Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Nifuno Pty Ltd atf Stephen Forbes Pension Fund v Chief Commissioner of State Revenue [2019] NSWCATOD 3 Hearing dates: 17 October 2018 Date of orders: 02 January 2019 Decision date: 02 January 2019 Jurisdiction: Occupational Division Before: R L Hamilton S.C. Decision: The assessment is set aside, and the matter remitted to the Chief Commissioner for assessment pursuant to s.61 of the Duties Act 1997. Catchwords: TAXES AND DUTIES- superannuation funds- transfer balance cap-transfer of dutiable property- concessional duty- interpretation- use of extrinsic materials- s. 61and 65(10) Duties Act 1997-s.34 Interpretation Act 1987 Legislation Cited: Duties Act 1997 Interpretation Act 1987 Stamp Duties Act 1920 Cases Cited: Harrison v Melham [2008] NSWCA 67 Texts Cited: Nil Category: Principal judgment Parties: Nifuno Pty Ltd (Applicant) Chief Commissioner of State revenue (Respondent) Representation: Counsel: Mr Forbes (Director) (Applicant) Mr Clark – (Respondent) Solicitors: Crown Solicitors Office (Respondent) File Number(s): 2018/00081290 Publication restriction: Nil Reasons for DECISION 1. The facts in this case are as follows: Mr Forbes is the sole member of a self-managed superannuation fund (SMSF) called the Skanda Constructions Pty Ltd Employee Superannuation Fund (Fund 1). It is a complying self-managed superannuation fund. The applicant, Nifuno Pty Ltd is the trustee. 2. Mr Forbes is also the sole member of the Stephen Forbes Pension Fund (Fund 2) a new SMSF which is treated as a complying fund and eligible to receive contributions and roll-overs. The trustee of Fund 2 also is the applicant Nifuno. Mr Forbes is the sole director of that company. 3. Nifuno is the registered proprietor of business real estate ("the property") in Leichhardt NSW. 4. Fund 1 has existed for more than 20 years. The property was one of its assets. In 2016 the Federal Government announced a number of taxation measures designed to improve the sustainability, flexibility and integrity of Australia's superannuation system. These measures included the introduction of what is called a transfer balance cap for superannuation accounts in pension or retirement phase which limit the amount which can be transferred to fund pensions if favourable tax treatment is to be enjoyed. The limit on the value of assets in a pension fund with a transfer balance cap was set at $1.6 million per pension member. 5. Mr Forbes previously had both a contribution account and a pension account in Fund 1. This meant that he could make contributions to the contribution account which would accumulate and accrue investment earnings (including rent from the property). Contributions up to a limit are tax deductible to the payer. Deductible contributions and earnings are taxed in the fund at concessional rates. When certain conditions of release are satisfied by a member, accumulated contributions and earnings can be transferred to the pension account where the earnings are tax free in the fund subject to the transfer balance cap rule. This may leave funds remaining in the contribution account, and further contributions can be made until a person reaches a certain age. A pension member must draw a minimum annual pension from the pension account, which is tax free in the member's hands. Mr Forbes was drawing a pension from Fund 1. He also had funds in the contribution account. 6. Mr Forbes took advice about the operation of the new rules regarding the transfer balance cap and acting on that advice the pension fund assets and pension benefits were split from Fund 1 and transferred to the recently created Fund 2. The manner in which this occurred involved the transfer of the property by a Deed from Nifuno as trustee of Fund 1 to itself as trustee of Fund 2. This had the result that all Mr Forbes' pension benefits in Fund 1 were extinguished. 7. Section 61 of the Duties Act 1997 (DA) relevantly provides as follows: "This section applies to a relevant transfer that occurs in connection with a person: (a) ceasing to be a member of, or otherwise ceasing to be entitled to benefits in respect of, a superannuation fund that is a complying superannuation fund or was a complying superannuation fund within the period of 12 months before the transfer was made, and (b) becoming a member of, or otherwise becoming entitled to benefits in respect of, another superannuation fund that is also a complying superannuation fund or will, in the opinion of the trustees of both funds concerned, be a complying superannuation fund within 12 months after the transfer is made. 1(A) for the purposes of this section each of the following is a relevant transfer: (a) a transfer of or an agreement to transfer, dutiable property from a trustee of a superannuation fund, or a custodian of the trustee, to the trustee of another superannuation fund, or to a custodian of the trustee of another superannuation fund…. (2) the duty chargeable on a relevant transfer to which this section applies is ad valorem duty in accordance with this Chapter or $500.00, whichever is the lesser." (underlining added) 1. Mr Forbes who appeared for the trustee placed principal reliance on the operation of s61 DA. 2. In the alternative Mr Forbes sought to rely on the operation of s65(10) DA which I have found to be inapplicable and is discussed later. 3. The Chief Commissioner's argument is that s61 (1) DA cannot apply because Mr Forbes remained a member entitled to benefits from the Fund 1 on the basis that the words in the subsection "ceasing to be a member of, or otherwise ceasing to be entitled to benefits in respect of a superannuation fund" requires to be read as a composite expression so that the relevant member cease to be entitled to, in effect, all benefits in respect of the superannuation fund. 4. Mr Forbes argues that the words should be interpreted to cover his situation where he ceased to be entitled to pension benefits in respect of the Fund 1 and that it was not necessary that he lose entitlement to all benefits in Fund 1 for s.61 DA to apply. He also argues that the word "or" in the relevant clause is disjunctive, indicating that 'or otherwise ceasing to be entitled to benefits' refers to a different circumstance, which is not necessarily the same as, or closely analogous to, cessation of membership. 5. Both parties referred to the words used in the Second Reading Speech of the Minister when the forerunner to s 61 DA was introduced in 1991 as s.82 of the Stamp Duties Act 1920 by the Stamp Duties (Amendment Bill) where Mr Souris said "Occasions arise when there is a merging or splitting of superannuation funds or approved deposit funds which includes a transfer of members, resulting in a transfer of assets between funds that incurs a liability to ad valorem stamp duty. A submission has been made by the Law Society of NSW and the Association of Superannuation Funds of Australia requesting relief from ad valorem duty on the transfer of assets between funds which comply with the Federal Income Tax Assessment Act in these circumstances. The lack of a concession for transactions of this type is inequitable when it is contrasted with the income tax concessions available on such transfers, and the stamp duty concessions available for the establishment or amendment of complying funds. The bill provides for the introduction of a concessional maximum rate of duty of $200.00 for transactions of this nature, where the Chief Commissioner is satisfied that the asset transfer is linked to the transfer of membership". 6. Since then the provision has been amended and brought into the Duties Act 1996 as s.61. It is no longer necessary for the Chief Commissioner to be satisfied about the linkage between the asset transfer and the transfer of membership, plus the amount of the concessional rate of duty has increased to $500.00. 7. Looking first at the words used in the subsection, the Chief Commissioner's argument has some attractions, but also some difficulties. In a number of cases when an individual ceases to be a member of a superannuation fund they cease to be entitled to benefits from that fund. But this is not necessarily a universal result. For example a husband and wife may both be members of the same fund, and be entitled to reversionary benefits on the death of the spouse. If one spouse ceased to be a member of the fund they would not cease to be entitled to all benefits in the fund. Here Mr Forbes did not cease to be a member of Fund 1, but ceased to be entitled to pension benefits from it. It is arguable whether by analogy the words 'or otherwise ceasing to be entitled to benefits' requires a result equivalent to a cessation of membership. There is no explicit requirement that the continuing member cease to be entitled to all benefits in the fund. It may be enough if a relevant transfer occurs in connection with a cessation of entitlement to part of the benefits from a fund. Thus in my view there is no clear meaning to the words in the text. I do not consider that I can simply read the word "all" into the text of the provision before "benefits". Accordingly the Tribunal may then look to the context. One element of the context is to ask what is the problem (or mischief) the statutory provision seeks to address? What was the purpose of the section? 8. It is acceptable in certain circumstances to have regard to extrinsic materials (including a Second Reading Speech) when the meaning of a provision of a statute is ambiguous or obscure (see s34 Interpretation Act 1987 (IA)). Although the Court of Appeal has discouraged reliance on s.34 IA to ascertain the meaning of a provision (Harrison v Melham [2008] NSWCA 67), the Courts recognise some utility in referring to extrinsic materials to identify the mischief to be remedied. 9. Referring back to the Second Reading Speech the provision is aimed at relieving liability for ad valorem duty on the transfer of assets between complying superannuation funds by providing for a fixed rate when superannuation funds are split or merged, including where a member transfers from one to another. There appears to be a purpose of harmonising with income tax concessions and other stamp duty concessions for superannuation funds, as there was said to be an inequity otherwise. This inequity is the 'mischief' which was to be remedied. There is also an indication that a broad view was taken of the transactions covered, as the Minister referred to "transactions of this nature". The Minister also referred to circumstances which included a transfer of members, further indicating an expansive approach. It may also be thought that by restricting the concession to relevant transfers between complying superannuation funds that opportunities for 'gaming' the system were limited. 10. Although it not permissible to adopt specifically a beneficial interpretation of tax concessions, neither is it necessary to adopt a narrow, pedantic approach. Provisions containing tax concessions are subject to the normal canons of construction. It is relevant to note that Mr Forbes is the sole member of both superannuation funds, both are complying funds, and he is now receiving pre-existing pension benefits from the new fund rather than the old, funded by the transfer of the property. It appears inequitable that this benign transaction to adapt to the Federal Government's new policy should not be eligible for the concessional rate of duty. 11. I would therefore set aside the assessment and remit the matter to the Chief Commissioner for assessment pursuant to s.61 DA. As a side comment only, I note that the deed of transfer states that completion of the transfer is conditional upon s. 61 DA being applicable. It is not appropriate to make further comment on what might flow from this. 12. Although this disposes of the matter I should refer briefly to the taxpayer's alternative argument that s.65(10) DA exempts the transfer from duty entirely. Subsection 65(10) cross-refers to instruments referred to s.60(1)(a)-(c) DA executed after 1 July 2001. The instruments covered by s.60(1)(a)-(c) DA are those establishing or amending provisions governing a fund, or by which an employer agrees to participate or contribute to a fund, or setting out or varying custodial arrangements. The instrument here is none of these. The taxpayer did not press the argument with particular vigour, and I am of the view that s.65(10) DA is plainly inapplicable. Order 1. The assessment is set aside, and the matter remitted to the Chief Commissioner for assessment pursuant to s.61 of the Duties Act 1997. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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 January 2019