Chief Commissioner of State Revenue v Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) [2012] NSWADTAP 14

Summary

The taxpayer held taxable land upon trust. The question before the Appeal Panel was whether the trust was a "fixed trust" within the meaning of the Land Tax Management Act 1956. If the trust was not a fixed trust it would be a "special trust" and the benefit of the tax-free threshold would not be claimable.

In order to be a "fixed trust" the trust had to satisfy the "relevant criteria" which were set forth in section 3A(3B) of the Act.

The taxpayer was successful at first instance before the Tribunal.

The Appeal Panel allowed the appeal of the Chief Commissioner and held that the relevant criteria were not satisfied.

Background

The applicant, Sayden Pty Ltd was the legal owner of land which would ordinarily attract land tax. This land was held as trustee for the Griffin Family Trust. On 23 November 2010 the applicant granted to itself a life estate in the land which was to be held as trustee for the Griffin Property Unit Trust. The life estate was to be measured by the lives of two individuals.

On 11 December 2010 the trust deed was amended by the inclusion of a new clause 2(c), which read as follows:

"2(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."

The question was whether the inclusion of this new clause had the effect of converting the trust from a special trust to a fixed trust, as those terms are comprehended by section 3A of the Land Tax Management Act 1956 ("the Act"). If it did have that effect, the trust would be entitled to the land tax threshold.

The “relevant criteria”

In order to be a fixed trust the trust must satisfy the relevant criteria, set out in section 3A as follows:

1. the trust deed specifically provides that the beneficiaries of the trust:
   1. 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
   2. 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,
2. 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.

The amendment to the trust deed reproduced to a significant degree the language of section 3A.

Original Tribunal Decision

In the Tribunal's view it was:

"correct in a matter such as this to apply the practical and purposive approach for which the Applicant contends and not the detached and literal approach favoured by the Respondent. ..

Quoting from Jacobs' Law of Trusts 7th ed. to support his view that the "practical and purposive approach" was the correct one to take, the Tribunal concluded:

"The (Chief Commissioner) contends ... 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 ... altered so as to allow the threshold…" (see Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288 at para 16).

Appeal Panel decision

The Appeal Panel determined that, 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. It observed, at [36]:

"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 interpret the words, ordinarily to be measured by reference to the specific provisions and machinery of the trust deed."

In other words, the trust deed on its terms had to satisfy the relevant criteria. Merely asserting, in the body of the deed, that it did so, would not be sufficient.

The Appeal Panel at [29] agreed with the Chief Commissioner that the following clauses in the deed were 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 any other provision of this deed' can be said, in effect, to repeal these clauses:

1. clause 4 which 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.
2. clause 9 which deals with redemption of units, and provides that the beneficiaries do not have an absolute right of redemption because clause 9(b) allows the trustee to refuse a request for redemption.
3. clause 3(iii) which 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', but does not provide a facility for the beneficiaries to demand the transfer to them of an asset;
4. clause 6, 'Special Units', which provides that the Trustee is entitled to issue units and classes of units at the Trustee's discretion (called 'Special Units'), which would allow for potential dilution of the present entitlements of the beneficiaries, and is difficult to reconcile with the criterion that the beneficiaries have a present entitlement to the capital and income of the trust.
5. Clause 5(b) which provides that units 'shall not confer any interest in any particular part of the Fund or of any investment'.”

In relation to the meaning of the words “notwithstanding any other provision”, the Appeal Panel stated at [32]:

“…in our view neither those directly affected by the instrument's terms nor decision makers such as the (Chief Commissioner) 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.”

Link to decisions

Original

Sayden Pty Limited v Chief Commissioner of State Revenue [2011] NSWADT 288

Appeal

Chief Commissioner of State Revenue v Sayden Pty Ltd ATF Griffin Property Unit Trust (RD) NSWADTAP 14