Hixson Pty Ltd v Chief Commissioner of State Revenue [2025] NSWSC 192

Introduction

The plaintiff company, Hixson Pty Ltd, was assessed, as a ‘foreign person’, to surcharge land tax under s 5A of the Land Tax Act 1996 ('the Land Tax Act') for the 2019 to 2023 land tax years in respect of residential land which it owned at Catherine Field and Oran Park in New South Wales ('the land'). The plaintiff filed a summons in the Supreme Court of NSW seeking de novo review of the assessment.

The tax in issue amounted to $5.32 million and has ongoing tax implications for the taxpayer and concurrent litigation in the NSW Civil and Administrative Tribunal.

This case turned on whether Hixson Pty Ltd, which is wholly owned by Alsim Pty Ltd, which in turn is wholly owned by the Lady Mary Fairfax Trust, is entitled to an exemption from surcharge land tax afforded to an Australian testamentary trust by cl 66(4) of Sch 2 to the Land Tax Management Act 1956 ('LTMA').

On 12 March 2025, the Supreme Court of NSW dismissed the plaintiff’s summons with costs. Hmelnitsky J reached the conclusion that the plaintiff was a ‘foreign person’ within the meaning of s. 5A of the Land Tax Act, and as it was not a trustee of an Australian testamentary trust, was not entitled the exemption provided by cl 66(4) of Sch 2 to the LTMA. Consequently, the notices of assessments for the 2019 to 2023 years were affirmed.

Background

The facts, briefly stated, were as follows:

1. Section 5A of the Land Tax Act levies surcharge land tax in respect of residential land owned by a ‘foreign person’.
2. Section 5D(1) of the Land Tax Act provides that the trustee of a discretionary trust is taken to be a ‘foreign person’ in that capacity for the purposes of section 5A if the trust does not prevent a foreign person from being a beneficiary of the trust.
3. Section 5D(3) of the Land Tax Act then deems a discretionary trust not to be a foreign person if it prevents a foreign person from being a beneficiary if (and only if) two requirements are satisfied, namely where (a) no potential beneficiary is a foreign person and (b) the trust is incapable of being amened in a manner that would result in a foreign person being a potential beneficiary.
4. However, cl 66(4) to Sch 2 of the LTMA relevantly provides:
   4. Despite section 5D of the Land Tax Act 1956, the trustee of an Australian testamentary trust is not in that capacity a foreign person for the purposes of the application of section 5A of that Act to residential land owned by a foreign person if –
      2. any of the following apply (even if the trust does not prevent a foreign person from being a beneficiary of the trust) –
         1. for a trust arising from a will or codicil – the will or codicil was executed on or before 31 December 2020.
5. Lady Fairfax left her entire residuary estate upon the terms of a testamentary trust in her Will dated 16 July 1999, a codicil dated 25 October 1999 and a second codicil dated 14 April 2003. Lady Fairfax died on 17 September 2017. The terms of the testamentary trust are incapable of amendment.
6. Thus, the Lady Mary Fairfax Trust being a discretionary testamentary trust was exempt by cl 66(4) of Sch 2 to the LTMA from foreign surcharge land tax, despite having two foreign beneficiaries.
7. The Lady Mary Fairfax Trust owned all the shares in Alsim Pty Ltd, during the relevant tax years.
8. Alsim Pty Ltd owned all the shares in the plaintiff company, during the relevant tax years.
9. The plaintiff company owned all the land in question.
10. The plaintiff company was charged with foreign surcharge land tax as the tracing provisions of the Foreign Acquisition and Takeovers Act 1956 (Cth) ('the FATA') deemed it a foreign entity.
11. The FATA deems an entity a ‘foreign person’ when another person who is not ordinarily resident in Australia has a substantial interest in the entity. A potential beneficiary of a discretionary trust is treated as having a substantial in interest in the trust. The trustee of a discretionary trust and any entity owned by the trustee in that capacity will ordinarily be treated as a foreign person under FATA where there is a potential beneficiary who is not an Australia resident.
12. Thus, the reason the plaintiff was considered a ‘foreign person’ was that it was ultimately owned by the trustees of the Lady Mary Fairfax Trust, which is a discretionary testamentary trust which had at least one non-resident general beneficiary at each taxing date.
13. The Land Tax Act adopts the ‘foreign person’ definition in the FATA as modified by s.104J of the Duties Act 1997.

Plaintiff's Arguments

The plaintiff argued that:

1. It should get the benefit of the surcharge duty exemption in cl 66(4) to Sch 2 to the LTMA as the second reference in the chapeau to 'a foreign person' applied to it. The effect of cl 66(4) to Sch 2 to the LTMA was to modify the operation of the deeming rules in the FATA with the result that it should not be taken to be a foreign person for the purposes of the Land Tax Act. The plaintiff submitted that the expression ‘foreign person’ does not have a uniform meaning in all circumstances because:
   1. The introductory language of cl 66(4) to Sch 2 to the LTMA makes two references to ‘a foreign person’. The first such reference must be to the trustee mentioned in that sentence. However, the second reference can be understood as a reference to either the trustee or another entity, such as the plaintiff, whose liability depends on whether the trustee is a foreign person.
   2. The statutory purpose of cl 66(4)  to Sch 2 to the LTMA was to recognise the particular difficulties associated with testamentary trusts (since they were usually impossible to change) and provide them the same relief as cll 66(2) and (3) to Sch 2 to the LTMA gave to discretionary trusts.
2. The results for which the defendant contended gave rise to some remarkable outcomes for testamentary trusts compared to discretionary trusts. E.g. where the terms of a discretionary trust were modified to exclude foreign beneficiaries, neither the trustee nor any subsidiary would be a foreign person for the purposes of s. 5A of the Land Tax Act. However, where a testamentary trust meets the description of cl 66(4) to Sch 2 to the LTMA, the subsidiaries will continue to be treated as foreign persons even though the trustees are not.
3. The plaintiff pointed to the harshness of the outcome as there was nothing that it could have done to avoid liability to surcharge land tax. Lady Fairfax died long before the 2020 amendments which brought in cl 66(4) to Sch 2 to the LTMA and her Will and codicils were executed many years before the introduction of surcharge land tax.

Decision

The Court held that both the language of cl 66(4) to Sch 2 to the LTMA and its immediate statutory context made it clear that it was intended to modify the way in which s 5D of the Land Tax Act operated in relation to the trustee of a testamentary trust.

It was not intended to and did not affect the question of whether a person other than a trustee of a testamentary trust was taken to be a foreign person. In the case of persons other than trustees, liability to surcharge land tax has nothing to do with s 5D and cl 66(4) to Sch 2 to the LTMA has nothing to say about them. The phrase ‘…for the purposes of the application of section 5A of that Act to residential land owned by a foreign person…’ was a reference to and a description of the application of s 5A in accordance with the very terms of that section. It was not a reference to any particular person, least of all to a person other than the trustee mentioned earlier in that section.

The Court rejected the plaintiff’s central contention, that cl 66(4) to Sch 2 to the LTMA altered the conclusion to which the Takeovers Act provisions lead as to whether a non-trustee person is a foreign person.

The Court accepted that cl 66 to Sch 2 to the LTMA as a whole and paragraph (4) in particular were beneficial provisions that were intended to provide a generous concession in the face of both the then-existing as well as the proposed operation of the Land Tax Act. However, the concession was directed to trustees.

The Court held it was difficult to accept the plaintiff’s proposition that there was unfairness to the plaintiff as it necessarily involved the idea that two of the late Lady Fairfax’s living relatives would have been excluded from the class of general beneficiaries of her testamentary trust, if only they could have been. The evidence did not allow the Court to form a view as to the likelihood of that ever occurring and the Court did not find it necessary to reach a conclusion about that matter.

The plaintiff’s summons was dismissed with costs.

On 7 April 2025, the plaintiff filed a notice of intention to appeal which requires the notice of appeal to be filed by 12 June 2025.

Read the full decision