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. This contention arose from: "55 … (a) assets comprising the trust fund, including the freehold property, vesting beneficially in the sole unit holder by virtue of clauses 2.3, 3.1 and the definitions of "trust fund", "unit" and "unit holder" in clause 1.1 of the KFT Deed; (b) there being no provision in the KFT Deed precluding or prohibiting the sole unit holder from: (i) having a specific equitable estate of the freehold property; (ii) calling on the trustee to transfer to it in specie the legal estate of the freehold property; and (iii) lodging a caveat against title to the freehold property to protect its equitable estate; (c) KFT being at the relevant time analogous to a resulting trust in favour of the sole unit holder by virtue of the purchase price for the property and all incidental costs and expenses having been paid for by the sole unit holder. 56 As at 31 December 2007, the principle in Saunders v Vautier availed the sole unit holder entitling it to vest the trust and to have transferred to it in specie the freehold property. This entitlement overrode the express provisions of the KFT deed. 57 The principle in Saunders v Vautier applied at the relevant time by reason of: (a) the sole unit holder being sui juris; (b) the sole unit holder then having a vested equitable right to the trust fund; (c) there being no person whose interest in the trust fund ranked ahead of the interest of the sole unit holder as occurred; (d) there being no provision in the KFT Deed giving the trustee or any other person a right to or interest in the administration of the trust fund as, for example, occurred in CPT where the trustee and manager had a specific right under the deed to ensure the availability of liquid assets comprising the trust fund to meet management and administration expenses and where the financial statements of the trust made sizeable monetary …" 18 The applicant's representative submitted that the unit holder as at 31 December 2007 satisfied the threshold test in Glenn v Federal Commissioner of Land Tax [1915] HCA 57 ("Glenn") in that: "… that if the unit holder had applied to a court of equity as at 31 December 2007 for an order requiring the trustee to transfer the legal and equitable estate of the freehold property to the unit holder, the court would have made the order as a matter of right and not as a matter of discretion or indulgence subject to the unit holder assuming liability for costs, expenses, debts and liabilities of the trust properly incurred by the trustee but unpaid or unsatisfied as at the date of the order." 19 That the Deed provides that at midnight on 30 June each year pursuant to Clause 10.3 the Trustee must set aside the income due to a unit holder in the name of that unit holder and this right cannot be removed. Thus the interest of the unit holder is determined as at that date. It was submitted that this would be sufficient to determine that the unit holder was an owner for land tax purposes. Submissions by the respondent 20 The respondent's representative agreed with the applicant's representative that the terms of the Deed needed to first be considered and then the statutory definition of "owner" in relation to Sections 3, 3A(2) and 3A(3A) LTMA to determine if the rights of the unit holder/beneficiary under the Deed as at 31 December 2007 are as an equitable "owner" of the property so as to render the trust a fixed trust and not a special trust for land tax purposes. 21 ..Section 3(1) of the LTM defines who are "owners" of the land for land tax purposes. The respondent's representative submitted that the definition of "owner" in Section 3(1)(d) will operate if the relevant criteria in Section 3A(3B) LTMA are satisfied. 22 The respondent's representative submitted that: "17. In relation to the statutory definition of "owner", there is a descending order of dominion in relation to land, progressively extending the meaning of "owner" for land tax purposes – see Union Trustee Company of Australia Ltd v Federal Commissioner of Land Tax [1915] HCA 68. This, in order of dominion, is as follows: (i) "Absolute owner" of the freehold estate in land: Given the inclusive definition of "owner" in s.3(1) of the LTMA, this is the person with single absolute title to the land – i.e. the ordinary owner with absolute dominion over land – see DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 149 CLR 431, at 463. (ii) "Legal owner" of the freehold estate in land – the definition of "owner" in s.3(1)(a)(i) of the LTMA. A person having the legal title to the land, although that title might be qualified in Equity by the person's capacity as a mortgagee or trustee – see Chief Commissioner of Land Tax v Macary Manufacturing Pty Ltd [1990] NSWCA 471. (iii) "Equitable owner" of the freehold estate in land – the definition of "owner" in s.3(1)(a)(i) of the LTMA: A person not having absolute dominion but being entitled to the land for any estate of freehold in possession as against the legal owner. In the case of land held upon trust, a beneficiary with a present right of beneficial enjoyment of the land as against the legal owner (see Attorney-General v Beech [1899] AC 53; Glenn v FC of Land Tax (1915) 20 CLR 490). (iv) "Equitable owner" entitled to the rents and profits of the land – the definition of "owner" in s.3(1((a)(ii) of the LTMA: A person not having an interest as great as a freehold interest in possession in the land, but being entitled directly to all of the rents and profits of the land, that is, the reditus of the land in law or inequity, (see Cochrane v FC of Land Tax (1916) 21 CLR 422, at 429). (v) "Deemed equitable owner" – the definition of "owner" in s.3(1)(d), s.3A(3A) and pursuant to the "relevant criteria" in 3A(3B) in the LTMA: A person not having as great an interest in the land as set out in 17(i) to 17(iv) above, but only having an interest in relation to the land, namely, in the case of a beneficiary of a trust where the land is owned by the trustee, an indefeasible present entitlement to the net income and the capital of the trust, and a power to wind up the trust." 23 That a beneficiary who is entitled in possession to the land will also be entitled to all of the rents and profits of the land and also be presently entitled to the trust income and capital. When a beneficiary is not entitled to the net income and the capital as at the relevant dated being 31 December 2007 then that beneficiary cannot be entitled to the land (the property) in possession. 24 The representative of the respondent submitted that the relevant date for the determination of an owner for land tax purposes was 31 December each year and the submissions on behalf of the applicant relating to the determination of the owner in this matter related to prospective rights only. That as at 31 December 2007 the company was the owner. Reasons 25 The Deed established a trust on 21 December 2006. The terms of the Deed established a family held unit trust. In order that the exemption available pursuant to Section 1AA Clause 2(1) LTMA the Trust needed to be in existence and the owner of land on 31 December 2005, the Trust was established after that date and bought the property on 5 April 2007 and is therefore not entitled to that exemption. 26 In order that the Trust be recognised as a fixed trust the Trust must satisfy the criteria in Section 3A(3B) LTMA. The terms of the Deed disclose that the beneficiary of the Trust is not presently entitled to the income of the Trust, is not presently entitled to the capital of the Trust and cannot require the Trustee to wind up the Trust and distribute the trust property or the net proceeds. 27 The applicant's representative provided a reasoned dissection of the Deed to disclose, in accordance with that reasoning, that the sole unit holder in KFT was the "owner" of the property within the definition in Section 3(1) LTMA. He referred particularly to CPA and Glenn and noted that the Deed provided that no-one could take in priority to the sole beneficiary of the Trust. The Deed is clear and unambiguous as to when the distribution of capital could be applied prior to the distribution date. This is set out in Clause 10.3(b). Clauses 10.1, 10.2, 10.3, 10.4 and 10.5 provide the Trustee with certain discretions. The rights of the sole beneficiary are determinable on 30 June each year and are prospective in nature. The sole beneficiary was not, as at 30 December 2007 presently entitled to the income or capital of the Trust or to require that the Trust be wound up and distribution of trust property. 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. 20/08/2009 - Amendment to coversheet, Representative name - Paragraph(s) Coversheet DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.