Supreme Court New South Wales Medium Neutral Citation: Milstern Nominees Pty Ltd v Chief Commissioner of State Revenue [2015] NSWSC 68 Hearing dates: 12 and 13 May 2014 Decision date: 18 February 2015 Jurisdiction: Common Law Before: White J Decision: Direct the plaintiff's counsel to bring in short minutes of order in accordance with these reasons. Catchwords: TAXES AND DUTIES – landholder duty – appeal to the Supreme Court from a decision of the Chief Commissioner not to grant an exemption under s 163H of the Duties Act 1997 (NSW) – whether exemption ought to be granted where company acquires shares in an object of a discretionary trust – consideration of circumstances in which it is "not just and reasonable" under s 163H that duty should be charged on a relevant acquisition – discretion exercised favourably to taxpayer Legislation Cited: Duties Act 1997 (NSW) Duties Act 2000 (Vic) Duties Amendment (Land Rich) Act 2003 (NSW) Stamp Duties (Amendment) Act 1987 (NSW) Stamp Duties Act 1920 (NSW) Taxation Administration Act 1996 (NSW) Cases Cited: Challenger Listed Investments Ltd v Commissioner of State Revenue [2010] VSC 464; (2010) 80 ATR 630 Commissioner of State Revenue v STIC (Australia) Pty Ltd [2010] VSC 608; (2010) 81 ATR 682 Deputy Commissioner of Taxation (Cth) v Truhold Benefit Pty Ltd (1985) 158 CLR 678 Federal Commissioner of Taxation v Swift (1989) 20 ATR 1434 Gartside v Inland Revenue Commissioners [1968] AC 553 Giris Pty Limited v Commissioner of Taxation (Cth) (1969) 119 CLR 365 Marshin Holdings Pty Ltd v Attorney-General of New South Wales & Ors [2013] NSWSC 326 Tasty Chicks Pty Limited v Chief Commissioner of State Revenue (NSW) [2011] HCA 41; (2011) 245 CLR 446 Category: Principal judgment Parties: Milstern Nominees Pty Limited (Plaintiff) Commissioner of State Revenue (Defendant) Representation: Counsel: J O Hmelnitsky SC with C J Peadon (Plaintiff) R A Dick SC with M Sealey (Defendant) Solicitors: Jim Main & Associates (Plaintiff) Crown Solicitors Office (Defendant) File Number(s): 2013/255173 Judgment 1. HIS HONOUR: This is an application under s 97 of the Taxation Administration Act 1996 (NSW) to review a decision of the Chief Commissioner of State Revenue not to grant the plaintiff (Milstern Nominees Pty Ltd ("Nominees")) an exemption under s 163H of the Duties Act 1997 (NSW) in respect of an acquisition by Nominees, of shares in Milstern Enterprises Pty Ltd ("Enterprises") on or about 23 December 2010 and 8 March 2011. Nominees acquired eight of nine issued shares in Enterprises. 2. Enterprises was one of eight discretionary objects of a discretionary trust established on 9 March 1982 known as the Landsell Trust. The trustee (Rebenta Pty Ltd ("Rebenta")) owned land holdings in New South Wales with a value of more than $2 million. It held the lands on the trusts established by the deed of 9 March 1982. It is common ground that the trust on which Rebenta held the trust property was a discretionary trust within the meaning of the definition of "discretionary trust" in the Dictionary to the Duties Act. It is common ground that although Enterprises is only one of eight discretionary objects of the Landsell Trust and has no proprietary interest in the lands owned by Rebenta, by reason of s 159 of the Duties Act, Enterprises is taken to own or to be otherwise entitled to the property the subject of the trust for the purposes of Ch 4 of the Duties Act. It follows that for the purposes of Ch 4 of the Duties Act, Enterprises is taken to be a private landholder and that by acquiring the shares in question in Enterprises, Nominees made a "relevant acquisition" of a "significant interest" in Enterprises within the meaning of s 149 of the Duties Act. The result of that acquisition was that Nominees was required to lodge an acquisition statement with the Chief Commissioner (Duties Act, s 152). Duty was chargeable pursuant to s 155 of the Duties Act at the "general rate" on eight-ninths of the unencumbered value of all landholdings and goods of Enterprises in New South Wales. Eight-ninths was the proportion of the unencumbered value of such landholdings and goods represented by the interest acquired in the relevant acquisition. 3. Section 163H confers a discretion on the Chief Commissioner to grant a full or partial exemption in respect of an acquisition to which Ch 4 applies if the Chief Commissioner is satisfied that the application of Ch 4 to the acquisition would not be just and reasonable. On 21 February 2013 the Chief Commissioner decided to exercise the discretion under s 163H of the Duties Act to ensure that only one entity was to be taken to be entitled to the land of the discretionary trust, but otherwise decided not to grant an exemption in respect of the acquisition by Nominees of shares of Enterprises. 4. The review under s 97 of the Taxation Administration Act is a de novo review and is not limited to the materials before the Chief Commissioner. The parties are not bound by the grounds of objection to the Chief Commissioner's decision, nor by the reasons for decision on the objection. Nominees is not required to show that the Chief Commissioner had erred on the materials before him, or that the exercise of the Chief Commissioner's discretion, or refusal to exercise the discretion under s 163H, was vitiated by a mistake of law, or by failure to have regard to a consideration to which regard was required to be had, or by having regard to extraneous considerations (Tasty Chicks Pty Limited v Chief Commissioner of State Revenue (NSW) [2011] HCA 41; (2011) 245 CLR 446 at [13]-[22]). 5. I consider that having regard to the object and purpose of s 159 in relation to the operation of Ch 4 of the Duties Act, and having regard to the object and purpose of Ch 4, the discretion should be exercised to exempt Nominees from landholder duty in respect of the value of the assets of the Landsell Trust which it is taken to own for the purposes of Ch 4. My reasons for this conclusion follow. The Landsell Trust 1. The trust known as the Landsell Trust was established by a trust deed dated 9 March 1982. Rebenta is the trustee of the trust. Nominees is the holder of the shares in Rebenta. 2. The sole director and sole shareholder of Nominees is Mrs Millie Phillips. She deposed: "Since the early 1960s I have made investments in a variety of assets, including nursing homes, retirement villages and land. … I have made these investments through corporations and trusts that I control. Over time the corporate and trust structure through which I hold my investment interests has become complex … I am familiar with principal assets that I control through the company and trust structure (for example, land, nursing homes, retirement villages). I am not intimately familiar with all the details of the companies and the trusts, and the various relationships between all the companies and trusts. I rely on my advisers to assist me to exercise control over the principal assets and profits generated by those assets (for example, by advising which entity, whether on its own behalf or as trustee, needs to pass resolutions or take steps to give effect to my intention to deal with the principal assets or profits in a particular way)." 1. Clause 2 of the trust deed of the Landsell Trust provides that: "2. THE BENEFICIARIES: The beneficiaries for the purposes of this Deed are:- (a) NATIONAL HEART FOUNDATION OF AUSTRALIA QUEENSLAND DIVISION (b) THE AUSTRALIAN RED CROSS SOCIETY QUEENSLAND DIVISION (c) THE ROYAL GUIDE DOGS FOR THE BLIND ASSOCIATION OF QUEENSLAND (d) Any person or corporation (not being the Settlor) who or which at the time hereof or at any time prior to the vesting day has made or makes a donation to anyone [sic] or more of the abovenamed beneficiaries in the sum of $2 or upwards and who or which (with the consent of the Guardian should there be a person or company holding such office) the Trustee may at any time and from time to time after June 30 1982 and before the vesting day nominate to be a general beneficiary. (e) Any person corporation, trustee of any trust or charity as the Appointor shall by notice in writing to the Trustee after June 30 1982 and before the vesting day appoint to be a beneficiary for the purpose of this Deed PROVIDED THAT the following shall not be appointed beneficiaries for the purpose of this sub-clause; (i) the Settlor; (ii) any trust which would if appointed result in the infringement of the law against perpetuities. ... 2.1 EXCLUSION OF BENEFICIARIES: The Appointor may by notice in writing to the trustee declare that a person corporation trust or charity or any class thereof shall cease to be a beneficiary or beneficiaries as from the date at which such notice is received by the trustee, and any beneficiary so excluded shall as from that date cease to be a beneficiary and no resolution shall thereafter be made by the trustee in favour of any beneficiary so excluded." 1. The Guardian of the trust is Inhage Pty Limited ("Inhage"). The Appointor is Mamark Holdings Pty Limited ("Mamark"). For reasons which appear below Mrs Phillips controls each of Inhage and Mamark. 2. Rebenta has not nominated any person to be a general beneficiary pursuant to cl 2(d). Mamark has exercised its power under cl 2(e) to appoint five beneficiaries, namely Mrs Phillips, Enterprises, Spotmake Pty Ltd ("Spotmake"), Milstern Charlotte Pty Ltd, and Jaywood Pty Ltd. Mrs Phillips is the sole shareholder of Spotmake. 3. Clause 6 of the trust deed provides: "6. DISPOSITION OF INCOME: Until the vesting day the Trustee shall stand possessed of the income of the Trust Fund derived by it in any financial year … or such portion of such income as the Trustee may in its absolute discretion deem meet [sic] upon trust absolutely for the beneficiaries then living or any one or more of them exclusive of the other or others of them and in such shares and proportions as the Trustee shall in its absolute discretion determine prior to the thirtieth day of June in such year and in the event of the Trustee failing to make any such determination as aforesaid with respect to the income or any portion thereof and failing to make a determination to accumulate such income then such income or such portion (as the case may be) shall be deemed accumulated pursuant to Clause 7." 1. Clause 7 confers a power on the trustee to accumulate income. 2. Clause 8 relevantly provides: "8. DISPOSITION OF CAPITAL: (a) Until the vesting day the Trustee shall have the power from time to time (with the consent of the Guardian … ) to pay or apply such part or parts of the capital of the Trust Fund as the Trustee may in its absolute discretion deem fit to or for the benefit of the beneficiaries or such one or more of them exclusive of the others and in such shares or proportions as the Trustee in its absolute discretion determines. (b) On the vesting day the Trustee shall stand possessed of the Trust Fund or so much thereof as shall be then remaining in trust for the beneficiaries then living or such one or more of them exclusive of the other or others of them and in such shares and proportions as the Trustee in its absolute discretion may (with the consent of the Guardian … ) determine prior to the vesting day. (c) In the event of the Trustee failing to make a determination pursuant to the preceding paragraph prior to the vesting date in respect of the whole or any portion of the Trust Fund or so much thereof as shall remain in trust then the whole or such portion (as the case may be) shall be held in trust absolutely for all of the beneficiaries at the vesting date equally as tenants in common." 1. It was common ground that the deed of 9 March 1982 established a discretionary trust within the meaning of the definition of that term in the Dictionary to the Duties Act. In the Dictionary "discretionary trust" is defined as follows: "discretionary trust means a trust under which the vesting of the whole or any part of the capital of the trust estate, or the whole or any part of the income from that capital, or both: (a) is required to be determined by a person either in respect of the identity of the beneficiaries, or the quantum of interest to be taken, or both, or (b) will occur if a discretion conferred under the trust is not exercised, or (c) has occurred but under which the whole or any part of that capital or the whole or any part of that income, or both, will be divested from the person or persons in whom it is vested if a discretion conferred under the trust is exercised." 1. Rebenta has an absolute discretion as to whether the whole or any part of the income should be vested in beneficiaries and the quantum of interest to be taken. It was common ground that the capital of the trust estate would vest in each of the beneficiaries in equal proportions on the vesting date if the trustee did not exercise its discretion to make a determination as to the beneficiaries in whom the trust fund should vest by the vesting day. This is sufficient for the Landsell Trust to be a "discretionary trust" within the meaning of the Duties Act. 2. Counsel for the Chief Commissioner also contended that the trustee was required to make a determination from time to time as to whether the whole or any part of the capital of the trust estate should be vested in any person by the appointment of capital, citing Gartside v Inland Revenue Commissioners [1968] AC 553 at 617-618 per Lord Wilberforce. It is unnecessary to decide whether the right of a discretionary object to be considered as a potential recipient of income or capital imports a requirement on the part of the trustee to make a determination as to whether the whole or any part of the income or capital of the trust estate is to be vested in particular beneficiaries and, if so, in what quantum. 3. Section 159 provides: "159 Constructive ownership of land holdings and other property: discretionary trusts (1) A person or a member of a class of persons in whose favour, by the terms of a discretionary trust, capital the subject of the trust may be applied: (a) in the event of the exercise of a power or discretion in favour of the person or class, or (b) in the event that a discretion conferred under the trust is not exercised, is, for the purposes of this section, a beneficiary of the trust. (2) A beneficiary of a discretionary trust is taken to own or to be otherwise entitled to the property the subject of the trust. (3) For the purposes of this Chapter, any property that is the subject of a discretionary trust is taken to be the subject of any other discretionary trust: (a) that is, or (b) any trustee of which (in the capacity of trustee) is, a beneficiary of it. (4) Subsection (3) extends to apply to property that is the subject of a discretionary trust only by the operation of that subsection. (5) In this section, person includes a landholder." 1. The property the subject of the discretionary trust is all of the property held by Rebenta as trustee of the Landsell Trust. Hence, each of the beneficiaries, including Enterprises, is taken by s 159(2) to own or to be otherwise entitled to the whole of the property of the Landsell Trust. Imposition of landholder duty on acquisition of shares in Enterprises 1. Immediately prior to the acquisitions on 23 December 2010 and 8 March 2011 the shareholding of Enterprises was as follows. There were nine ordinary shares on issue. Mrs Phillips held one ordinary share. Her son, Robert, held four ordinary shares and her daughter, Sharonne, also held four ordinary shares. Mamark, as trustee of the Millie Phillips Family Trust, held 200 A-class ordinary shares. Mrs Phillips held 12 B-class ordinary shares on trust for Robert and Sharonne. She and each of her children held 9,000 first preference shares and Mamark held 11 first preference shares. Robert and Sharonne each held ten second redeemable preference shares. 2. Only the ordinary shares and the A-class ordinary shares carried voting rights. Accordingly, Mamark as the holder of 200 A-class ordinary shares controlled the voting power at any general meeting of Enterprises. 3. Only the ordinary shares carried a right to a distribution of surplus profits or assets on a winding-up or return of capital. The preference shares and the A-class and B-class ordinary shares carried the right to dividends (including preferential dividends in the case of the preference shares) and for the return of capital on the shares, but no right to a distribution of surplus assets or profits. 4. Section 150 relevantly provides: "150 What are 'interests' and 'significant interests' in landholders? (1) For the purposes of this Chapter, a person has an interest in a landholder if the person, in the event of a distribution of all the property of the landholder, would be entitled to any of the property distributed. … (2) A person who has an interest in a landholder has a significant interest in the landholder if the person, in the event of a distribution of all the property of the landholder immediately after the interest was acquired, would be entitled to: (a) in the case of a private landholder—50% or more of the property distributed" 1. Section 149 relevantly provides: "149 What is a 'relevant acquisition'? (1) For the purposes of this Chapter, a person makes a relevant acquisition if the person: (a) acquires an interest in a landholder: (i) that is of itself a significant interest in the landholder, or (ii) that, when aggregated with other interests in the landholder held by the person or an associated person, results in an aggregation that amounts to a significant interest in the landholder, or (iii) that, when aggregated with other interests in the landholder acquired by the person or other persons under acquisitions that form, evidence, give effect to or arise from what is substantially one arrangement between the acquirers, results in an aggregation that amounts to a significant interest in the landholder, or (b) having a significant interest, or an interest described in paragraph (a) (ii), in a landholder, acquires a further interest in the landholder." 1. Mrs Phillips was the sole shareholder of Nominees. Accordingly, she was a "related person" in respect of Nominees and she was therefore an "associated person" of Nominees (Dictionary, clause 2). 2. Nominees acquired the shares held by Robert and Sharonne in Enterprises on about 23 December 2010 and 8 March 2011 respectively. Robert and Sharonne were each paid $4 million for their shares. Mrs Phillips deposed: "Prior to the acquisitions referred to below, my relationship with each of Robert and Sharonne had comprehensively broken down. I no longer wanted either of them to hold an interest in any of my entities or be in a position to interfere with the management of those entities or the assets they held. As part of a wider arrangement to gain 100% effective control my [sic] principal assets, I caused Nominees to acquire all the shares that Robert and Sharonne held in Enterprises respectively, and the 'B' Class Ordinary shares that I held on trust for them …, for the purpose of gaining 100% effective control of the land and other assets held by Enterprises and its subsidiaries." 1. Because the eight ordinary shares held by Robert and Sharonne would have entitled them to eight-ninths of the property of Enterprises if its property were distributed, and their interest in Enterprises when aggregated with that of Mrs Phillips was 100 per cent of the ordinary shares, the acquisition of Robert's and Sharonne's shares in Enterprises by Nominees was a relevant acquisition of a significant interest in a landholder within the meaning of s 149 of the Duties Act. Sections 148 and 155 of the Duties Act charged the acquisition with ad valorem duty on the unencumbered value of the land held by Rebenta as trustee of the Landsell Trsut of which Enterprises was one of eight discretionary objects. 2. Enterprises was not only a discretionary object of the Landsell Trust. It was also the holding company of subsidiaries that owned various lands and goods, including retirement villages and nursing homes. Nominees does not seek an exemption from duty in respect of the lands and goods held by Enterprises' subsidiaries. The only exemption sought is in respect of the lands held by Rebenta as trustee of the Landsell Trust. Exempting provision 1. Section 163H of the Duties Act provides: "163H Discretion to grant exemption or concession (1) The Chief Commissioner may, if satisfied that the application of this Chapter to an acquisition in a particular case would not be just and reasonable: (a) grant a full exemption in respect of the acquisition, or (b) grant a partial exemption in respect of the acquisition. (2) If the Chief Commissioner grants a full exemption in respect of the acquisition, the acquisition is an exempt acquisition. (3) If the Chief Commissioner grants a partial exemption in respect of the acquisition, the Chief Commissioner may make any reduction in the duty chargeable in respect of the acquisition that the Chief Commissioner considers just and reasonable in the circumstances." 1. No express guidance is given as to when it might be considered just and reasonable for a full or partial exemption to be granted in respect of an acquisition. The discretion is to be "guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it." (Giris Pty Limited v Commissioner of Taxation (Cth) (1969) 119 CLR 365 per Windeyer J at 384; see also Deputy Commissioner of Taxation (Cth) v Truhold Benefit Pty Ltd (1985) 158 CLR 678 at 687). The criteria of what is just and reasonable require a consideration of all of the circumstances of the case (Federal Commissioner of Taxation v Swift (1989) 20 ATR 1434 at 1449 and cases cited). As in the legislation considered in Federal Commissioner of Taxation v Swift it can be said in this case that: "Instead of endeavouring to spell out the circumstances in which burdens imposed by the legislation might be lifted, the parliament has provided for a dispensation that is capable of exercise by reference to the widest range of factors. … The dispensing power is incidental and ancillary to the primary object of the legislation." (at 1451). 1. In Challenger Listed Investments Ltd v Commissioner of State Revenue [2010] VSC 464; (2010) 80 ATR 630 Pagone J considered s 85(2) of the Duties Act 2000 (Vic) which provided: "An acquisition by a person of an interest in a landholder is an exempt acquisition if the Commissioner so determines, being satisfied that the application of this Part to the acquisition in the particular case would not be just and reasonable." His Honour said (at [27] and [29]): "[27] It may readily be accepted, as the Commissioner said, that the purpose of a dispensing power is to avoid (in many if not in all cases) the need to specify the minutiae of every circumstance where the tax burden is to be relieved. It may also be the case that in some circumstances whether it is just and reasonable to exercise the dispensing power in s 85(2) will be satisfied by considering whether the application of the section is anomalous or abnormal. … The statutory test is not whether application of the provision to the facts of a case are anomalous or abnormal but rather (however helpful those concepts may be to the conclusion) whether application of the provisions to the acquisition 'in the particular case' would 'not be just and reasonable.' What the Commissioner is compelled to consider is everything which may bear relevantly and probatively both for and against the exercise of the discretion and to do so by reference to the statutory criteria. The Commissioner's stated reasons for refusing to apply s 85(2) do not reveal a consideration of whether the application of s 89C to the circumstances in question come within the policy the section was intended to cover. … [29] … It is a feature of modern taxing legislation that the basis of tax is at times expressed more broadly than the policy underlying the tax requires and that the language used to impose the tax is expressed less precisely than may be desirable in every case. The discretion in the Commissioner to relieve a taxpayer from the burden of tax is a means by which the legislature has entrusted to the Commissioner the duty to administer the tax legislation by reference to its terms to the extent that they are consistent with the policy they express. The exercise of the discretion is a matter for the Commissioner but a matter that may be relevant to its exercise is the extent to which the assessment brings to tax 'changes in beneficial ownership in land.' In that context it may also be relevant for the Commissioner to consider the policy and effect both of the corporate reconstruction relief provided for in Chapter 11 of the Duties Act 2000 (Vic) and the impact of such determinations as were made in this case under those provisions." Plaintiff's submission 1. Counsel for the plaintiff submitted that the purpose of Ch 4 of the Duties Act is to charge duty on the acquisition of beneficial or economic ownership of land through acquisitions of marketable securities at the general rate exigible on transfers of interest in land under Ch 2 rather than to charge a lesser amount of duty or no duty at all. It was submitted for the plaintiff that the dispensing power in s 163H should be exercised where there was no intent to avoid duty and where the relevant acquisition (of shares in Enterprises) would have no practical consequence to the way in which the land held by Rebenta on the trusts of the Landsell Trust would be appointed or enjoyed. Mrs Phillips controlled Rebenta. She controlled the Appointor of the Landsell Trust (Mamark) and the Guardian (Inhage). She could control the disposition of the trust assets. She did not need to control Enterprises in order to control the disposition of the trust assets and in any event she already had control of Enterprises. Counsel for the plaintiff submitted that s 159 that deems a discretionary object of a discretionary trust to own or otherwise be entitled to the property the subject of the trust was an anti-avoidance measure to deal with a situation whereby a person, without acquiring any interest in the land, might, by acquiring a "significant interest" in a discretionary object, achieve the economic benefits of ownership of land held by the trustee, as by an arrangement whereby the trustee would exercise the power to appoint income or capital to discretionary object. No such issue arises in the present case. 2. I agree with this submission. Mrs Phillips' control 1. At the time of the acquisition by Nominees of the shares held by Robert and Sharonne Phillips in Enterprises, Mrs Phillips controlled Enterprises through her control of Mamark. There were nine ordinary shares in Enterprises (four held by Robert and four held by Sharonne) and 200 A-class ordinary shares. The ordinary shares and A-class ordinary shares had voting rights. Mamark held 200 A-class ordinary shares. Mrs Phillips was the sole director of Mamark. She held one of the two ordinary shares in Mamark. The other was held by Inhage. Mrs Phillips was the sole director of Inhage. Mrs Phillips, Robert and Sharonne beneficially held one share each in Inhage. Enterprises held the remaining 97 shares. Mrs Phillips was the sole director of each of Enterprises, Mamark and Inhage. She controlled the voting rights at any general meeting of any of those companies. She was the sole director of Rebenta. Nominees held the shares in Rebenta. She was the sole director and shareholder of Nominees. 2. Prior to the acquisition of the shares held by Robert and Sharonne Phillips in Enterprises, together they would have been entitled to eight-ninths of the surplus assets of Enterprises on a winding-up. They were each paid $4 million for the transfer of their shares in Enterprises and Inhage. The reason for their acquisition was a falling-out between Mrs Phillips and her children. Mrs Phillips deposed that her relationship with each of Robert and Sharonne had comprehensively broken down and she no longer wanted either of them to hold an interest in any of her companies or to be in a position to interfere with the management of those companies or the assets they held. The Landsell Trust was not relevant to her decision to cause Nominees to acquire Robert and Sharonne's shares in Enterprises. 3. Until about 2003 Rebenta in its capacity as trustee of the Landsell Trust generally carried on its activities at a loss. Between 2003 and 2006 its profits were applied to reduce accumulated losses. Since 2006 Mrs Phillips has caused Rebenta to exercise its discretion as trustee of the Landsell Trust to make distributions either to Mrs Phillips or to Spotmake. Mrs Phillips is the sole director and shareholder of Spotmake. Had Nominees not acquired the shares held by Robert and Sharonne Phillips in Enterprises, there was nothing that Robert and Sharonne Phillips could have done to influence the distribution of income or capital of the Landsell Trust. Even if they could have obtained a winding-up of Enterprises (and there is no evidence that they could have done so), a liquidator of Enterprises could not have influenced the decisions of Rebenta in distributing the income or capital of the Landsell Trust. Although by s 159 of the Duties Act Enterprises was taken to own or be otherwise entitled to the property the subject of the Landsell Trust, that was only for the purposes of Ch 4 of the Duties Act. The actual position was that Enterprises had no entitlement to any assets the subject of the Landsell Trust unless Rebenta decided to make an appointment in its favour and there was no reason for Rebenta to have done so. Chief Commissioner's initial reasons for refusing exemption sought 1. On 21 February 2013 the Chief Commissioner refused Nominees' request for an exemption under s 163H in respect of the duty assessable on the value of the land and goods the subject of the Landsell Trust. There were essentially two reasons given for that decision. The first was that Nominees had acquired control of Inhage, the Guardian of the Landsell Trust, and had acquired equal control of Mamark which in turn had control of Enterprises which was the sole shareholder of the Trustee, and was the majority shareholder of the guardian of the Landsell Trust. The second reason was that: "When considering s 163H of the Duties Act it is necessary to compare the relevant acquisition to be assessed with a duty that would be payable on a direct transfer of land. A direct transfer of land would be liable to ad valorem duty." 1. The first reason for the decision failed to recognise Mrs Phillips' position as sole director and shareholder of Nominees. Mrs Phillips already controlled the Trustee, the Appointor and the Guardian of the Landsell Trust. Enterprises was not the sole shareholder of the Trustee. Nominees was already the sole shareholder of the Trustee. Nominees did not acquire control of Inhage. Ninety-seven per cent of the shares in Inhage were held by Enterprises and the voting control of Enterprises remained with Mamark. Nominees did not become an equal shareholder of Mamark. The two shares in Mamark continued to be held by Mrs Phillips and by Inhage. There was a circularity in the shareholding that ensured that Mrs Phillips continued to control all three companies, just as she had before the acquisition. 2. Notwithstanding this first ground of decision, in a letter dated 24 June 2013 the Chief Commissioner subsequently took the position that the fact that Mrs Phillips had been in control of the trust both before and after the acquisition and the fact that Nominees did not acquire control of the trust by the acquisition were not sufficient grounds to attract the exemption. In disallowing an objection to his decision the Chief Commissioner said that: "You note that both before and after the acquisition, Mrs Phillips has been in total control of the Trust and that all available cash profits have been distributed to her. I do not think that those facts are sufficient to warrant the grant of the exemption. There is nothing unreasonable for landholder duty to be charged in that situation. I note that if a person acquires land from a company in which the person holds all the shares and is entitled to all the dividends, the general rate of duty would apply and there would be no exemption." 1. This reason for disallowing the taxpayer's objection reflects the second reason for the initial decision, namely that in considering the application of s 163H it is necessary to compare the relevant acquisition to be assessed with the duty that would be payable on a direct transfer of the land. That would be a good reason for not granting the exemption if the relevant acquisition produced the same or similar economic benefits to the acquirer of the interest in the landholder as would be obtained by a transfer of the land. But that is not this case. No dispensation would ever be available under s 163H if one were to assume that duty on a relevant acquisition of an interest in a landholder should be payable as if the acquisition were a direct transfer of land. The question posed by s 163H is whether the application of Ch 4 to an acquisition in a particular case would not be just and reasonable. That question cannot be answered by postulating that the acquisition should be considered as a direct transfer of the land, unless the circumstances of the case make that a reasonable postulate. Chief Commissioner's submissions 1. Notwithstanding the ground on which the Chief Commissioner refused to grant an exemption under s 163H, counsel for the Chief Commissioner submitted that an inquiry into matters of "control" over the landholder or its subsidiaries was a distraction, as was an inquiry into "beneficial ownership" or "economic ownership" of the property of the landholder or its subsidiaries. 2. In Commissioner of State Revenue v STIC (Australia) Pty Ltd [2010] VSC 608; (2010) 81 ATR 682 at [25]-[26] Davies J said "the evident policy" of the "land rich" provisions of Chapter 3 of the Duties Act 2000 (Vic) was to bring to tax the acquisition by a person of shares or writs in a landholding entity where that transaction would have been chargeable with duty had there been a transfer of land instead. His Honour also said (at [26]) that: "The primary purpose of the Act is to tax transactions that result in a change of beneficial ownership of dutiable property … the fundamental basis for taxation under the Duties Act 2000 (Vic) is a change of beneficial ownership and the dispensing power is in aid of furthering that primary purpose." 1. Counsel for the Chief Commissioner emphasised that the landholder duty provisions in Ch 4 of the Duties Act that were introduced in 2009 resulted in a significant broadening of the revenue base. The provisions replaced the "land rich regime" that had been introduced into the Stamp Duties Act 1920 (NSW) by the Stamp Duties (Amendment) Act 1987 (NSW). The object of the "land rich" provisions was to require ad valorem duty at the rate applicable to a conveyance of land to be paid on transfers of certain interests in private companies and private unit trust schemes which would otherwise be liable to duty at a lower rate than conveyances. The "land rich" provisions were aptly characterised as an anti-avoidance measure, but, so the Chief Commissioner submitted, the landholder duty provisions in Ch 4 of the Duties Act were simply a broadening of the revenue base. Hence the reasoning of Davies J in Commissioner of State Revenue v STIC (Australia) Pty Ltd in relation to the purpose of the "land rich" provisions of the Duties Act 2000 (Vic) did not apply in the present case. 2. Counsel for the Chief Commissioner submitted that it would not be a sufficient basis for exercising the discretion in s 163H that there was no avoidance of duty that would be payable on a transfer of the land. Counsel submitted that the landholder duty provisions in Ch 4 did not operate only as support to the separate transfer duty provisions in Ch 2. Counsel submitted that Ch 4 operates as a separate taxing regime centred on the acquisition of an "interest" (as defined) in a landholder (ss 148, 149 and 150). In their written submissions counsel submitted: "56 Several observations can be made about the operation and effect of the concept of 'interest': (a) first, it is an independent concept that is not relevantly linked to the transfer duty provisions in Chapter 2, (b) secondly, the focus of the Landholder Duty provisions is on the acquisition of interests (and the nature of those interests) at the level of the landholder itself – and not on the nature of any interest that is indirectly acquired in any entity whose property the landholder is deemed to own (by virtue of the deeming provisions in s.158 and s.159 of the Act – and which may be referred to as 'subsidiaries' for ease of reference) – or in other words the enquiry is as to the nature of the interest acquired in the landholder itself; (c) thirdly, the scheme of the Landholder Duty provisions is not based on the acquisition of 'control' over a landholder or any entity whose property the landholder is taken to own (pursuant to s.158 or s.159) – as the central concept of an 'interest' does not refer in its terms to the acquisition of 'control' (meaning that an 'interest' can comprise non-voting shares for example) and, in any event, a liability can arise on the acquisition of a non-controlling interest of 50% (this is expanded upon at Issue 3 below); and (d) fourthly, the scheme of the Landholder Duty provisions is not at its centre based on the acquisition of 'beneficial ownership' or 'economic ownership' the property of the landholder or the property of any entity that the landholder is taken to own (pursuant to s.158 or s.159) – as the central concept of an 'interest' does not refer in its terms to the acquisition of 'beneficial ownership' or 'economic ownership' (this is expanded upon at Issue 4 below). 57 Accordingly, enquiries into matters of 'control' over the landholder or its subsidiaries, or the 'beneficial ownership' or 'economic ownership' of the property of the landholder or its subsidiaries are apt to distract, as (in simple terms) the relevant enquiry is whether, in the event of a distribution of all the property of the landholder, a person (the acquirer) would be entitled to any of the property distributed. Or, in other words, the scope and purpose of the provisions, as revealed by its central concept of 'interest', do not allow considerations of 'control', 'beneficial ownership' or 'economic ownership' to intrude in the manner contended for by the Plaintiff." 1. Counsel submitted that as landholder duty was based on the central concept of a relevant acquisition of an interest in a landholder, the focus was not on the nature of any interest that was indirectly acquired in any entity whose property the landholder was deemed to own by virtue of the deeming provisions in s 159. Moreover, as control was not a precondition to the imposition of duty, the absence of any change in control did not support the exercise of a discretion under s 163H. 2. The difficulty with these submissions is that they do not give weight to the power of the Chief Commissioner to exempt from duty a person who makes a relevant acquisition in a landholder. As the plaintiff submits, it is evident from the exemptions and concessions in Pt 4 of Ch 4 that it is not the object or purpose of the scheme to bring to duty all acquisitions of "interests" in landholders regardless of the circumstances. The fact that the criteria for liability are established by the acquisition of an interest in a landholder does not elucidate the grounds on which an exemption from that liability should be considered to be just and reasonable. 3. Counsel for the Chief Commissioner submitted that s 159 overrides and reverses the general law position that a discretionary object has no entitlement to specific assets the subject of the trust by deeming the object to own or otherwise be entitled to the property the subject of the trust. The Chief Commissioner submitted that in enacting s 159 the legislature must have intended that landholder duty be paid on the value of the land and other property the subject of a discretionary trust upon a relevant acquisition in a landholder that is a discretionary object despite the fact that an acquirer of such a landholder would never, in the normal course, acquire control of the discretionary trust by virtue of the acquisition alone. That assertion of legislative intention does not necessarily follow. Duty is imposed on a relevant acquisition of an interest in a landholder that is a discretionary object, but that is subject to the exempting power in s 163H. 4. Counsel for the Chief Commissioner pointed to the amendment made in 2003 to the former s 110 of the Duties Act. Prior to 14 November 2003 the "land rich" provisions of the Duties Act included s 110(2) that provided: "(2) A beneficiary of a discretionary trust is taken to own or to be otherwise entitled to the property the subject of the trust, unless the Chief Commissioner, being satisfied that the application of this subsection in the particular case would be inequitable, determines otherwise." (emphasis added) 1. The underlined words were removed on the repeal of Pt 2 of Ch 3 of the Duties Act and the substitution of new provisions by the Duties Amendment (Land Rich) Act 2003 (NSW). Counsel for the Chief Commissioner submitted that the effect of the amendment to the former s 110 of the Duties Act, removing the discretion allowing the Chief Commissioner to determine against the application of the provision that a beneficiary of a discretionary trust was to be taken to own or to be otherwise entitled to the property the subject of the trust, indicated that the discretion under s 163H could not be exercised to defeat the operation of s 159. I do not agree. From its commencement the Duties Act provided in s 119(3) that an acquisition by a person of an interest in a private corporation was an exempt acquisition if the Chief Commissioner was satisfied that the application of the then Pt 2 of Ch 3 (dealing with the acquisition of interests in land-rich private corporations) to the acquisition in the particular case would not be just and reasonable. If the application of s 110(2) was inequitable in a particular case, then it would not be just and reasonable for the acquisition to be taxed under the provision of the then Pt 2 Ch 3. I was not referred to any extrinsic material which explained the reason for the amendment to s 110(2) in 2003. I infer that the reason for the amendment was that a separate statement of the Chief Commissioner's discretion was unnecessary having regard to the separate discretion now found in s 163H. 2. Counsel for the Chief Commissioner submitted that the discretion in s 163H was provided to avoid the imposition of double or multiple duty that could arise under s 158. Section 158 provides: "158 Constructive ownership of land holdings and other property: linked entities (1) In addition to any interest in land or other property that it may hold in its own right, a unit trust scheme, private company or listed company is taken, for the purposes of this Chapter, to hold an interest in land or other property held by a linked entity of the unit trust scheme or company. (2) A linked entity of a private unit trust scheme or a private company (the principal entity) means a person: (a) who is part of a chain of persons: (i) which includes the principal entity, and (ii) which is comprised of one or more links, and (iii) in which a link exists if a person would be entitled to receive not less than 50% of the unencumbered value of the property of another person in the event of a distribution of all the property of the person, and (iv) which does not include, in any of the links between the person and the principal entity, a public unit trust scheme or a listed company, and (b) who is not a public unit trust scheme or a listed company. (3) A linked entity of a public unit trust scheme or listed company (the principal entity) means a person who is part of a chain of persons: (a) which includes the principal entity, and (b) which is comprised of one or more links, and (c) in which a link exists if a person would be entitled to receive not less than 50% of the unencumbered value of the property of another person in the event of a distribution of all the property of the person. (4) The value, for duty purposes, of the interest in land or other property that a unit trust scheme, private company or listed company (being a principal entity) is taken, by this section, to hold because of a holding by a linked entity is that portion of the interest's unencumbered value to which the unit trust scheme or company would be entitled (without regard to any liabilities of the linked entity or any other person in the ownership chain) in the event of a distribution of all the property of each entity in the chain of entities. (5) In this section, person includes a person who holds property as a trustee or custodian for a trustee of a trust or as a member of a partnership or other unincorporated body. (6) If a person holds property as a trustee or custodian in relation to 2 or more trusts the person is to be treated as a separate person in relation to each of those trusts and the property held under each trust is to be treated as a separate property holding." 1. As counsel for the Chief Commissioner submitted, the effect of s 158 when applied to discretionary objects under s 159 could well be that double or multiple duty would be imposed on an acquisition of shares in a discretionary object. For example, if A Pty Ltd and B Pty Ltd were both discretionary objects of a discretionary trust the trustee of which owned land and a person acquired the shares in both A Pty Ltd and B Pty Ltd the effect of s 159 would be that the person acquiring the shares in both companies would be treated as having made a relevant acquisition in two landholders, both of whom were taken to own or to be otherwise entitled to the land owned by the trustee. As another example, if B Pty Ltd was a subsidiary of A Pty Ltd and both were objects of a discretionary trust and a person acquired the shares in A Pty Ltd, then by reason of s 159, A Pty Ltd would be deemed to own the land held by the trustee and would also, by virtue of s 158, be deemed to hold the property that B Pty Ltd was deemed to own under s 159. These examples can be acknowledged. They demonstrate that s 163H can have work to do even if, as the Chief Commissioner submitted, it would not be consistent with the object and purpose of the Duties Act to use the discretion under s 163H to deprive s 159 of its taxing operation. But it does not follow that this is the only available application of s 163H. Conclusions 1. As submitted by counsel for the plaintiff, both s 158 and s 159 are anti-avoidance provisions within Ch 4. Section 159 has its origin in s 99A(6) of the Stamp Duties Act which provided that for the purposes of Div 30 of Pt 3 of the Stamp Duties Act (which imposed duty as on a conveyance of land on acquisitions of interests in a company or a unit trust that was land-rich) an object of a discretionary trust was deemed to own or to be otherwise entitled to the property the subject of the discretionary trust, unless the Chief Commissioner determined that the person should not be deemed to own or to be otherwise entitled to the property. In introducing the amendments to the Stamp Duties Act on 26 May 1987 the Minister for Finance said: "Further provisions ensure that tax cannot be avoided by placing the ownership of the land in a trust, company or unit trust once or several times removed. Further anti-avoidance provisions in the Bill ensure that the discretionary trust – the faithful friend of the tax avoider – cannot be used to frustrate the provisions dealing with the tracing of land ownership." (New South Wales Legislative Assembly, Parliamentary Debates (Hansard), 26 May 1987 at 12431.) 1. In my view, s 159 is an anti-avoidance measure. No doubt it is a measure that broadens the tax base, but the extent to which the tax base is intended to be broadened is itself subject to the discretion now found in s 163H. That discretion is not limited to avoiding the application of double or multiple impositions of duty by the same acquisition. So much was accepted by the Chief Commissioner when pressed with the example of discretionary trusts that include as discretionary objects any private company other than particular excluded persons (see for example Marshin Holdings Pty Ltd v Attorney-General of New South Wales & Ors [2013] NSWSC 326). 2. But that is not the limit of the power. The question is whether in the whole of the circumstances of this case it is not just and reasonable, having regard to the purposes of Ch 4 of the Duties Act, that ss 148 and 149 apply in this case. That question is not answered by observing that the provisions of Ch 4 are wide enough to treat Enterprises, as a discretionary object of the Landsell Trust, as a landholder. The question is whether it is not just and reasonable that Ch 4 apply to the acquisition by Nominees of the shares in Enterprises where Enterprises as a matter of fact does not own or control the land, or have any expectation of receiving the land or any proceeds of sale of any part of the land, or any income from it. The question is to be assessed against the background that Enterprises' position as a discretionary object of the Landsell Trust was irrelevant to Nominees' acquisition of the shares in Enterprises. In those circumstances I consider that it is not just and reasonable that Ch 4 apply to the acquisition. 3. For these reasons, pursuant to s 101 of the Taxation Administration Act the decision of the Chief Commissioner of 21 February 2013 not to grant an exemption under s 163H of the Duties Act in respect of the acquisition of shares in Enterprises by Nominees from Robert and Sharonne Phillips on 23 December 2010 and 8 March 2011 respectively should be revoked. In its place, a decision should be made granting a partial exemption under s 163H(2) of the Duties Act and reducing the duty chargeable in respect of that acquisition by Nominees by an amount corresponding to the duty chargeable in respect of the property the subject of the Landsell Trust which Enterprises is deemed to own or to be otherwise entitled to pursuant to Ch 4 of the Duties Act. Accordingly, the excess duty paid by Nominees in respect of that acquisition should be refunded with interest pursuant to Div 3 of Pt 10 of the Taxation Administration Act. Prima facie the Chief Commissioner should pay the plaintiffs' costs. 4. I will stand the proceedings over to a convenient time to make orders in accordance with these reasons. I direct the plaintiff's counsel to bring in short minutes of order in accordance with these reasons. If there is any argument in relation to costs I will deal with that argument when making the appropriate orders. ********** Amendments 18 February 2015 - Solicitors dropped off in "Solicitors" field of coversheet in first publication. Re-published to include solicitors. 27 February 2015 - The words "Click here to enter text" removed from two fields on the coversheet. 02 March 2015 - Catchwords not visible in coversheet, amended to show catchwords. 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: 02 March 2015