Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue [2009] NSWADT 205

CITATION: Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue [2009] NSWADT 205 This decision has been amended. Please see the end of the decision for a list of the amendments.

DIVISION: Revenue Division

APPLICANT Sahab Holdings Pty Ltd ATF The Kanjian Family Trust v Chief Commissioner of State Revenue PARTIES: REPSONDENT Chief Commissioner of State Revenue

FILE NUMBER: 096020

HEARING DATES: 19 May 2009

SUBMISSIONS CLOSED: 31 July 2009

DATE OF DECISION: 3 August 2009

BEFORE: Hole M - Judicial Member

CATCHWORDS: Special trust – meaning, fixed small trust, deed land tax exemptions

LEGISLATION CITED : Land Tax Management Act 1956 (NSW)

CASES CITED: CPT Custodians Pty Ltd v Commissioner of State Revenue [2005] HCA 53 Glenn v Federal Commissioner of Land Tax [1915] HCA 57

APPLICANT K Kanjian, solicitor REPRESENTATION: RESPONDENT M Robertson, barrister

ORDERS: 1.The Kanjian Family Trust is not a fixed trust for the purposes of Section 3A of the Land Tax Management Act 1956 as at 31 December 2007 2.The assessment issued by the Chief Commissioner of State Revenue on 28 July 2008 is correct.

REASONS FOR DECISION 1 This application is made by Sahab Holdings Pty Ltd ATF The Kanjian Family Trust ("the company"). The applicant purchased the property ("the property") subject of the land tax assessment in December 2006. The stated intention by the representative of the applicant was that it was intended to purchase the property as trustee for a newly constituted unit trust to be styled in the name The Kanjian Family Trust ("KFT"). 2 As at December 2006 and continuing the directors of the company are the mother ("the mother") of the representative and the representative of the company. 3 The stated ultimate purpose of the proposed unit trust was to permit the property to be held in trust for the mother's then proposed superannuation fund. The superannuation fund was constituted by a Deed dated 7 March 2007 and called "The Vasir Superannuation Fund" ("VSF"). The trustee of VSF was another company. 4 The representative acknowledged that in order for a unit trust to qualify pursuant to Schedule 1AA of the Land Tax Management Act 1956 (NSW) ("LTMA") it needed to have been in existence as at 31 December 2005. 5 The company entered into a contract to purchase the property on 22 December 2006, settlement occurred on 5 April 2007. As at 31 December 2007 the applicant was the owner of the property as trustee for KFT and was the assessable owner unless an exemption was available. 6 An assessment dated 14 January 2008 was issued for the 2008 land tax year addressed to Sahab Holdings P/L. This assessment was for three properties including the property. On 18 January 2008 the representative for the company forwarded a letter to the respondent objecting to the assessment. 7 As a result of a review of the assessment pursuant to the letter from the applicant's representative dated 18 January 2008 the reference to the property was omitted from the land tax assessment and a new assessment was issued on 1 April 2008 for the other two properties. 8 On 28 July 2008 a further land tax notice of assessment was issued in relation to the property for the 2008 land tax year. The applicant's representative advised the respondent that the property ought not be assessed for land tax and referred to his previous letter dated 18 January 2008. The applicant's representative requested the respondent to review the file and withdraw the most recent assessment. 9 On 1 October 2008 the respondent issued a Final Notice to the company in respect of the overdue payment for the 2008 land tax year. The applicant's representative forwarded a letter to the respondent noting, amongst other things, that his letter of 8 August 2008 had not been responded to. 10 On 30 September 2008 the respondent advised the applicant that the objection had been considered and that the trust continued to be regarded as a Special Trust for the 2008 land tax year. It was noted that for the special concession as a family held unit trust to apply the company was required to be the owner of the property as at 31 December 2005. The company first purchased the property on 5 April 2007 and therefore did not qualify for the concession. The letter further noted that in order for the fixed trust to be recognised as such within Section 3A(3B) of the LTMA the Deed creating the Trust must specifically provide that the unit holders are presently entitled to the capital of the trust. The respondent was of the view that Clause 10 failed to do this and that the Deed gave the trustee discretion on the distribution of the capital of the trust. 11 The applicant's representative further corresponded with the respondent requesting a review of the decision contained in the letter dated 30 September 2008 and ultimately a letter dated 4 December 2008 issued to the applicant's representative disclosing that the objection was disallowed. 12 On 28 January 2009 the respondent advised the applicant's representative that the KFT does not qualify for assessment as a fixed trust and that the decision to disallow the objections made was affirmed. It is from that decision that this application is brought. 13 The applicant supplied comprehensive written submissions in relation to the application and also verbal submissions at the hearing. The respondent supplied written submissions and also made verbal submissions at the hearing. The submissions of both the applicant's representative and the respondent's representative have been most helpful in relation to understanding the Trust document and interpretation of the relevant legislation. Legislation 14 The relevant legislation is Section 3A of the LTMA and particularly Section 3A(3B): "3A Special trust -meaning (1) For the purposes of this Act, a trust is a "special trust" if: (a) the trust property includes land, and (b) the trustee of the trust is the owner of the legal estate in the land, and (c) the trust is not a fixed trust. (2) For the purposes of this section, a trust is a "fixed trust" if the equitable estate in all of the land that is the subject of the trust is owned by a person or persons who are owners of the land for land tax purposes (disregarding section 25 (3)). (3) For the purpose of determining whether a trust is a fixed trust under this section, any equitable interest of the trustee as trustee of the trust is to be disregarded. (3A) If a trust satisfies the relevant criteria, the persons who are beneficiaries of the trust under the trust deed are taken to be owners of an equitable estate in the land that is the subject of the trust and, accordingly, the trust is taken to be a fixed trust. Note: Under section 25, owners of an equitable estate or interest in land are liable in respect of land tax as if they were legal owners of the land. Owners of an equitable estate in land are treated as secondary taxpayers. (3B) For the purposes of this section, the "relevant criteria" are as follows: (a) the trust deed specifically provides that the beneficiaries of the trust: (i) are presently entitled to the income of the trust, subject only to payment of proper expenses by and of the trustee relating to the administration of the trust, and (ii) are presently entitled to the capital of the trust, and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property, (b) the entitlements referred to in paragraph (a) cannot be removed, restricted or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed. (4) A trust is not a "special trust": (a) if the trust is solely a charitable trust, or (b) if clause 9 of Schedule 1A applies in respect of the land that is the subject of the trust, or (c) if the trust is a concessional trust, or (d) in relation to any land tax year in which it is a superannuation trust, or (e) if the trust is established by will, but only during the period ending on the expiration of 12 months after the date of death of the testator, or such further period as may be approved by the Chief Commissioner in a particular case, or (f) in relation to any land tax year in which it is a family unit trust, as provided by Schedule 1AA." Submissions by the applicant 15 The applicant contends that the KFT as at 31 December 2007 was a fixed trust by reason of compliance with the requirements of Section 3A(2) LTMA. That the Deed is a straightforward and unsophisticated deed which is distinguishable from the deed considered in CPT Custodians Pty Ltd v Commissioner of State Revenue [2005] HCA 53 ("CPT"). 16 The applicant's representative framed the question to be considered by the Tribunal as "whether the sole unit holder of KFT as at 31 December 2007 was entitled to the property for an equitable estate of freehold in possession". There are two steps to take, firstly to ascertain the terms of the trust on which the property is held, and secondly to construe the statutory definition of "owner" to determine whether the rights of the unit holder under the trust fall within that definition. 17 The applicant's representative provided an analysis of the Deed with particular emphasis on the contention that the sole unit holder, Kanjian Holdings No 1 Pty Ltd ATF Vasir Superannuation Fund was the owner of a vested equitable estate in possession of the property.