissioner from attending to his statutory duties. It is well established that the doctrine of estoppel cannot be invoked by a taxpayer so as to prevent the Commonwealth Commissioner of taxation assessing tax pursuant to the statutory duty so to do. (cf. Kitto J in Federal Commissioner of Taxation v Wade (1951) 84 CLR 105 at 117 and approved by the High Court in several subsequent cases including Federal Commissioner of Taxation v ANZ Savings Bank Ltd (1994) 181 CLR 466, Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 and Federal Commissioner of Taxation v Ryan (2000) 168 ALR 704). As stated by Hill J, very succinctly and unequivocally, in AGC (Investments) Ltd v FC of T 91 ATC 4180 at p. 4195: "... there is no room for the doctrine of estoppel operating to preclude the Commissioner of Taxation from pursuing his statutory duty to assess tax in accordance with law. The Income Tax Assessment Act imposes obligations upon the Commissioner and creates public rights and duties, which the application of the doctrine of estoppel cannot be invoked by a taxpayer so as to prevent the Commissioner assessing pursuant to his duty so to do. The cases certainly support that view." 12 The accepted view is, therefore, clearly that no conduct on the part of revenue can operate as an estoppel against an obligation imposed by revenue legislation to assess for the correct amount of tax subject, of course, to any specific statutory provisions which prevent the revenue from exercising its statutory duties. In the present matter the Chief Commissioner has acted correctly within his statutory powers to make assessments where there was a failure on the part of a taxpayer to lodge land tax returns as required by the law. Accordingly, the doctrine of estoppel cannot assist the applicant to assert that the Chief Commissioner was not entitled in all the circumstances of the case to issue the assessments for land tax for the years in question. 19 Mr Benjamin referred the Tribunal also to Sevad Nominees Pty Ltd as trustee for Pammjet Family Trust v Chief Commissioner of State Revenue [2004] NSWADT 31 and where the facts bear a marked resemblance to the facts in this case. Judicial Member Verick said in clauses 19 and 20; 19 The first matter that I need to explain is that the applicant is the owner for purposes of the LTM Act and not the directors of the applicant or the beneficiaries. There is a great deal of confusion in the mind of the directors, in particular with K1. A trust is not a separate legal entity and has no legal status. It merely refers to an obligation attaching to the property the subject of the trust. Professor Keeton in his study, The Law of Trusts (9th ed.) at p.5 defines a trust as: "the relationship which arises wherever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons (of whom he may be one and who are termed cestuis que trust ) or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other object of the trust." 20 Discretionary trusts have been enormously popular with tax planners. But the use of a trust to hold property shifts the legal ownership to the trustee who that capacity controls the property. Section 3(1) of the LTM Act definition of an "owner" for purposes of land tax includes a trustee. In the present matter, the land at No 19 was purchased by the trust but held by the applicant as a trustee and as an "owner" for purposes of the LTM Act. Although the directors of the applicant are the "minds" which have made decisions for investment in relation to real estate, the ownership in law is with the trustee, here the applicant. 20 Mr Benjamin furthermore referred the Tribunal to O'Neill trading as Guardian Angel Pty Ltd v Chief Commissioner of State Revenue [2006] NSWADT 133 and where Judicial Member Hole said in clause 40: 40 The various submissions made by the applicant relating to the company range from him believing that he must eventually have his name registered on title to there are no beneficiaries, just straight out owners. The applicant also drew attention to the company's Memorandum of Association which discloses that there is an intention that the company assets be protected for "seven members of the said O'Neill Family". The company statement of 7 July 2005 discloses 15 redeemable preference shares as beneficially held. The question then arises as to whether the company has breached its constitution, this is a matter for the company, its members and shareholders. When the applicant does transfer his interest or it is disposed of by way of probate of his Will, it is not clear as to who will become the owner. Nevertheless the question whether there is an exemption available is the question to be dealt with here. This will only be so if the company is acting in its "representative capacity" or its "capacity as trustee of a concessional trust" and therefore outside the provisions of Part 4 Clause 11(1)(a) of Schedule 1A. This provision was inserted into LTMA in 2003 and recognised the general provisions prior to the amendment relating to circumstances such as exist here. There is no evidence that the company is a trustee of a concessional trust and there is no evidence that the company is a trustee company acting in its representative capacity. There is no evidence that the company is a not for profit company. To the contrary, the applicant has submitted that he is the sole owner of the company and therefore the sole owner of the shares in the company-- Part C. Conclusion 21 This case indicates that while it may at one time had been intended that the purchaser of the Property would be the Husband and Wife it was in fact purchased by the Company as Trustee and of the Trust and which is a special trust. 22 It may be that the Husband and the Wife received professional advice, which was incorrect, but this is not a matter for the Tribunal. To purchase residential real property (to be occupied by a married couple) in the name of a company has adverse land tax consequences and in addition adverse capital gains tax consequences. When a company makes the purchase as trustee of a special trust the position is yet more adverse because the tax-free threshold then becomes unavailable. As I have noted, there would have been an entitlement to the PPR exception if the Husband and Wife had purchased the property. 23 In respect of the aggregate amount assessed certain payments have been made. Interest was charged at both the market rate and the premium rate; Mr Benjamin graciously agreed that the premium rate would be waived but not interest at the market rate. 24 I note in the interests only of completeness that in the documents before the Tribunal the name of the Company is sometimes Le Sueur Investment Pty Ltd, sometimes Le Sueur Investments Pty Ltd and sometimes Le Sueur Investments Pty Ltd. In respect of the name of the Husband there are times when his name is written as Le Sueur and also times when it is written as Le Sueur, but nothing turns on these differences, 25 Accordingly and subject only to the fact that interest is confined to interest at the market rate, the decision under review is affirmed.