|Date of judgement||19 September 2013|
|Proceeding number||126070, 126071, 126072|
|Judge(s)||Judicial Member J Block|
|Court or Tribunal||Administrative Decisions Tribunal|
"Presently entitled" and "entitled" in the context of the relevant legislation – interpretation – Special Trusts – fixed trust
CPT Custodians Pty Ltd v Commissioner of State Revenue for the State of Victoria (2005) 224 CLR 98; (and cases therein cited)
Sahab Holdings Pty Limited ATF Kanjian Family Trust v Commissioner of State Revenue for the State of Victoria (2005) 224 CLR 98
The Taxpayers in this matter were Trustees of 3 unit trusts which had been assessed for land tax as “special trusts” for various tax years between 2008 and 2010. Under the Land Tax Management Act, a trust is treated as a fixed trust and is entitled to the tax-free threshold if:
In any other case, a trust is a treated as a “special trust” and is not entitled to the threshold.
The taxpayers did not contend that the trusts satisfied the “relevant criteria” in s.3A(3(B), but argued that the beneficiaries were entitled to the rents and profits at some stage during a year, and were therefore “owners” under s 3(1).
The Tribunal decided that as a consequence of discretionary powers of the Trustees specified in each trust deed, none of the beneficiaries were “owners” under s.3(1), and therefore the trusts were correctly assessed by the Chief Commissioner as special trusts.
The terms of each of the three trust deeds included discretionary powers that were exercisable by the Trustees and were described in the deeds as “absolute and unfettered”. The Trustees’ powers included power to distribute capital to unit holders, to determine the amount of such distributions, and to make donations for “any charitable scientific religious or educational purpose”.
The Taxpayers contended that the three trusts were “fixed trusts” on the basis that the beneficiaries became entitled to the rents and profits at some stage, and were therefore “owners” under s 3(1) (definition of “owner”). The taxpayers argued that there was a difference between a “present entitlement” to income (as per s.3A of the Act) and an “entitlement” to receive rents and profits (as per the definition of Owner in s.3(1) of the Act). The Taxpayers contended that if the beneficiaries were entitled to the rents and profits at some time, not necessarily at the taxing point, then this would be sufficient for the beneficiaries to be “owners” under s.3(1) [Para 11]. The deeds of the 3 trusts did not include the “relevant criteria” specified in s.3A(3B), and the taxpayers did not contend that the trusts complied with the requirements of that provision.
The Chief Commissioner argued, amongst other things, that under the terms of the trust deeds, if a Trustee sold land for a profit, the Trustee could allocate the profit to the capital account and reinvest it [Para 17]. It must follow that the Taxpayer could not have an ‘entitlement’ to the whole of the rents and profits as per the definition of Owner in s.3(1) of the Act.
The Tribunal highlighted a number of clauses in the trust deeds which provide for the Trustee to have “absolute and unfettered” discretion in respect of certain matters. The Tribunal considered the joint decision of the High Court in CPT Custodians 1 was strongly persuasive if not binding [Para 29]. In that case, the High Court cited the following remarks of Nettle J:
“It may well be that the income of the fund as finally constituted and distributed will include all of the rents and profits generated by a particular parcel of land within the fund. But it is distinctly possible that it will not. Each of these deeds gives power to the trustee to provide out of receipts for future and contingent liabilities; … and the only right of the unit holder is to a proportionate share of the income of the fund for the year”2.
The Tribunal determined that 31 December prior to each tax year was “the point at which the question of whether each trust was a special trust or a fixed trust must be answered” [Para 4].
The Tribunal found that the term “entitled” in s.3(1)had to be construed as an entitlement to rents and profits which is “incapable of being defeated” [Para 32].
The Tribunal further noted that as a consequence of the discretionary provisions in each trust deed, none of the beneficiaries were entitled to a specified amount [Para 32 and 33]. The Tribunal concluded that at the taxing point (nor at any other point in time) were the beneficiaries “owners” under s.3(1).