Administrative Decisions Tribunal New South Wales Medium Neutral Citation: Chief Commissioner of State Revenue v Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) NSWADTAP 14 Hearing dates: 21 March 2012 Decision date: 02 May 2012 Jurisdiction: Appeal Panel - Internal Before: Judge K P O'Connor, President M Hole, Judicial Member C Bennett, Non-judicial Member Decision: 1. Appeal allowed. 2. Decision under appeal set aside. 3. Appellant's decision restored. 4. No order as to costs. Catchwords: REVENUE - Land Tax - Tax-free threshold for 'fixed trust' - Tribunal held applicable - Appeal - Amendment to deed mirroring statutory criteria insufficient in circumstances - Held criteria for fixed trust not satisfied - Appeal allowed - Land Tax Management Act 1956, s 3A(3B) Legislation Cited: Administrative Decisions Tribunal Act 1997 Land Tax Act 1956 Land Tax Management Act 1956 Taxation Administration Act 1996 Cases Cited: Byrnes v Kendle [2011] HCA 26 Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 Commissioner of Taxation v Bamford (2010) 240 CLR 481 CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53 GTN Developments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 168 Pearson v Commissioner of Taxation [2006] FCAFC 111 Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288 Category: Principal judgment Parties: Chief Commissioner of State Revenue (Appellant) Sayden Pty Ltd ATF Griffin Property Unit Trust (Respondent) Representation: Counsel Mr G Kennett SC / Ms T Wong (Appellant) Mr J Kelly SC (Respondent) Crown Solicitor's Office (Appellant) Munro Lawyers (Respondent) File Number(s): 119059 Decision under appeal Citation: Sayden Pty Limited v Chief Commissioner of State Revenue Date of Decision: 2011-12-07 00:00:00 Before: Revenue Division File Number(s): 116042 REASONS FOR DECISION 1APPEAL PANEL (K O'CONNOR, DCJ (PRESIDENT), M HOLE (JUDICIAL MEMBER), C BENNETT (NON-JUDICIAL MEMBER): Land tax in respect of the unimproved value of land held by a 'special trust' is assessed at the full rate without any tax-free threshold being applied. If the land is held by a 'fixed trust' the threshold is applied. See generally, Land Tax Act 1956, s 3AL and Schedule 13, Parts 1 and 2. To be treated as a 'fixed trust', the trust must satisfy the criteria set out in s 3A(3B) of the Land Tax Management Act 1956 (LTMA). 2In this case the Chief Commissioner assessed the trustee's liability in respect of the subject land for the tax year 2011 on the basis that it was a 'special trust'. The trustee objected. The Chief Commissioner disallowed the objection. The trustee applied for review by the Revenue Division of the Tribunal, and was successful: Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288 (7 December 2011). The Chief Commissioner ('the appellant') now appeals. 3An appeal may be made in relation to questions of law, and leave may be sought to extend the appeal to the merits (see Taxation Administration Act 1996, Part 10, Division 2; and Administrative Decisions Tribunal Act 1997 (ADT Act), ss 112(1)(b), 113(2)). The notice of appeal identifies various questions of law, and includes an application for leave to extend to the merits, and for restoration of the original decision. The Trust 4The trust was established by deed on 17 May 2005. The subject land is an asset of the trust fund. The registered owner is and remains the respondent, Sayden Pty Ltd. 5The deed had 24 clauses covering such matters as the Fund, the Trusts of the Fund, Period of Trust and Determination Thereof, Units, Special Units, Transfer of Units and General Powers; as well as detailed machinery provisions. The beneficial interest of the trust fund was divided by the deed into units of equal value (clause 5), with 99 units held on behalf of the 'Griffin Family Trust' and one unit on behalf of 'Mike Griffin'. 6On 23 November 2010 the 'Griffin Family Trust' by deed granted a life interest in registrable form over the subject land measured by the lives jointly of 'Michael Francis Griffin and Keiko Ichida Griffin' to the 'Griffin Property Unit Trust' as life tenant. 7On 11 December 2010 the trust deed was amended by adding a paragraph (c) to Clause 2(a) and (b) of the deed. The effect of this amendment is the central issue in this case. 8Clause 2 now reads: 2. The Fund (a) The Trustee hereby admits and declares that it will henceforth hold all moneys and property forming part of the Trust Fund upon the trusts herein declared. (b) With the consent of the Trustee moneys and property may be paid or transferred to vested in and accepted by the Trustee as additions to the Trust Fund and to be held by the Trustee as part of the Trust Fund. (c) Notwithstanding any other provision of this Deed, the Trustee hereby admits that the Registered Holders: are presently entitled to a fixed proportion of any distribution of income or capital of the trust, made by the Trustee, based on the proportion of income or capital units which each person owned in the Trust, and are presently entitled to all of the income and capital of the Trust, subject to the payment of the expenses properly incurred by the Trustee in the authorized administration of the Trust; and may require the Trustee to wind up the Trust and distribute either the land or the net proceeds of the sale of the land; and the Trustee shall not remove, restrict or otherwise affect by the exercise of any discretion, or by a failure to exercise any discretion, paragraphs (i), (ii) and (iii) of this sub-clause. 9There is no dispute that the objective of the amendment was to give the trust the characteristics that would meet the relevant law's meaning for a fixed trust; and thereby obtain the benefit of the tax free threshold. The Relevant Law 10All trusts where the property includes land, and the owner of the legal estate is a trustee, are to be regarded as 'special trusts' unless they meet the characteristics that allow classification as a 'fixed trust'. Section 3A(1)-(3B), LTMA, provides: 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. 11It will be seen that the terms of amending clause 2(c) closely mirrored the text of s 3A(3B). The trustee's position is that this is sufficient to invest the trust with the characteristics necessary for it to be regarded as a 'fixed trust' for taxation purposes. In her reasons for disallowing the objection (s 58 documents at p 47, 3 March 2011), the appellant's internal reviewer noted that the appellant's policy was to treat the insertion of a clause which mirrors the provisions as 'sufficient with most trust deeds' to meet the 'relevant criteria' set out in s 3A(3B). 12However in her opinion in this case the other clauses of the deed that stood unamended were inconsistent in various respects with the requirements of the relevant criteria, and therefore the trust did not meet the criteria. This has remained the appellant's main point of contention. 13The short answer of the trustee throughout has been that the words 'notwithstanding any other provisions of the Deed' make it clear that clause 2(c) has the effect of displacing any provisions that may be seen as inconsistent in the rest of the deed. 14Further, in reply to a further objection of the appellant, the trustee has submitted that the incorporation of mirror provisions is sufficient, and that there is no need to specify in more detail how the matters addressed by clause 2(c) are to be achieved in practice. 15The latter submission gains support from a statement issued by the Office of State Revenue in October 2006 which responded to the High Court decision in CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53. The High Court decision upset the previous understanding that the holders of units in a unit trust could be regarded for State tax purposes as the true beneficial owners of the land held by the trust. 16The Government moved to remove uncertainty as to the continued provision of the 'fixed trust' concession to land owned (in equity) by unit holders. The statement included the following advice: 'If the unit trust is not a fixed trust and the trust wishes to take advantage of this concession, consult with advisers about the necessary changes to the trust deed. The trust deed must also provide that: 1) the unit holders are presently entitled to all the income from the land owned by the trust, after payment of the expenses properly incurred by the trustees in the authorisation of the administration of the trust 2) the unit holders may require the trustee to wind-up the trust and distribute either the land or the net proceeds of the sale of the land.' 17Finally, the trustee has disputed throughout the appellant's contention that the use of the word 'admits' at the head of clause 2(c) is itself insufficiently precise to confer the exclusive present entitlements that follow. The Tribunal's Reasons 18At paras [1]-[10], the Tribunal engages in a series of recitals of a usual kind relating to the history of the matter, the material before the Tribunal and a summary of the relevant facts. At [11]-[14] it summarises key points from the respective submissions. 19The Tribunal engages with the submissions at [15]-[16]. This is the entirety of the Tribunal's reasoning in response to the respective contentions. It is set out below, and has as its context the effect or otherwise of the amendment clause, 2(c) : 15 Although the "admits" wording is not in my view the most desirable wording available and although somewhat different wording would have been preferable, It is my view that it is correct in a matter such as this to apply the practical and purposive approach and for which the Applicant contends, and not the detached and literal approach favoured by the Respondent. See Jacobs" Law of Trust 7 th edition as follows: "It has become fashionable to say that in construing settlements, the court should adopt an approach which is 'practical and purposive, rather than detached and literal'. [Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at 537; [1990] 1 WLR 1587 at 1610; Lock v Westpac Banking Corp (1991) 25 NSWLR 593 at 602, noted (1993) 67 ALJ 70; Re UEB Indusries Ltd Pension Plan [1992] 1 NZLR 294 at 297; In re Scientific Investment Pension Plan Trusts [1999] Ch 53 at 62; [1998] 3 All ER 154 at 161; Collins v AMP Superannuation Ltd (1997) 75 FCR 565 at 580; 147 ALR 243 at 256; Nick Kritharas Holdings Ltd (in liq) v Gatsios Holdings Pty Ltd (2001) 38 ASCR 57 at [18] - [19]; Local Government Superannuation Board v Thorne (2002) 76 ALD 569 at [34]. See [2941].] But it may be doubted as Warner J himself observed in Mettoy Pension Trustees whether this does any more than encapsulate that which was explained by Lord Upjohn, itself well understood and not novel. [Caboche v Ramsay (1993) 119 ALR 215 at 232 - 3; Wilson v Law Debenture Trust Corporation plc [1995] 2 All ER 337 at 347 -8]. "Very often, the fiscal background - the drafting of provisions in order to comply with, or take advantage of, favourable tax treatment - is another important consideration in construing the documents. [See, for example, Mettoy Pension Trustees Ltd v Evans [1991] 2 All ER 513 at 537; [1990] 1 WLR 1587 at 1610; Re Landau [1998] Ch 223 at 233; [1997] 3 All ER 322 at 329; International Power plc v Healy [2001] 2 All ER 417 at [18] - [26]; [2001] 1 WLR 864]. " See also Byrnes v Kendle [2011] HCA 26 at [111]; (2011) 279 ALR 212 at 240 [11] where Heydon & Crennan JJ approved what was said in Mettoy at 537. 16 The Respondent contends in RFS [Respondent's Final Submissions] that it is not sufficient in an amending deed simply to mirror the words of the statute and that more is required... I do not agree; it is my view that a deed which mirrors the statute is sufficient to achieve the result sought. To hold otherwise would require a technical approach which would not constitute the correct and preferable decision. It follows that the decision under review should be set aside and the assessment must be altered so as to allow the threshold to which I have referred. 20The Tribunal then went on to refuse the trustee's application for costs (paras [17]-[19]). The Grounds of Appeal 21The appellant's question of law grounds of appeal essentially repeat the arguments that it has relied on throughout these proceedings: (a) that the Tribunal erred in its application of the law to the facts in particular by failing to address the clauses in the deed that were inconsistent with the 'relevant criteria'; (b) that the repetition of the terms of the relevant criteria is not sufficient for a trust to meet the requirements of s 3A(3B) in circumstances where it would not otherwise meet that provision; and (c) the use of the word 'admits' is not a sufficient way of binding the trustee to the matters that are then spelt out by the clauses that the word governs. 22The appellant gave some attention in its submissions to the issue of whether the questions raised were questions of law, and referred to the well-known statements in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 289 as to the various types of questions of law. We are satisfied that the grounds of appeal all raise questions of law. Point (a) 23The appellant's main submission in support of point (a) is that the Tribunal erred by not considering the terms of the deed as a whole; and erred by treating the fiscal objective of the makers of the instrument as a sufficient basis for finding that the trust satisfied the relevant criteria. 24We accept that in interpreting bilateral private agreements such as contracts and trusts, the decision maker should have regard to the surrounding circumstances and they may include the fiscal background to the creation of the instrument. Similarly, we accept that decision makers should approach the task of construction of instruments of these kinds with a view to making them work, and giving effect to the intention of the parties. See, recently, the dicta of Heydon and Crennan JJ in Byrnes v Kendle [2011] HCA 26 (3 August 2011) at [109]-[112]; and, in addition, the various authorities cited by the Tribunal at para [16]. 25However, the intention of the authors to comply with the relevant criteria can not readily be preferred if there are express terms in the instrument that appear on their face not to be consistent with the relevant criteria. The primary focus in most cases will be the written terms of the trust, especially in instances, as here, where the instrument is a comprehensive one, professionally prepared. Their interpretation will be informed as appropriate by surrounding circumstances. 26For example in the CPT Custodian case, the High Court said (emphasis added): 14. Something now should be said respecting the task of statutory construction which was presented to Nettle J and then to the Court of Appeal. There were two steps to be taken. They were correctly identified in the submissions by the taxpayers to the Court of Appeal[17]. The first step was to ascertain the terms of the trusts upon which the relevant lands were held. The second was to construe the statutory definition to ascertain whether the rights of the taxpayers under those trusts fell within that definition. 15. In taking those steps, a priori assumptions as to the nature of unit trusts under the general law and principles of equity would not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in Kent v SS "Maria Luisa" (No 2)[18], upon the terms of the particular trust. The term "unit trust" is the subject of much exegesis by commentators[19]. However, "unit trust", like "discretionary trust"[20], in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning which can dictate the application to particular facts of the definition in s 3(a) of the Act[21]. 27We agree with the appellant's submission that in revenue law the concept of 'present entitlement', to which the criteria at s 3A(3B)(a)(i) and (ii) refers, derives from the general law of trusts (see Commissioner of Taxation v Bamford (2010) 240 CLR 481 at [37]), and that there may be many ways in which a 'present entitlement' may be demonstrated (to that effect see, for example, Pearson v Commissioner of Taxation [2006] FCAFC 111 at [14] per Edmonds J (with whom Dowsett and Alsopp JJ agreed)). 28Drawing on the dicta in Pearson, the appellant notes that to demonstrate present entitlement it must be shown that the registered holders of the trust have an interest in the capital of the trust which is both vested in interest and vested in possession; and have a present legal right to demand and receive payment of their capital of the trust. 29We agree with the appellant that the following clauses in the deed are inconsistent with the full vesting of a present entitlement in the beneficiaries of the trust which clause 2(c) purports to grant unless the introductory words 'Notwithstanding' etc can be said, in effect, to repeal them: (a) Clause 4 confers an absolute discretion on the trustee to determine when the trust will be wound up and does not set out any mechanism by which the registered holders of the units may initiate the termination of the trust. (b) Clause 9 deals with redemption of units. The beneficiaries do not have an absolute right. Clause 9(b) allows the trustee to refuse a request for redemption. (c) The trust deed does not provide a facility for the beneficiaries to demand the transfer to them of an asset. As the appellant noted, the only reference to the matter appears at clause 3(iii) and allows the trustee 'to require the transfer to him of any of the assets or property which from time to time constitute the Trust Fund.' (d) In clause 6, 'Special Units', it is provided that: 'Notwithstanding the provisions of clause 5 [the principal provision dealing with the creation of units] hereof the Trustee shall be entitled to issue units and classes of units pursuant to this Clause 6 at the Trustee's discretion ('Special Units').' It is not clear, we consider, how this provision (allowing for potential dilution of the present entitlements of the beneficiaries) is to be reconciled with the criterion that the beneficiaries have a present entitlement to the capital and income of the trust. (e) Clause 5(b) which provides that units 'shall not confer any interest in any particular part of the Fund or of any investment'. 30In this case, it was, in our view, incumbent on the Tribunal to explain how it reconciled its adoption of a purposive approach which sought to give effect to the intention of the parties, relying only on clause 2(c), with the apparently inconsistent terms elsewhere in the trust deed. 31Though it did not expressly say so, we assume that the Tribunal acceded to the submission of the trustee (repeated on appeal) that clause 2(c) had, via its drafting and the use of the introductory words 'Notwithstanding any other provision of this Deed' overriden the various clauses in the deed that might be seen as inconsistent with the statutory criteria. On this argument, the introductory words were to be read as, in effect, repealing all inconsistent provisions. 32In our view neither those directly affected by the instrument's terms nor decision makers such as the appellant should be left to speculate on which terms stand or fall as a consequence of the words 'notwithstanding any other provision' of the instrument. These words do not offer sufficient certainty as to which parts of the remainder of the instrument remain operative. The approach taken by the respondent in effect requires a person affected by the later terms of the deed or a decision maker (such as the appellant or this Tribunal) to engage in a speculative redrafting exercise. 33We also agree that the clause 2(c) does not explain how the beneficiaries' interest in the capital of the trust is vested in possession when there is no clause that requires the assets to be transferred in specie at their request. Similarly there is no clause dealing with the mechanism for redemption by the beneficiaries. 34In our view, the Tribunal erred in the approach it took. This conclusion is enough to dispose of the question of law aspect of the appeal, but for completeness we will consider the other points. Point (b) 35The appellant submitted that the words 'specifically provides' in s 3A(3B)(a) points to an expectation on the part of the Parliament that the trust deed respond to the relevant criteria by provisions of a specific kind. 36The word 'criteria' is the plural of 'criterion', a word of Greek origin. 'Criterion' (Macquarie Dictionary (4th ed. 2005)) means 'a standard of judgement or criticism; an established rule or principle for testing anything' (this is in line with its Greek meaning). The 'relevant criteria' form a set of benchmarks, standards or tests against which the specific provisions of a trust deed are to be assessed. Compliance with or adherence to a standard is intended, as we interpet the words, ordinarily to be measured by reference to the specific provisions and the machinery of the trust deed. 37In our view the appellant's submission is correct, and, other than in instances of very simply expressed instruments, more would be required than mere recitation of the relevant criteria as a term of the deed. 38The criticisms noted under point (a) go to matters that needed to be addressed in the case of this deed. 39The appellant also submitted that the trust deed dealt insufficiently with the final aspect of s 3A(3B)(a)(ii), the criterion that the beneficiaries under the trust deed 'may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property'. 40In our opinion, the appellant's submission is correct. The deed must spell out how this step is to be activated, and deal with such issues as whether all the registered holders, a majority of the registered holders or a sole registered holder can activate the process. Merely reiterating the statutory words as a term of the deed does not achieve that. To similar effect, see GTN Developments Pty Ltd v Chief Commissioner of State Revenue [2007] NSWADT 168 at [78]. Point (c) 41As previously noted, the appellant's submissions also criticised the use of the word 'admits' as a way of referring to the rights said to be conferred under clause 2(c). It was submitted that it is an inexact form of concession, and does not have the rigour of language consistent with the giving up of all rights by the trustee. 42As we read the deed, clause 2(a) provides the immediate context for the use of this word. In clause 2(a) the trustee 'admits and declares that it will henceforth hold all moneys and property forming part of the Trust Fund upon the trusts herein declared'. In our view, this is the sense in which the later reference to 'admits' is to be understood. We are inclined to the view, like the Tribunal below, that the use of the word 'admits' is acceptable, though a stronger form of declaration would avoid a challenge of this kind. Extension to Merits 43We grant leave to extend the appeal to the merits. The arguments on both sides are those already considered. In our opinion, the terms of the trust left unamended are such that they do not satisfy the relevant criteria for the reasons already given. 44At the close of submissions, the appellant advised that in the event that it was successful it would not be seeking the exercise of the Tribunal's discretion to award costs, allowed as an exception to the general rule that no costs are awarded in review proceedings in the Tribunal. Order 1. Appeal allowed. 2. Decision under appeal set aside. 3. Appellant's decision restored. 4. No order as to costs. ********** Amendments 04 May 2012 - typographical error, should read s 3A(3B)(a)(i) Amended paragraphs: 27 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. Decision last updated: 04 May 2012